Boost Your Income and Borrowing Capacity by Renting Out a Room
Renting out a room in your principal place of residence (PPOR) is a savvy method to increase your cash flow and may even enhance your borrowing capacity. However, it comes with important tax, capital gains, and compliance considerations that you need to be aware of.
1. Declaring Rental Income & Tax Deductions
All rental income must be declared on your tax return. You also have the opportunity to claim deductions on expenses that relate to the rented portion of your home, including mortgage interest, utilities, rates, insurance, and maintenance costs.
Example: If you rent out one bedroom in an eight-room house, you can typically claim 12.5% of the shared expenses for the rental period.
2. Capital Gains Tax (CGT) Implications
When you decide to sell your home, the part that was rented out may be subject to Capital Gains Tax (CGT). The exemption for your principal home is adjusted based on both the percentage of floor area that was rented and the period it was let.
3. Using Rental Income to Finance Another Property
Banks usually consider only 70–80% of boarder income when calculating your borrowing capacity to mitigate the risks of vacancies and additional operating costs. Looking ahead to 2025, some lenders have updated their policies:
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- CBA: Now permits the inclusion of up to $150/week of boarder income for owner-occupied loans, subject to a statutory declaration.
- NAB: Has implemented a similar policy since 2021 for accepting boarder income.
This approach can increase your borrowing capacity by as much as $50,000, which is particularly beneficial for first-home buyers.
4. Legal & Compliance in Queensland
- Bonds collected must be lodged with the Residential Tenancies Authority (RTA) within 10 business days.
- It is advisable to have a written rental agreement in place and maintain clear records for all transactions.
Summary Table
| Aspect | Requirement/Impact |
|---|---|
| Rental Income | Must be declared as assessable income |
| Deductions | Proportional to the rented floor area and time period |
| CGT | Applies to the rented portion at the time of sale |
| Lender Assessment | Rental income is often discounted when assessed by lenders |
| Bond Handling | Must be lodged with the RTA when collected |
| Documentation | Maintain comprehensive rental agreements and records |
State-by-State Overview (QLD, NSW, VIC)
Across major states, boarder income is treated as assessable income and comes with partial CGT exemptions if part of the property is rented. Many regions also continue to offer first-home buyer grants and stamp duty concessions, assuming the owner occupies the home.
Final Thoughts
While renting a room can be an effective strategy to increase your income and boost your financing potential, it is important to manage the arrangement carefully to ensure full tax compliance and long-term benefits. Consulting with an accountant or mortgage broker can help structure your arrangement effectively.
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