[Question] Renting out section of house and equipment to the company that employs me.

[qorsmond]

Hi I am thinking of renting out a section of my house and supplying all the necessary equipment needed in order to run the business. This is for the company that employs me.

I was wondering what is the best way to structure such an endeavor, the extra income will send me into a new income tax bracket.

Will it be better to register a private company PTY LTD and work through that if that is even possible for a one man show. Or would it be better to leave it as a sole proprietorship and deal with the extra income through my own name?

Thank you for any advice!

[Dave A]

I was wondering what is the best way to structure such an endeavor, the extra income will send me into a new income tax bracket.

Just remember you're going to be able to claim a portion of related expenses against that income.

If you own the property, running the rent through a private company means that company is going to be renting from you and subletting to the company that employs you - you'll still have some income taxed in your hands regardless.

[qorsmond]

Thank you Dave! I did not think about that makes perfect sense.

[EAB]

Just keep in mind the CGT implications.

When you sell your primary residence you will get a primary residence exclusion from CGT. You are now earning income on a portion of the house and thus that portion does not fall under the primary residence exclusion.

So when you sell the property you will have to calculate what part of the property was used for generating income and what part was your primary residence portion. Your primary residence portion will qualify for the primary residence exclusion, but the business portion will not