Rental homes have hidden tax complications.
With cost-of-living pressures, more Aussies are looking at creative ways to make their finances work.
A trend that has gained traction in the past two years is turning the family home into a rental, either temporarily or long-term. Some homeowners are moving in with family or relocating regionally. Others are thinking about renting their home during periods of travel or while they complete renovations.
On the surface, it can look like a smart financial move, but many people underestimate how significant the tax impact can be. What seems like a simple decision often becomes complicated once capital gains tax, record-keeping, and deductibility rules enter the picture. If you’re considering this option, it’s important to understand how the choice affects the property’s long-term tax profile.
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Mark Chapman director of tax communications at H&R Block Australia.
Firstly, you need to consider you will lose the full main residence exemption (MRE).
Your home qualifies for a full CGT exemption. You can still treat the property as your main residence for up to six years while it is rented – meaning the period may remain CGT-free. However, this rule only applies if the property was your main residence before it was rented, and you don’t nominate any other property as your main residence during that time.
If you rent it for more than six years, any capital gain on sale must be apportioned, and only the first six years may be exempt.
Many people accidentally forfeit part of their exemption simply by buying a new home or moving in with a partner. Something else to bear in mind is that you must declare rental income. This includes Airbnb and short-stay rentals. The Australian Taxation Office has strong data-matching programs, so even casual hosting will be detected.
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Also, deductions come with strings attached. You can claim interest, repairs, depreciation and running costs – but only for the period the property is genuinely available for rent.
Private use reduces deductions dramatically.
When your home becomes an investment property, your tax world changes overnight.
> Income must be declared each year, even if you make a loss. Loan interest becomes deductible, but only while the property is rented or available for rent.
> Repairs v improvements matter – repairs are deductible immediately, improvements must be depreciated.
> Travel to inspect the rental property is no longer deductible, a rule many homeowners still don’t realise has changed. Landlord insurance is often needed and comes with its own costs.
> Consider too what the impact will be if you sell. The biggest mistake we see is that people forget the CGT impact when they sell.
For many households, particularly those feeling financial pressure, renting out the family home can be an effective way to access additional income without selling.
It can also make strategic sense if:
1) you want to hold the property long-term
2) you expect the market to rise, or
3) you need short-term flexibility.
But the decision should always be made with full awareness of the tax impacts.
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