We’ve heard about renting to family and friends and renting out your home to the government but what about renting out a room in your home to a tenant? Keeping a housemate has many advantages, like sharing your bills and other expenses. Additionally, it is a great way to earn passive income from a spare room.
Most people imagine landlords and renters living apart, but what if you rent a space in your home? Do you need to live in your home for a year before renting it out? These are some of the questions we’ll answer.
When you rent out a room in your home, you automatically become a landlord without having a suitable investment property. Australian Taxation Office’s terms such rent as assessable income.
If you’re thinking of renting a room in your house, this article is a good read. We will discuss all the important things you need to know before renting out a room.
Finding a tenant
Since you are renting out a room in your house, search for a housemate who is a friend. It will be the safest option. You can advertise online if you do not have a friend or extended family member.
Also, a great way to find roommates will be advertising on socials such as Instagram or Facebook. Along with that, many websites connect renters to landlords. We will advise you to always look in a trusted network for renters.
Tax deductions
When you rent a room and still live in the house, you will not be entitled to the residence exemption from capital gains tax. So, you should consider whether the additional income will put you at a higher tax rate.
As a landlord, you can take the tax deductions as rental income. This condition is sustainable if you divide specific tax deductions between your home’s rented component and the part you reside in.
You can also deduct mortgage repayments, utilities, and home insurance cover. Along with that, home repairs and improvements can also get deducted from the rental income. Consult with a certified tax agent for tax advice.
Check your insurance policy again
Check your current policies for the coverage of tenants in your home. Give your insurance agent a call if there are any issues.
In general, ordinary home insurance does not cover the person renting your room or any other person who is not a household member.
You may be considered a landlord if you make taxable gains from renting out a portion of your home. Suppose you intend to establish or share an apartment on Airbnb, you may be required to purchase a property or contents policy for a short-term rental under specific conditions.
Rental agreements and house rules
We recommend that you have a written contract between renters and landlords outlining boundaries and expectations. You can add a strict rental schedule to the contract.
Also, the earlier you discuss responsibilities and boundaries, the better. The house rules can include visitors, pets policy, common areas, and parking. You may also claim for damage caused by renting, maintenance costs, and other issues you want your renters to understand. You may also discuss having a tenant sign an agreement. Additionally, make sure your tenant is comfortable asking for clarification before signing anything.
Some consider buying a duplex and renting half, that way, you can have a little more privacy from your roommates.
Legal responsibilities
One of the legal liabilities is having a residential tenancy authority bond. It ensures a proper lease agreement.
We don’t want you to be worried when you want to pay a tax bill during tax time because you failed to disclose the details of your rent income stream. There are numerous tax deductions to consider.
So before finalising the agreement, examine the Australian Tax Office recommendations. Also, we will recommend you consult your accountant or lawyer.
Keep detailed records of all transactions
Living in a shared property, it can be tough to keep track of late utility payments. Keeping a record is a good idea if there is a disagreement about who paid or received the money. Ensure you save a history of utility bills.
