Tax Tip 248: CGT when Renting out a Room in your Main Residence

1 yes
2 yes for building works
3 not really. If it relates to income it could be claimed

 

Where a main residence is shared there are limits to private expenses. Examples of this may include food etc as well as anything not used by the tenant. Bart buy a playstation4. He uses it to play games and occasionally Millhouse joins him. Otherwise Millhouse is allowed to connect his Xbox but isnt meant to use the PS4.

eg You allow your tenant to use your car to pickup a pizza or some furniture. Thats not deductible either.

The message for cases where you reside etc is not to push it. Renovations and improvements described as repairs may be a good example. eg Bart produces loads of Ikea receipts for furnishings. Mostly bedding. But Millhouse has his own bed.

 

That all makes sense to me. Thanks so much for your answers.
Can I ask, what if the tenant has the majority of space in the dwelling? Like if Bart owned a 2 bed, 1 bath, 1 car space unit and Milhouse had use of the car space and the slightly larger bedroom. Does the tax office (or the bank who has given you an owner occupied loan) get cranky now that you're writing off 65% of the interest payments and strata fees? Are there any other implications for going over that 50% tenant vs 50% owner ratio regarding deductions or CGT etc?

Thanks

 

apportion based on floor area.

 

That's what I meant by 65%. Milhouse, using the car space and the bigger bedroom, has 65% of the floorspace to Bart's 35%.

 

Hi just some more questions regarding this topic, if for example your apportioned expenses let us say 50% of the interest on loan, bills, strata fees, council fees, depreciation fee is higher than the rent you collect can you negative gear this like an IP?

The rent you collect is not discounted it's the market rent as per flatmates.com.au / gumtree around your area.

 

Yes. However... If the arrangement is not arms length the loss could be cancelled and deductions limited to the extent of income

 

You would be creating a loss.
This doesn't change CGT though

 

Depreciation would only include building allowances (Div 43), Plant items are "used" and ineligible

 

Hi Paul and Terry thanks for your replies, I read that if you pay your spouse or partner for cleaning your house it can be tax deductible too, does your spouse or partner needs to have an ABN before you can write this as an expenses?

 

Nope

How would this relate to the production of assessable income?

 

How could that be deductible ?
Even if the home was partly used to produce personal income then the PSI rules deny a deduction for a cost paid to a spouse unless it relates to their earning and production of some of that income. ABN or not.

Eg Dan works from home (converted garage) as a mortgage broker for a main stream lender under contract. He is a sole trader. He pays his wife Felicity to act as a secretary and clean. This is non-deductible
Tip : Paul would recommend Felicity obtain her credit license and assist Dan in principal work. Paul would also recommend a contract be issued to a new company and not as sole trader due to the CGT impacts on the home.

 

Hi Terry and Paul thanks for your answers,

Can you please assess this scenario.

Paul rent out 1 room on his apartment which is income producing, to keep the common areas of the unit clean. Paul wanted to hire a cleaner and instead of paying another person, he hired his wife and pays her 60/week for keeping the common area clean, at the end of financial year Paul's wife declared the income of $60/week in her taxable income.

Paul apportioned that 50% of the property is income producing which covers the common area and the room.

Does this situation falls into cleaning and maintenance cost of an income producing event and can claim 50% of the cleaning fee paid to his wife?

 

no go

 

Paul owns the property. Paul can deduct the cost of cleaning materials only. This would need to be apportioned for the portion that is private and the actual cleaning of the rented areas. But typically the occupant cleans their own space. They cant claim a deduction so why should Paul ?

 

Thank you for all the answers, they are really helpful

 

Hi all,
A quick question. I couldn’t figure it out from this thread..

Does the 6 year rule apply if you rent out a room in your main residence then move out and rent the whole house out?

For example:
You buy a house. You live in it for 3 months as your PPOR. Then you rent one room out to someone for another 9 months. You then move out and rent the whole house out for 5 years. After those 5 years you sell. Would you pay CGT based on an apportioned amount of floor space and the 9 months, and then no CGT on the 5 years portion that you rented the whole thing out?

 

Its applies from when you move out. But if you had rented 50% prior to departure only a 50% absence exemption applies. The absence rule only applies to the part you had resided in as your main residence. It may be smarter to not let one room immediately prior to letting the whole dwelling. That way the absence can be 100%.

Note also s118-192 applies to reset the costbase at the time the room is first rented. Thereafter its all pro-rata based on days etc.