Renting out part or all of your home:
by DIY Realty

If you rent out part or all of your home, the rent money you receive is generally regarded as assessable income. This means:

·     You must declare your rental income in your income tax return, and you can claim deductions for the associated expenses, such as part or all of the interest on your home loan.

·     You may not be entitled to the full main residence exemption from capital gains tax (CGT), which means you'll have to pay CGT on part of any capital gain made when you sell your home.

·     Good and services tax (GST) doesn't apply to residential rents, so you're not liable for GST on the rent you charge, and can't claim GST credits for associated costs.


Income and expenses

If you rent out part or all of your home at normal commercial rates, the tax treatment of income and expenses is the same as for any residential rental property. This means you must include the rental income in your income tax return, and you can claim income tax deductions for associated expenses, such as the interest on your home loan.

If only part of your home is used to earn rent, you're only entitled to claim deductions for the part of your expenses that relate to the rental income. As a general guide, you should apportion expenses on a floor-area basis – that is, based on the area solely occupied by the tenant, together with a reasonable figure for their access to the general living areas.

If you rent out part or all of your home at less than normal commercial rates – for example, to a relative – this may limit the deductions you can claim.

Note that payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. In these situations, you also can't claim income tax deductions.

For information about situations involving non-commercial rental and renting to related parties, see Taxation Ruling IT 2167 - Income tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases

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Capital gains

Generally, you don't pay capital gains tax (CGT) if you sell the home you live in (under the main residence exemption).

However, if you've used any part of your home to produce income – for example, by renting out part or all of it – you're generally not entitled to the full exemption.

To work out the capital gain that is not exempt, you need to take into account a number of factors including:

·     proportion of the floor area that is set aside to produce income

·     period you use it for this purpose

·     whether you're eligible for the 'absence' rule (see Treating a dwelling as your main residence after you move out)

·     whether it was first used to produce income after 20 August 1996.

You can work out the proportion of your capital gain that is exempt from capital gains tax using the Property exemption tool. Source Australian taxation office


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