Renting out your main residence can be an attractive way to generate extra income, whether you’re heading overseas, relocating for work or simply exploring property investment. Before you list your home, it’s important to understand the tax rules in Australia. Getting your tax affairs right will help you avoid surprises, stay compliant with the ATO and make the most of your rental income.

Claiming Deductible Expenses

Once you start earning rent, you may be able to reduce your taxable income by claiming a range of expenses. Key items include:

  • Mortgage interest: You can claim the portion of interest charged on your home loan that applies to the period your property was rented or is genuinely available for rent.
  • Agent and management fees: Fees paid to real estate agents for finding tenants or managing your property are deductible.
  • Insurance premiums: Building, landlord and contents insurance (if provided for tenants) can all be claimed.
  • Repairs and upkeep: Costs to restore or maintain your property in a rentable condition qualify as deductions. Note that initial repairs for pre-purchase damage may instead fall under capital works and be deductible over several years.
  • Council rates and land tax: You can claim the share of local council rates and land tax that relates to the rental period.
  • Depreciation: Depreciation can be claimed for the building structure (capital works) and for depreciable assets such as appliances or furniture you supply. A professional depreciation schedule will ensure you maximise these benefits.
  • Advertising outgoings: Any costs for advertising your property to prospective tenants are deductible.
  • Cleaning and gardening: You can claim expenses to keep your home presentable, such as regular cleaning or garden maintenance.

Rental Income as Assessable Income

All rent received must be declared as assessable income in your tax return. This includes:

  • Rent payments from tenants
  • Any fees or bonds retained for breach of tenancy agreements (subject to ATO rules)

Accurate record keeping of all amounts received will ensure your tax return is correct and help if the ATO reviews your affairs.

Key Considerations and Potential Pitfalls

Apportioning Shared Use

If your home is rented only part of the year or only a section is leased (for example, a granny flat), you must apportion expenses. For instance, renting your entire house for six months generally allows you to claim 50 per cent of annual outgoings such as rates and insurance.

Capital Gains Tax Implications

Your principal place of residence is usually exempt from CGT. However, once you rent it out, that exemption can be affected:

  • Market value at first rental: For CGT purposes, the property is treated as if you acquired it at its market value on the date it first became an income-producing asset.
  • Six-year absence rule: You may retain the full main residence exemption for up to six years if you treat the property as your home while renting it out, subject to conditions.
  • Partial exemptions: If the property is rented for more than six years or if you return to live there, you may need to calculate a partial CGT exemption based on periods of private and rental use.

Engaging a registered valuer when you first lease the property will establish a clear cost base for future CGT calculations.

Record Keeping Essentials

Maintaining detailed records is critical. Keep copies of:

  • Tenancy agreements
  • All invoices and receipts for expenses
  • Bank statements showing rent deposits
  • Valuation reports for CGT, if applicable

These documents support your claims if the ATO requests substantiation.

Changing Use

Switching between owner-occupied and rental use can trigger CGT adjustments and affect the deductibility of certain expenses. For example, moving back into a previously rented home may require you to revise depreciation claims and confirm whether CGT applies on a later sale.

Short-Term Letting

If you rent through platforms such as Airbnb, different rules may apply:

  • Determining whether the property is ‘commercial residential premises’
  • Apportioning personal use days vs rental days
  • Understanding GST registration requirements, if your turnover exceeds the threshold

When to Seek Professional Advice

Taxation for rental properties can be complex and depends on your individual circumstances. Consulting with a qualified tax accountant will help you to:

  • Clarify your rental income tax obligations
  • Identify every eligible deduction
  • Navigate CGT issues and valuations
  • Set up robust record-keeping systems
  • Lodge your tax return accurately and on time

Renting out your home offers a valuable income stream, but without proper planning, it can also bring unintended tax consequences. At A Plus Accountant, our specialty in structure setup means we’re well-placed to guide you through the tax considerations of leasing your residence. Contact us today for expert advice so you can focus on enjoying the benefits of your property with confidence and peace of mind.