Many taxpayers who rent out a room in their home, whether it be via Airbnb or another avenue, are unaware that the practice can incur capital gains tax (CGT). Many assume CGT does not apply because profit made on the sale of the family home (or ‘primary residence’) is tax-free.
However, those who earn an income from a portion of the family home may inadvertently create a capital gains tax liability. Some people are aware that renting out a portion of their home may trigger a capital gain event, but errors when calculating the percentage of the property the calculated gain should be attributed to are still common.
Taxpayers that sell a property need to work out the portion of the property that was used for ‘investment’ or ‘income producing’ purposes based on the floor area rented out as a percentage of the total property. This needs to then be apportioned to the period that space was made available to rent for the duration of ownership.
Even though CGT is affected by events throughout the ownership period, it is often calculated many years down the track. Many owners do not remember or are unable to locate records for a relatively short time in which they were renting part of the house out. Taxpayers may have some CGT relief where they owned the property for more than a year, giving them a potential CGT discount of 50 per cent.
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