Rental income and expenses now
Declare rent and other rental-related income. Eligible expenses may be deductible for periods when the property is rented or genuinely available for rent, subject to the usual rules and apportionment.
Watch — posting and rental property
Posted Elsewhere? Renting Out Your Home? Here’s What ADF Members Should Know
Turning your former home into a rental creates two separate tax questions: what to report each year and what may happen when you eventually sell.
What this video covers
- When rental income must be declared and which expenses may be deductible
- Why loan interest and mortgage principal are treated differently
- How the six-year absence rule can affect a former main residence
- Which dates, loan records, receipts and valuation evidence to keep
Two tax questions after you move out
Annual rental reporting and a future capital-gains calculation are related, but they are not the same test.
Capital gains tax when you sell
If the property was your main residence before you moved out, a main-residence choice may affect the CGT result. Renting it does not automatically remove the entire exemption.
Records and choices to check early
Keep the evidence from the date your use of the property changes rather than trying to reconstruct it years later.
Interest, not mortgage principal
The mortgage principal that repays the loan is not deductible. Interest may be deductible to the extent the borrowed funds were used to produce rental income.
Private redraws
Interest on money redrawn for a private car, holiday or another private purpose generally is not a rental deduction and may require ongoing apportionment.
Six-year absence rule
You may be able to choose to treat a former home as your main residence for up to six years while it produces income. This is a general CGT rule, not a special Defence concession.
Market valuation and key dates
Record when you moved out, when the home first became available for rent and when tenants moved in. A supportable market valuation at first income-producing use can be important later.
Common questions about renting out a former home
Do I have to declare rent received while I am posted elsewhere?
Yes. Rental income generally needs to be declared. Eligible expenses may be claimed only to the extent allowed for the period the property is rented or genuinely available for rent.
Can I deduct my whole mortgage repayment?
No. The principal component is not deductible. Interest may be deductible depending on how the borrowed money was used, and private redraws can require the interest to be apportioned.
Does renting my home automatically remove the main-residence CGT exemption?
No. If it was your main residence first, the six-year absence rule may let you continue treating it as your main residence for a qualifying period. Other property choices, foreign-resident rules and individual facts can change the outcome.
Video transcript
The supplied transcript has been lightly edited for punctuation, clarity, names and Australian spelling.
Received a new Defence posting and thinking about renting out your home? There are two tax questions to consider: how you report the rent now and what happens if you sell the property later. Renting out your home does not automatically mean you lose your entire capital gains tax exemption. Let’s walk through what to check.
Once you receive rental income, you need to declare it in your tax return. You may also claim eligible expenses for the period your property is rented or genuinely available for rent. These can include property-management fees, landlord insurance, council rates and eligible loan interest. Keep your statements and receipts from the start.
Do not claim your entire mortgage repayment. The principal—the amount paying down your loan—is not deductible. Interest may be deductible depending on how the borrowed money was used. If you have redrawn funds for a private car or holiday, the interest on that portion generally is not a rental deduction.
What about capital gains tax when you sell? If the property was your main residence before you moved out, you may be able to choose to keep treating it as your main residence for up to six years while it produces rental income. This is often called the six-year absence rule. It is a general tax rule rather than a special Defence concession.
That rule concerns capital gains tax. Your rental income still needs to be declared each year. Generally, you cannot treat another property as your main residence for the same period, apart from limited exceptions. If you buy a new home at your next posting, check how your choice affects both properties.
If you are posted overseas, check your tax residency too. Foreign-resident rules can affect the main-residence exemption. Record when you moved out, when the property became available for rent and when tenants moved in. Also ask about a market valuation as at the date your home first became income producing. That value can be important if you later need to calculate a taxable capital gain.
Being posted elsewhere and turning your home into a rental? At DefenceTax, we help ADF members and their families understand rental deductions and capital gains tax. Book an appointment with Garry Angus before you make the move, visit defencetax.com.au or call 0418 327 096.
General information only. Tax treatment depends on the applicable law, relevant dates, supporting records and your individual circumstances.