Tax implications of renting a room

Margaret is keen to rent out a room in her house, both for company and a little extra income, but would like to know more about how this will affect her tax liability.

Q. Margaret

I have been wondering about renting a room or having a boarder. How does the tax work, for instance, if I had the house for 15 years and only had a boarder for two years? Or if a renter is only using 25 per cent of the house?

I’d like someone in the house for both security and company.

A. Whether you rent out all, or part of your home, for however long, you must declare all rental income, including bonds and any money paid towards damages, bills, etc., to the Australian Tax Office on your annual tax return. There are certain deductions that you can claim, such as the interest on a home loan, or reasonable costs in providing the ‘service’.

You will have to pay capital gains tax (CGT) should you come to sell the home and this is calculated in the same way as you would calculate a deduction for interest on a home loan. You can use the capital gains tax property exemption tool at to work out the percentage which will be assessable for CGT. 

It is also worth noting that any income received from rental of your property, either in part or whole, needs to be notified to Centrelink if you receive an income support payment. You can read more about how renting a room can affect your Age Pension by reading the article, Rent a room.

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