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What happens when you make your home a rental?

Posted on Tuesday, April 19 2011 at 10:00 AM

Turning your home into an income producing property creates a different scenario for the owner's tax situation.

More Australians are choosing to change their principal place of residence (PPOR) into an investment in many different circumstances, notes BMT Tax Depreciation director Brad Beer.

But there are a number of tax benefits and implications to be aware of in that situation, he says.

Beer points out that expenses in holding the property such as interest costs, rates and management fees will become tax deductible, making owning the property more affordable. The rent also becomes assessable income, he notes.

"Another tax deduction available for the owner while the property is income producing is depreciation on the fixtures and fittings and the capital allowance on the structure of the property - if it was built within qualifying dates," he says.

Beer also points out that while a PPOR will be exempt from capital gains tax (CGT), when a home is turned into an investment property some CGT may be triggered if the property is eventually sold.

There are a number of scenarios that will reduce or create a CGT exemption, he says, and each scenario is different depending on the property's first use, how long it was lived in, how long it is income producing and if the owner purchased another PPOR.