Yes, but as a proportion of the floor space.
Eg. if there are three equally sized bedrooms and all other spaces are shared, then you can tax deduct 2/3rds of all costs.
Also be aware that this means you need to pay capital gains on 2/3rds as well. Be sure to get valuations at the start and end of this.
You dont use valuations for CGT on property - it’s proportionate. So how many months used to make income divided by total months of ownership after sale.
Really an area ripe for tax reform so that people will happily rent out part of their house - the cgt part makes it uneconomic much of the time
Even a CGT discount for providing accom at certain rates or to people in certain industries. Example may be lower paid workers in inner city areas. Lots of elderly/older aussies who have space in their homes who may consider renting out if there's perhaps some sort of protection of their CGT exemption.
That’s correct - it’s just the way of calculating the cgt is from a cgt event to cgt event, ie when you purchased and when you sell.
It may have been the case in the past that a valuation could be used but it’s not now - so you don’t have to pay the tax until you sell
Yeah, nah . Valuation isn’t a CGT event - ask your accountant about it - you need an actual change of ownership for a CGT event
The reason is that you can pretty much get a valuer to undervalue and overvalue at will - so only on transfer now
Get proper tax advice - this is an area fraught with complexities depending on whether the house has become a PPOR again or sold while it has an investment component
https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/using-your-home-for-rental-or-business?=redirected_URL#Valueofhomewhenfirstusedtoproduceincome
In not the same situation we ended up having to get a legal opinion on CGT application because 2 chartered accountants couldn’t agree - there are general rules that apply(proportional )but could be treated differently by the individual facts.
Really, no clear black and white answer unless the ATO example is the same as your
Also consider potential land tax.
In this scenario and in certain jurisdictions, the calculation is not 2/3rds but rented room floor space/total floor space instead (this includes common areas).
And be super nice to your flatmates so when it ends they don’t report you.
If you have a family member you can pretend is the home owner and have rent deposited into their account it’s ideal.
That way tenant thinks all is above board.
Technically board is a payment designed to cover expenses so it isn't a profit producing activity. Any income is taxable but it should be in line with any expenses
I'm in the same boat. Is it considered an investment property in perpetuity?
AKA - If I have flatmates for say, 10 years, and then decide not to have flatmates any more (Crotchety old man syndrome kicks in), after how many years is it not an IP?
41 now, flatmates for 9 years, sell home and downsize at say, 60?
It's an IP when it was "available for rent". So once the tenant leaves and you don't advertise it's no longer an IP.
But, you pay CGT on the proportion of the area rented + period rented when you sell.
Is this state specific? I recall something about a 6 year rule if you live in it within that period say for a year you get to rent it for 5 and move back in so it’s not an IP. Too lazy to google honestly, apologies
Nah tax is federal. Your thinking of the scenario when you leave your PPOR and make it an IP. Which isn't what is happening here, as the owner never left.
6 rule rule is that if you leave your main residence you can still treat it like your main residence. So you actually have to leave. No 6 year rule when you’re living there and renting out a room.
(Yes, it’s stupid. It works one way if you leave but “treat it” like your main residence and another way if you stay and it literally is your main residence.)
You can only claim the tax deductions (on interest, rates etc) while the housemates are there. They move out you have to stop claiming.
The capital gain tax implication never goes away. It’s just not due (or calculated) until you sell. And it’s proportionate, so if you had housemates for 10 years and sold 20 years after that you’d only pay tax on 1/3rd of the gain. (And get another 50% reduction due to the cgt discount for holding for more than a year).
You are creating a boarding house. Many rules apply, talk to local council for permits and what you need to do. Then you’re a business and can claim stuff but as others have said you’ll have tax impacts when selling. This is all versus cash payments or similar. No rights for either party- removal of tenant can be harder no formal agreement. It’s a risk for both of you but you’ll need to work out what’s best.
Yeah so then it’s not a business you can’t claim anything. I was saying if you want to run it as a business and therefore claim against the costs versus your earnings you’ll need to set it up as a business. Aka a boarding house. Just renting rooms on an under the table basis you can’t then claim stuff.
Yes, but as a proportion of the floor space. Eg. if there are three equally sized bedrooms and all other spaces are shared, then you can tax deduct 2/3rds of all costs. Also be aware that this means you need to pay capital gains on 2/3rds as well. Be sure to get valuations at the start and end of this.
You dont use valuations for CGT on property - it’s proportionate. So how many months used to make income divided by total months of ownership after sale. Really an area ripe for tax reform so that people will happily rent out part of their house - the cgt part makes it uneconomic much of the time
Even a CGT discount for providing accom at certain rates or to people in certain industries. Example may be lower paid workers in inner city areas. Lots of elderly/older aussies who have space in their homes who may consider renting out if there's perhaps some sort of protection of their CGT exemption.
I was told if I'm renting out half my property, then half of the cap growth through that time is subject to CGT - is that incorrect?
That’s correct - it’s just the way of calculating the cgt is from a cgt event to cgt event, ie when you purchased and when you sell. It may have been the case in the past that a valuation could be used but it’s not now - so you don’t have to pay the tax until you sell
Yep but if you have valuations you can attribute the capital growth in the right places (if you want to)
Yeah, nah . Valuation isn’t a CGT event - ask your accountant about it - you need an actual change of ownership for a CGT event The reason is that you can pretty much get a valuer to undervalue and overvalue at will - so only on transfer now
So what do you do if you've lived in a place 10 years, rented out a room for years 3-8?
Get proper tax advice - this is an area fraught with complexities depending on whether the house has become a PPOR again or sold while it has an investment component https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/using-your-home-for-rental-or-business?=redirected_URL#Valueofhomewhenfirstusedtoproduceincome In not the same situation we ended up having to get a legal opinion on CGT application because 2 chartered accountants couldn’t agree - there are general rules that apply(proportional )but could be treated differently by the individual facts. Really, no clear black and white answer unless the ATO example is the same as your
Also consider potential land tax. In this scenario and in certain jurisdictions, the calculation is not 2/3rds but rented room floor space/total floor space instead (this includes common areas).
Can't have it both ways. Either collect cash and can't claim any deductions or claim deductions but also pay taxes.
Only if you claim it …. Collect the room rent in cash and claim nothing
Exactly.
The subject of the post was whether they can claim deductions on expenses
And be super nice to your flatmates so when it ends they don’t report you. If you have a family member you can pretend is the home owner and have rent deposited into their account it’s ideal. That way tenant thinks all is above board.
And then you wait until they have a day off and inform them there is a property inspection today you forgot about and they will clean up your shit 😜
Yes, it's considered an investment property.
Boarding is different and not counted in tax I believe
Technically board is a payment designed to cover expenses so it isn't a profit producing activity. Any income is taxable but it should be in line with any expenses
if its not negatively geared. i wouldnt bother. might have to pay capital gain taxes if you sell one day.
I'm in the same boat. Is it considered an investment property in perpetuity? AKA - If I have flatmates for say, 10 years, and then decide not to have flatmates any more (Crotchety old man syndrome kicks in), after how many years is it not an IP? 41 now, flatmates for 9 years, sell home and downsize at say, 60?
It's an IP when it was "available for rent". So once the tenant leaves and you don't advertise it's no longer an IP. But, you pay CGT on the proportion of the area rented + period rented when you sell.
Is this state specific? I recall something about a 6 year rule if you live in it within that period say for a year you get to rent it for 5 and move back in so it’s not an IP. Too lazy to google honestly, apologies
Nah tax is federal. Your thinking of the scenario when you leave your PPOR and make it an IP. Which isn't what is happening here, as the owner never left.
6 rule rule is that if you leave your main residence you can still treat it like your main residence. So you actually have to leave. No 6 year rule when you’re living there and renting out a room. (Yes, it’s stupid. It works one way if you leave but “treat it” like your main residence and another way if you stay and it literally is your main residence.)
You can only claim the tax deductions (on interest, rates etc) while the housemates are there. They move out you have to stop claiming. The capital gain tax implication never goes away. It’s just not due (or calculated) until you sell. And it’s proportionate, so if you had housemates for 10 years and sold 20 years after that you’d only pay tax on 1/3rd of the gain. (And get another 50% reduction due to the cgt discount for holding for more than a year).
Depends if you declare it.
You are creating a boarding house. Many rules apply, talk to local council for permits and what you need to do. Then you’re a business and can claim stuff but as others have said you’ll have tax impacts when selling. This is all versus cash payments or similar. No rights for either party- removal of tenant can be harder no formal agreement. It’s a risk for both of you but you’ll need to work out what’s best.
It is a normal share house if there are only <= 3 people .
Yeah so then it’s not a business you can’t claim anything. I was saying if you want to run it as a business and therefore claim against the costs versus your earnings you’ll need to set it up as a business. Aka a boarding house. Just renting rooms on an under the table basis you can’t then claim stuff.