Have you ever thought about renting out your house as a short-term rental on a platform such as Airbnb or Stayz or through an agent?
Whether it’s a new job interstate or overseas, a long holiday, financial troubles or a family member in need of a carer, there are plenty of reasons why a homeowner might leave their home (known here as the ‘principal place of residence’ or PPR) to move elsewhere for a period of time.
Sounds simple right? But; you could end up being liable for more than you bargined for without the right planning.
There is never a one-size-fits-all answer to the queries that arise around property and much will depend on a person’s specific circumstances and tax position. However; we have put together a guide outlining some of the most common implications.
What is a Principle Place of Residence (PPR)?
Most of the rules which can affect the taxes you need to pay to the government are based on the concept of PPR. The Australian Taxation Office (income taxes) and the State Governments (land taxes) have their own definitions of PPR but generally a dwelling is considered to be your main residence if:
- you and your family live in it
- your personal belongings are in it
- it is the address your mail is delivered to
- it is your address on the electoral roll
- services such as gas and power are connected.
The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant.
To be your main residence, your property must have a dwelling on it and you must have lived in it. You are not entitled to the exemption for a vacant block.
Usually when you stop living in a property it is no longer considered your PPR. However, there is some instances where you can choose to continue to use a home as your PPR such as:
- for up to 6 years if you used it to produce income, such as rent (sometimes called the ‘6-year rule’)
- indefinitely if you didn’t use it to produce income
- Income Taxes
- Capital Gains Taxes
- Land Taxes
From an income tax perspective the following applies with the assumption that the property is considered your principal place of residence:
- rental income will be taxable income
- costs incurred in producing the assessable income usually can be deducted as if it was a general rental such as apporting interest expenese for the period of renting; property management fees, water, rates, land tax etc. All costs would only be able to be claimed for the period of time that it was rented and producing assessable income.
- cost of renting alternative accommodation is not tax deductible
- if relocating some else for work; an employer may provide a Living Away from Home Allowance (LAFHA)
- any large capital repairs would need to be depreciated – depreciation can only be claimed for the period that the property is being rented.
Capital Gains Tax
- There is a ‘6 year rule’ where you can vacate the PPR and provided there is not other PPR during that time under specific circumstances the gain made on selling the property (now or later) could be exempt. Prima face (without the existence of this 6 year rule) if you earn income from a main residence CGT will apply either on the full sale, partially or apportioned.
- The legislation for the 6 year rule is written having regard to the intention for vacating. The ATO would look at the reason for not living in the PPR during that time and using it for income producing purposes. Reasons that are valid to claim the exemption include relocating for work interstate or overseas or financial distress. Ie it can not be just for the purposes of finanical gain.
Goods and Services Tax (GST)
- have lived in the property for 6 months continuously prior to moving out
- not have another PPR
- only earn income to cover basic property expenses such as rates, water, and other amenties
- Not lease for more than 6 months in a calendar year. If you lease out your property for longer than six months, you must pay land tax in the following year, unless you move back into the home before 31 December.