CGT Impacts of Renting Out a Room or Granny Flat
Renting out part of your home creates a partial CGT liability when you sell. Learn how it's calculated and strategies to minimize the impact.
How Renting Part of Your Home Affects CGT
When you rent out a room, granny flat, or any portion of your main residence, you create a partial CGT liability because:
- The rented area is used to produce income (not purely private use)
- You lose the full main residence exemption for the portion used for income
- CGT is calculated based on the proportion of property used for income
CGT Calculation for Granny Flats
CGT is apportioned based on:
- Area: The floor area of the granny flat as a percentage of total property floor area
- Time: The period the granny flat was rented as a percentage of total ownership
Formula
Taxable portion = (Granny flat area ÷ Total area) × (Rental period ÷ Total ownership period)
Total property: 300m² (main house: 240m², granny flat: 60m²)
Owned for 10 years, rented granny flat for 8 years
Purchase price: $600,000
Sale price: $900,000
Capital gain: $300,000
CGT calculation:
Area proportion: 60 ÷ 300 = 20%
Time proportion: 8 ÷ 10 = 80%
Taxable portion: 20% × 80% = 16%
Exempt: $300,000 × 84% = $252,000
Taxable: $300,000 × 16% = $48,000
After 50% discount: $24,000
CGT payable (at 37%): $8,880
CGT Calculation for Renting a Room
Renting out a single room in your house follows the same principle but with a smaller proportion:
Total house: 200m²
Rented room: 20m²
Owned for 10 years, rented the room for 5 years
Capital gain: $200,000
CGT calculation:
Area proportion: 20 ÷ 200 = 10%
Time proportion: 5 ÷ 10 = 50%
Taxable portion: 10% × 50% = 5%
Exempt: $200,000 × 95% = $190,000
Taxable: $200,000 × 5% = $10,000
After 50% discount: $5,000
CGT payable (at 37%): $1,850
Shared vs Exclusive Use
Exclusive Use (Granny Flat)
If the rented area is exclusively used by the tenant (e.g., granny flat with separate entrance):
- Calculate CGT based on floor area proportion
- No main residence exemption for that portion
Shared Use (Renting a Room)
If the tenant shares common areas (kitchen, bathroom, living room):
- Only the bedroom area is considered income-producing
- Shared areas remain part of your main residence exemption
- Results in a smaller CGT liability
Mint's Fresh Take
Renting a room with shared common areas results in lower CGT than renting a self-contained granny flat because only the bedroom portion is income-producing.
The 6-Year Rule vs Granny Flat Rentals
It's important to distinguish between:
- 6-year absence rule: Move out entirely and rent the whole property – full exemption for up to 6 years
- Partial rental (granny flat/room): Continue living in the main house while renting part – permanent partial CGT liability based on area and time
Airbnb and Short-Term Rentals of Granny Flats and Rooms
The CGT rules for Airbnb and short-term rentals (Stayz, Booking.com) differ slightly from long-term tenancies:
Days Available vs Days Actually Booked
The ATO applies the "available for rent" test, not just days actually occupied. For CGT and deduction purposes:
- Available for rent days count: If you list a room or granny flat on Airbnb and it's available for booking, those days count toward the rental apportionment, even if not every night books
- This is different from long-term rentals: For a long-term tenant, only days they actually occupy count. For Airbnb, you aportion based on availability in your listing settings
- Impact on CGT calculation: If your granny flat is available for 365 days per year (always listed on Airbnb), then for CGT purposes, that entire year may be treated as rental period, even if occupancy was only 60%
Granny flat available on Airbnb for 300 days per year (rest of year unavailable for personal use)
Granny flat area: 60m² of 300m² total property
Owned for 10 years, Airbnb-listed for 10 years
For CGT:
Taxable portion: (60 ÷ 300) × (300 rental days available ÷ 365 total days × 10 years) ÷ 10 years
= 20% area × 82.2% time available = 16.4% of capital gain taxable
This differs from actual occupancy calculation, which might have been only 50% occupancy rate.
Impact on Deductions
For deductions (not CGT), the ATO is more flexible about what counts as "rental":
- For Airbnb/short-term rental: You can claim deductions for days available to rent (even if not booked) if you actively market the property
- This is more generous than the main holiday home rules, where "available for rent" still requires active marketing and genuine intent to rent
- You cannot claim deductions for "blocked" dates when the room is not available (e.g., when you have family staying or your own use)
- For CGT apportionment: Use "available for rent" days as a percentage of the year
- For deduction purposes: Apportion based on actual rental/available days, not booked days
- Documentation: The ATO will want to see your Airbnb listing settings showing availability dates
Mint Tip
If you Airbnb a granny flat or room, be strategic about "blocking" unavailable dates. Fewer available dates = lower CGT liability when you sell, but also fewer deduction opportunities during ownership. Plan what makes sense tax-wise for your situation.
Strategies to Minimize CGT
1. Minimize the Rental Period
The shorter the rental period as a percentage of total ownership, the lower your CGT liability.
2. Rent a Room (Not a Granny Flat)
Renting a single room with shared common areas results in a smaller area proportion than a self-contained granny flat.
3. Hold for More Than 12 Months
Ensure you qualify for the 50% CGT discount on the taxable portion.
4. Maximize Your Cost Base
Track all capital improvements (including granny flat construction costs) to reduce your capital gain.
5. Stop Renting Before Selling
If you stop renting the granny flat or room several years before selling, the time proportion decreases, reducing CGT.
Owned for 10 years, rented granny flat for years 1-5, stopped renting years 6-10.
Time proportion: 5 ÷ 10 = 50% (instead of 100%)
This halves your CGT liability on the granny flat portion.
Tax Deductions While Renting
While renting out part of your home, you can claim deductions for:
- Repairs and maintenance (apportioned to rental area)
- Council rates and insurance (apportioned)
- Interest on loans (if borrowed to construct the granny flat)
- Depreciation on granny flat structure and assets
These deductions reduce your taxable income annually, partially offsetting the future CGT liability.
Mint's Fresh Take
While you pay some CGT when you sell, the annual tax deductions and rental income during ownership often outweigh the CGT cost – especially if you rent for a short period relative to total ownership.
Record Keeping Requirements
To accurately calculate CGT, keep:
- Floor plans showing total property area and granny flat/room area
- Records of when you started and stopped renting
- Rental income and expense records
- Construction invoices for granny flat (if applicable)
- Depreciation schedules
- Apportionment calculations for shared expenses
Common Mistakes to Avoid
- Not tracking rental period dates: Accurate start and end dates are essential for calculating the time proportion.
- Using incorrect floor area measurements: Obtain professional measurements or floor plans to substantiate your apportionment.
- Forgetting about shared areas: Only the exclusive-use area (bedroom) creates CGT liability; shared areas remain exempt.
- Not claiming construction costs: Granny flat construction costs are added to your cost base, reducing the capital gain.
- Assuming full exemption:< /strong> Even a small granny flat creates some CGT liability – plan for it when selling.
Mint's Takeaway
- Renting out a room or granny flat while living in your main residence creates a partial CGT liability when you sell.
- CGT is calculated based on the proportion of floor area and time the space was rented.
- Shared-use rooms have smaller CGT impact than self-contained granny flats.
- The 50% CGT discount applies to the taxable portion if held for >12 months.
- Stopping rental several years before selling reduces the time proportion and lowers CGT.
- Annual rental deductions and income often outweigh the eventual CGT cost.
- Keep detailed records of floor area, rental periods, and construction costs for accurate CGT calculation.
Mint automatically tracks rental periods, floor area apportionment, and calculates your CGT liability for mixed-use properties.