What expenses can you claim when renting out a room?

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Mark has converted his rumpus room into a self-contained unit and wants to know what expenses he can use to offset against the income from leasing out the unit.


Q. Mark
I receive the full married rate of the Age Pension (one person eligible) as my wife has not reached retirement age yet. We own our own home and are thinking of turning a large rumpus room into a self-contained granny flat that we would rent out. I understand that there would be deductions to be offset against income (electricity, rates, insurance, etc) but because we don’t know what these costs would amount to, we were wondering how Centrelink works it out. This will be a first-time rental and our costs will not be known until the end of the financial year. I think the flat would have a rent return of about $300 per week and we would be paying all the outgoings.

A. Normally your tax return or Tax Notice of Assessment will provide evidence of the deductions claimed.

However, if a property has been newly rented, as in your situation, and a Tax Notice of Assessment is not available, deduction amounts will need to be estimated by Centrelink.

As soon as the next tax return is available, the estimate will be discontinued in favour of figures derived from your tax return.

To estimate the deductions, Centrelink will deduct one-third from the gross amount of rent received (this takes into account land tax, rates, insurance, repairs, etc) and then deduct any mortgage interest payments from this amount.

If you are able to provide evidence that expenses are more than one-third of the gross amount of rent received, for example if extensive repairs were required, then Centrelink will deduct the actual amount spent instead of one-third of gross rent. However, structural alterations or improvements to the property are NOT allowed as a deduction.

Have you considered renovating your house to earn some extra income? How has the situation worked out, if this is something you have undertaken?

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Written by Ben


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