Will plan to rent out second bedroom create tax issues?

The implications for pensioner couple in renting out a spare bedroom.

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 newsletters@yourlifechoices.com.au and we’ll do our best to answer it for you.

Are you eligible for an Age Pension? Do you know your rights? The RetirePlanner™ tool has all the information you need.

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    Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

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    Bazbee
    10th Dec 2018
    10:48am
    My understanding is that a room can be rented by a foreign student under the Homestay scheme without the income from that being assessable by the ATO or Centrelink. If the number of student lodgers increases, the income from lodgers #2,#3 etc. becomes assessable.
    Cheezil61
    10th Dec 2018
    2:08pm
    If you are low income earner/pensioner don't even think about trying to get head above water or you'll be kicked straight back under! Only the wealthy are allowed to get wealthier in this country. Perhaps start a career in politics, plenty lurks & perks there!
    Rae
    10th Dec 2018
    4:04pm
    Cheezil that is not good advice. If they don't mind the hassle of the cleaning and record keeping etc and paperwork then you can make good money in B&Bs.

    We tried it to see and made $180 on average four nights a week during the trial. Stopped as it was a chore but we know we can always make some extra money doing it again if we must. Making $720 when the rent was $420 was outstanding but a lot of work.

    Good way to make sure a mortgage is paid out quickly and certain costs become deductible once you have an ABN.

    Plenty of lurks and perks in hospitality. Even tours of local highlights will make money but there are also insurances and paperwork to consider.

    Making money requires effort. Even polls who may not know much but still have a high stress long hours job with lots of hassles.

    Just thinking about it doesn't work either unfortunately. It's all work even sitting half the night watching charts and graphs is working. You could have been watching TV or sleeping.
    Chris B T
    10th Dec 2018
    2:31pm
    Don't forget Home & Content Insurance costs, discounts from Rates, Electricity.
    Read the fine print about discount entitlements.
    The Risks are all yours and AirBNB collect a premium of you.
    It is not worth it.
    Cowboy Jim
    11th Dec 2018
    8:08am
    Rent to joint out privately. Some people have friends overseas and they gladly pay for a few weeks accommodation, especially if you live in a coastal location. We do not need to make extra money but we do have neighbors who do exactly that. Guests pay cash, no records and no C/Link hassles. Euro can be changed at the local currency shops, if the amount is under $A500 at a time you do not need a driver's licence either.
    Mrw
    10th Dec 2018
    3:13pm
    If you owned your home before sept 1985, as I think you will have done, and have not changed the ownership structure since then, the house is CGT free (as it is prior to the Act) and so you can do what you like with it.. its only if ownership structure changes AFTER the advent of CGT that the advice above applied
    Eddy
    10th Dec 2018
    9:37pm
    i was about to comment same as Mrw, one good reason not to downsize if you have lived in your home since 1985. Advice I received was that when my estate is settled my kids will have the house CGT free and will only pay CGT from the date of probate of my will if they decide to keep it. If they sell it there will be no CGT. Hope I am right.
    GrayComputing
    10th Dec 2018
    10:41pm
    NO ASSET TEST FOR A PENSION EVER AGAIN!
    A pension is not welfare.

    Now is the season for discontent, so do something about it!
    It is time to kill off this insane hugely expensive pensioner whacking bureaucracy.

    It is time for all of us (yes that means you) to rant at our MPs and Senators daily to take action for human decency and a huge stress reduction for pensioners

    NO ASSET TEST FOR A PENSION EVER AGAIN!
    A pension is not welfare.

    Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules.

    Hiring more Centrelink staff will only increase taxpayer’s costs for processing the creeping insane red tape monster system politicians and well paid bureaucrats have created.

    Help scrap it now. Become a hero.

    Even poorer New Zealand has a NO ASSET pension so it is cheaper and user friendly.

    Why worry that few million$ earners get it too. That is peanuts to them, not enough for a good vintage champagne.

    Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be part of 3 million waiting queues and lost calls?

    We all (that means you) need to tell our MP and senators every day that these criminal asset tests for a pension must be dropped now.