If you decide to earn some extra cash during these difficult times by renting out part of your home this can impact your tax return in the year you earn the income as well as the tax treatment of your residence on sale of your property.
Income and expenses
The rental income you receive is generally regarded as assessable income. This means you:
must declare your rental income in your income tax return
can claim deductions for the associated expenses that you incur personally, such as interest on your home loan, rates and taxes, etc
Good and services tax (GST) doesn’t apply to residential rentals, as such you are not liable for GST on the rent you charge.
If you are only renting part of your home, for example a single room, you can only claim expenses related to renting out that part of the house.
As a general guide, you should apportion expenses on a floor-area basis based on the area solely occupied by the renter (user) and add that to a reasonable amount based on their access to common areas.
If you use the room in any capacity when it is not occupied, for example for storage or as an office, you can’t claim deductions for this unoccupied period.
If you rent out all or part of your home at normal commercial rates, the tax treatment of income and expenses is the same as for any residential rental property.
If you rent out all or part of your home at less than normal commercial rates this may limit the deductions you can claim. For example, if you rent to a friend at a reduced rate, the deductions you claim in relation to this income cannot be excessive.
Note that payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. As this income is not assessable, you cannot claim deductions for expenses in relation to the earning of this income (interest, rates and taxes, usage costs, etc).
Capital gains tax
Generally, under the main residence exemption you do not pay Capital Gains Tax (CGT) if you sell the home you live in. However, if you have used any part of your home to produce income, such as renting out a room you are generally not entitled to the full exemption.
To work out the capital gain that is not exempt, we need to take into account a number of factors, including:
the proportion of the floor area that is set aside to produce income
the period you use it for this purpose
whether you’re eligible for the ‘absence’ rule
whether it was first used to produce income after 20 August 1996
You should keep a record of the dates your property is earning assessable income and advise us upon sale of your property. We can use this to work out the proportion of your capital gain that is exempt from capital gains tax. You can also contact us at any point during your property ownership to provide you with an estimate of the non-exempt portion of any gain on the potential sale of your property so that you are not caught off guard by an unexpected capital gain.
In response to the current COVID-19 pandemic and its impact on the Australian economy, the Government reduced the deeming rates that are used by the Department of Social Services (via Centrelink) for income test calculation purposes. The reduction in the deeming rates means that more self-funded retirees are eligible for the Commonwealth Seniors Health Card (CSHC).
We have summarised the key points for the WA Seniors Card and the CSHC including eligibility and how to apply below but please contact our superannuation manager Helen Cooper if you need assistance.
WA Seniors Card – Department of Communities
WA Seniors Card Holders are entitled to a range of government concessions and discounts. The Seniors Card is combined with the Transperth SmartRider card. Benefits include:
Concession fares plus free off-peak travel through Transperth at certain times on weekdays and free travel on weekends and public holidays.
50% concession on regional transport through Transwa services
Rebate of up to 25% on Water & Local Government Rate charges capped at $100 each; if a property is owned with a non-concession cardholder, the amount of rebate is reduced accordingly. (Please see the additional benefits on the following page if you also hold a Commonwealth Seniors Health Card)
25% rebate for Emergency Services Levy included in Rates Notice
50% rebate on driver’s licence
Discounted entry to the Art Gallery, Museum, Perth Zoo, National Parks and Rottnest Island accommodation – refer to the Concessions WA website for further information
A Directory from over 600 businesses is posted to all Seniors Card holders every 2 years and can be sourced online.
To be eligible you need to be aged 63 years or above, please refer to the table below
Working less than 25 hours per week of paid employment (averaged over 12-month period)
Permanent Resident of Australia
The WA Seniors Card is a lifelong card that does not need to be renewed as long as the eligibility criteria are met.
Application Form is available on the Department of Communities WA Seniors Card Centre website www.seniorscard.wa.gov.au
Download the Application Form from the above website or pick up a copy at the WA Seniors Card
Centre or at your local Australia Post outlet
Telephone 6551 8800 or 1800 671 233 (country free call)
Commonwealth Seniors Health Card – Department of Human Services
The Commonwealth Seniors Health Care Card is available to self-funded retirees who have reached Age Pension age (currently 66 years or older for both men and women) and who are not eligible to receive the Government Age Pension. This health card is subject to an adjusted taxable income test plus any deemed amount from account-based pensions. There is no assets test applicable.
If you hold a Seniors Card AND a Seniors Health Card you are entitled to receive:
50% rebate on WA annual Water and Council Rate charges capped at $600 for Water Service Charges and $750 for Local government rates for the 2020 rating year (see Notes below)
50% rebate on Emergency Services Levy included in Council Rates (see Notes below)
100% rebate on Driver’s licence (see Notes below)
50% rebate on vehicle licence fee (see Notes below)
Discounts on Pharmaceutical Benefits Scheme (PBS) prescription medicines
Government provides financial incentives for GPs to bulk-bill concession card holders
Reduction in the cost of out of hospital medical expenses through Medicare Safety Net
Concessional travel on Great Southern Rail services (The Ghan, Indian Pacific and The Overland)
Notes: Both the Water & Local Council rebates are claimed online through the Water Corporation in the one form. If a property is owned with a non-concession cardholder, the amount of rebate is reduced accordingly.
The vehicle and driver’s licence concessions are claimed on the same Department of Transport
Application for Concession – C1 form which currently needs to be posted or presented by hand.
Reached Pension Age – currently 66 years or older
From 1 July 2021 the qualifying age for Age Pension will increase to 66 years and 6 months reaching 67 years from 1 July 2023
You do not qualify for the Age Pension or Veteran Affairs benefits
As at 20 September 2019, have an annual adjusted taxable income of less than:
$55,808 if you are single
$89,290 for couples
$111,616 couples separated due to ill health or respite care
Note – Adjusted Taxable income is the sum of:
Taxable income as per your personal Australian Taxation Office Notice of Assessment
Add total net investment loss – e.g. rental property and financial investment losses
Add any foreign income received that wasn’t taxable
Add the value of any employer provided benefits above $1,000 – e.g. Car, Health Insurance
Add reportable superannuation contributions and reportable fringe benefits
If you are granted a Commonwealth Seniors Health Card on or after 1 January 2015, deemed income from an Account Based Pension entitlement including income deemed from an Account Based Pension owned by a card holder’s partner who is aged 60 years or more.
The Deeming rates are generally updated annually in July however adjustments were made as part of the COVID-19 stimulus packages announced in March 2020 lowering the deeming rates.
Based on the above rates, if for example you have no other taxable income, you can qualify for the Commonwealth Seniors card if your Account Based Pension entitlement/s are below the following:
Single – Account Based Pension entitlement of $2,526,400 = deemed income of $55,808
Couples – Combined Account Based Pension entitlements of $4,045,066 = deemed income of $89,290
If your investment return is higher than the deemed income, the extra income does not count towards your assessable income. You may be able to get a deeming exemption in some cases.
There is no asset test applicable to the Commonwealth Seniors Card.
You can apply for a Commonwealth Seniors Health Card if you already have a Centrelink online account or through your myGov account linked to Centrelink. Otherwise print and complete the Claim for a Commonwealth Seniors Health Card form available on the Human Services website www.humanservices.gov.au/customer/forms/sa296.
You will need to provide supporting information including a DVA Schedule or complete an additional form ‘Details of Income Stream Product’ in relation to any Account Based Pensions held.
Alternatively, please contact our Helen Cooper at our office if you need assistance with completing an application or if you are unsure if you qualify.