Will rent plan create tax issues?

Des and her husband are considering renting out their second bedroom on Airbnb to supplement their Age Pension and want to know the possible ramifications.

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Q. Des
My husband and I are on an almost full Age Pension. We recently decided to supplement this income by using our spare bedroom as an Airbnb rental. We have lived in our home for 38 years. Will we have to pay capital gains tax (CGT) when we eventually sell our home?

A. Generally, you don’t pay CGT if you sell the home you live in (as it’s under the main residence exemption).

However, if you have 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 CGT exemption.

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

  • the proportion of the floor area that is set aside to produce income
  • the period you use it for this purpose.

You can work out the proportion of your capital gain that is exempt from capital gains tax using the Australian Tax Office’s (ATO) property exemption tool.

The ATO advises that you can only claim expenses for when the room is rented. You cannot claim deductions for expenses when the room is not occupied.

It’s also worth noting that although it’s referred to as ‘capital gains’, it really just forms part of your income tax liability. Therefore, depending on your income tax liability in the year you sell your home, you may find that it has little effect on your overall tax liability.

Any extra income would need to be declared to Centrelink and may affect Age Pension rates.

If you have a Centrelink question, please send it to [email protected] and we’ll do our best to answer it for you.

Written by Janelle Ward

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