Tax implications of renting out by the room

Hi there.

I am based in Melbourne but will be working in a Regional city every second weekend which is about 90 minutes away.

I am thinking of buying a 2 or 3 bedroom property to live in while I am there but renting out one of the rooms to someone else.

Can anyone advise re:

1. What the tax/accounting implications of this may be?
2. How to go about finding a tenant?

Many thanks.

 

1 Property subject to CGT

 

Income is assessable
A share of the expenses may be proportionately deductible
CGT %
No land tax issues if you remain resident
A changed method for CGT calculation will be available - The non-deductible % of costs may reduce the overall CGT profit
Insurance ?

 

if in QLD you would be ineligible for a home concession on your transfer duty, assume similiar there.

 

Tinder?

 

Does this still apply if it is a "board" arrangement?

 

A 'board' arrangement would generally be a close family member paying a non commercial amount which is generally there to compensate for the costs associated with living there. Think 20 year old child paying 50-100 per week to cover parents buy food, electricity, water, doing washing etc. There are no tax implications regarding this arrangement.

The example provided by the OP suggests more third party tenant at a commercial rate.

 

no, but do you realise what 'board' means?

 

I'm assuming that arrangements with family members (eg adult children) are ok, not sure how far the definition can be stretched though...

 

Hi Rolf,

What is the difference between Board and Lease?

I am renting in Melbourne but would like to buy a PPOR there within the next 12-18 months.

Thanks,

 

Could be unrelated. Board is as BennEznElle mentioned - not paying any form of rent, but a nominal sum to cover electricity and gas - perhaps food.

 

The definition of board for tax purposes means the rent is token and includes food. Board typically applies short term to persons you know but thats not always the case. A boarder will not have a residential tenancy and right to remain resident but may have a month to month period of notice available.

If you rent rooms its rent not board. A house share is a great example

Boarding houses a whole different issue.

Board v's Rental tenancy comes with numerous state / Fair Trading etc rules. You cant operate a boarding house without it being registered to prevent illegal conditions and unfairly limiting occupants rights. Its very frowned upon and can lead to council prosecution.

 

Family members are usually love and affection and the sum is nominal to cover food, internet, washing etc.....Not assessable. No tax concerns.

 

Hi PC,

I am in a similar position to the original poster.

I purchased my PPOR (3×1) 1 year ago and would like to have someone move in to pay rent. I am the only one other person living there so this will be 50/50.

In regards to CGT, I have made sure not to rent it out in the first 12 months.

My question is if I move out in the future (say 6 months), can I apply the 6 year rule? Or does being a live in landlord disqualify me from the full exemption?

Thanks so much

 

Not necessarily.

There is no tax reason for this.

You could potentially apply it to part the property, but not whole if the whole thing wasn't your main residence.

 

Thanks for your reply Terry, much appreciated and makes sense.
I found the other threads discussing the 6 year tax rule and think i would be better off moving out and renting the whole property so I have a full absence (I have an IP I am considering moving into for repairs/maintenance).
Thanks again!

 

The absence rule doesnt apply to a case where you rent a room. And if you rented a room then permanently left it would only apply to the portion that was your home (ie not the rented bit) at the time too. CGT will apply proportionately to the home based on area in use and time (ie not the first 6 months). You should also FOREVER retain details of all ownership costs as they add to the costbase (which could reduce the gain that is subject to the taxable portion). Annually a % of ownership costs will be deductible v rent. And the balance is a "third element" CGT cost.

While you reside there the property is also exempt from land tax even if its partly rented. Check specific state rules eg NSW allows ONE other occupant.

Many people mistakenly fear % CGT when it can actually be a trivial matter due to third element costs and the % taxable.

 

Hi Paul, thanks for your input and clarifying the absence rule. I have just read a few of the previous forum discussions re costbase and third element costs. I was not fully aware of these so that is great to know! I found an old post of yours - many thanks for the spreadsheet you shared! Link below for others

Tax Tip 318: Can you Claim 3rd Element CGT Cost Base Expenses while living there?