For many Australians, the family home is their most valuable asset. But what happens when you decide to use your home — or part of it — to generate income? Whether you’re renting out a room, running a business from home, or leasing the entire property, there are important capital gains tax (CGT) implications to consider.
Here’s what you need to know before making any decisions.
Full home rental: The Absence Concession
If you move out of your home and rent it out, you may be eligible for the absence concession. This allows you to treat your former residence as your main residence for CGT purposes for up to six years — meaning you won’t lose your CGT exemption during that time.
Key considerations:
- You must not treat any other property as your main residence during the absence.
- The rules can be complex, especially if you move back in or rent it out again later.
Partial use of home: Room rentals or home based business
If you use only part of your home to produce income — for example:
- Renting out a room
- Running a business or professional practice
- Leasing a granny flat
…you generally won’t be eligible for the absence concession. This means you may incur partial CGT liability when you sell the property.
However, if you rent to a friend or relative at non-commercial rates, the ATO may not consider this assessable income, and your CGT exemption could remain intact.
CGT Small Business Concessions
If you run a business from home, you may be eligible for CGT small business concessions, which can reduce, eliminate, or defer capital gains. These concessions are powerful — but qualifying for them requires meeting strict criteria.
Tip: Always seek professional advice before relying on these concessions.
Market value reset
When your home is first used to produce assessable income, it is deemed to be reacquired at market value at that time. This reset can reduce the capital gain calculated when the property is eventually sold.
CGT discount still applies
If you’ve owned your home for at least 12 months, the 50% CGT discount applies to any assessable gain, even if part of the home was used to produce income.
Conclusion
Renting out your holiday home can be a great way to generate income, but it comes with important tax considerations — from apportioning expenses to understanding CGT implications. Ensuring your property is genuinely available for rent and keeping accurate records can make all the difference when it comes to claiming deductions.
If you’re unsure about how the rules apply to your situation, Regency Partners is here to help. Let’s talk through your plans and make sure your holiday home works for you — both financially and compliantly.
