We’re often asked about the tax implications of renting out a room in your home. With the 2032 Olympics on the horizon, many Brisbane residents may be considering this option.
Let’s look at a common scenario:
Don and Mel live in a spacious home that has always been their main residence. Now that their children have grown up and moved out, Don and Mel are empty nesters exploring a few ideas:
- Listing their downstairs granny flat on Airbnb for short-term rentals at market rates
- Renting a room to their cousin Jo at a reduced rate
- Hosting international students through a formal homestay arrangement with an accredited provider
Key Questions:
- Will they need to pay tax on the rent?
- What deductions can they claim?
- Will they lose part of their Capital Gains Tax (CGT) exemption when they sell?
1. Commercial Arrangements
Renting out part of your main residence at commercial rates typically results in:
- Taxable rental income
- Pro-rata deductions based on floor area for expenses such as council rates, electricity, and interest on loans used to purchase the property
- Partial loss of CGT exemption: Normally, the sale of your main residence is exempt from CGT. However, using part of it to generate assessable income means a portion of the exemption will be lost.
2. Renting to Family Members Below Market Rates
- Rental income is still taxable
- Limited deductions: Deductions are available on a pro-rata basis but are capped at the amount of rental income received. This means you cannot negatively gear the arrangement.
- Partial CGT exemption loss: As with commercial arrangements, part of your CGT exemption will be lost.
3. Domestic or Homestay Arrangements
- Non-taxable payments: Contributions toward household costs are not considered taxable income, as there is no profit-making intention.
- No deductions can be claimed
- No impact on CGT exemption: Your full main residence exemption remains intact.
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Ready to start talking about the possibilities and how it could affect you? Talk to an expert today.