Renting Out a Room? The Tax Consequences Many Homeowners Overlook

With the rising cost of living, more Australians are turning to Airbnb and similar platforms to earn extra income from a spare bedroom or granny flat.

While the additional income can help cover mortgage repayments and household expenses, many homeowners are surprised to learn that renting out part of their home can have tax consequences that extend well beyond declaring the rental income. In some cases, it can affect the capital gains tax (CGT) exemption when the property is eventually sold.

If you rent out a room in your home, you may be entitled to claim a portion of expenses relating to the rented area, including:

However, these expenses must be apportioned on a fair and reasonable basis, taking into account both the area rented and the period it was rented. You cannot simply claim all property expenses because one room has been rented.

Many homeowners assume their family home will always be exempt from capital gains tax.

Unfortunately, that’s not always the case.

If part of your home is used to produce income, the main residence exemption may be reduced when the property is eventually sold.

The taxable portion is generally based on:

This means that while claiming deductions today may provide a short-term tax benefit, it can create a CGT liability years later when the property is sold.

The growth of Airbnb and short-stay accommodation means many people now rent out a room occasionally without viewing themselves as landlords.

Many also assume that because the arrangement is informal or only generates a small amount of income, the ATO will never know about it. However, the ATO receives information from major short-stay accommodation platforms and uses data-matching programs to identify rental income that may not have been declared.

As a result, homeowners should ensure all rental income is declared and appropriate records are maintained.

If you rent out part of your home, it is important to keep records of:

These records can be critical if the property is sold in the future and a capital gain needs to be calculated.

Renting out a spare room can be a great way to generate extra income, but it’s important to understand the tax consequences before you list your property online.

The immediate tax deductions can be attractive, but the potential impact on your main residence CGT exemption is often overlooked. Understanding the trade-off upfront can help avoid an unwelcome tax surprise when it comes time to sell.

Important Information – General Advice Disclaimer:

The information provided in this communication is general in nature and does not take into account your personal objectives, financial situation, or needs. Before acting on any information, you should consider its appropriateness in relation to your own circumstances and seek independent financial advice where necessary. We recommend consulting a licensed financial adviser before making any investment or financial decisions. Past performance is not a reliable indicator of future performance.