WARNING: Land Tax On Your Family Home

Working from home isn’t new, but in recent years it’s become the norm for many Victorians. From accountants setting up in a spare room, to hairdressers running a salon out of the garage, or allied health professionals seeing clients from home — more and more people are blending business and home life. But this raises a tricky question. If part of your home is used for business, does that affect your land tax exemption on your principal place of residence (PPR)?

Let’s unpack what that means for you.

What’s the PPR Exemption?

In Victoria, your principal place of residence (the home you live in) is generally exempt from land tax. That’s a big saving, since land tax can run into thousands of dollars a year, especially on higher-value properties.

However, the exemption only applies to the extent that the property is used as your residence. If part of the property is used for other purposes — like a business — that portion may not qualify for the exemption.

The Key Principles

The State Revenue Office (SRO) issued Revenue Ruling LTA.001 (v2) to explain how it decides whether a property is still fully exempt, or whether part of it becomes taxable due to substantial business activity.

Here’s the gist:

• Incidental or minor business use (e.g., working from a laptop in the study) usually doesn’t affect the exemption.
• Substantial business use (e.g., running a salon or medical practice with client traffic) means the exemption only applies to the residential portion.

The ruling looks at the reality of how the property is used, not just what’s written down in business or tax records.

How the SRO Decides – Factors They Look At

The SRO considers a range of factors

1. Physical setup – Is a dedicated part of the home used for business?
2. Proportion of the property used – One room vs multiple areas.
3. Client/customer access – Do members of the public regularly attend?
4. Employees or contractors – Are non-family staff working on-site?
5. Scale and visibility – Signage, separate entrances, advertising, or modifications.

Examples...

• Home office – A solicitor works from a study at home, with no clients visiting. ✅ Full exemption.
• Hairdresser’s salon – Garage converted into a salon with client traffic and signage. ❌ Garage portion taxable.
• Doctor’s consulting rooms – Front rooms converted to a clinic, patients attend regularly. ❌ Portion of property taxable.
• Artist’s studio – Spare bedroom used for artwork, no client visits. ✅ Full exemption.

Case Study 1: Sarah’s $50,000 Online Business

Sarah runs a successful e-commerce business from her home. Her online store brings in around $50,000 a year.

• Works on a laptop at the kitchen table or study.
• No dedicated business space.
• No clients or staff visit the property.
• No modifications to the home.

Even though her business is highly profitable, the property remains fully residential.

Under Revenue Ruling LTA.001 (v2), Sarah’s PPR exemption applies in full. Land tax is about use of the land, not revenue.

Case Study 2: Tom’s Home-Based Hair Salon

Tom is a hairdresser who converted his garage into a salon.

• Dedicated salon space with chairs, mirrors, and basins.
• Signage advertising the salon.
• Clients visit regularly.
• Apprentice works on-site.

The SRO sees Tom’s property as part home, part business premises.

Tom still gets the exemption for his residential space, but the garage and client-access areas are taxable for land tax.

Comparing the Two Examples

Final Thoughts

If you run a business from home, ask yourself:

• Does my property still look and function like a private residence?
• Or have I effectively turned part of it into business premises?

The difference can mean thousands of dollars in land tax.

Tips to Keep Your Home Fully Exempt While Running a Business

If you’re running a business from home but want to maintain your full PPR exemption, these tips can help:

1. Avoid dedicating a whole room
2. No client traffic
3. No on site staff 
   
4. Minimise property modifications

Next step: If you’re unsure where your situation falls, review your setup and get advice. A quick check now can save you from a land tax surprise later.

Chris Tolevsky is a Specialist Medical Accountant with over 30 years’ experience in the medical and allied health fields.  He provides expert guidance on tax strategies, building and protecting wealth. If you’re interested in discussing how we can help you, please book a complimentary consultation. 

Disclaimer: This article contains general information only. It is not designed to be a substitute for professional advice and does not take into account your individual circumstances, so please check with us before implementing this strategy to make sure it is suitable