Renting out a room or running a business from home earns income from the place you live. For capital gains tax, the part that earned income may not be covered by the main residence exemption. This page explains when a value at the start of that use comes in, what we value, and what to send.
When does the home first used to produce income rule apply?
Section 118-190 of the Income Tax Assessment Act 1997 gives only a partial exemption where part of a home was used to produce assessable income and you could have deducted some of the interest on a loan to buy it. The ATO says the part you used to earn income, as a rental or to run a business, is then subject to capital gains tax when you sell.
Section 118-192 then applies if all of these are true:
- It was your home. It would have been fully exempt if sold just before part of it first earned income.
- The income use started after 20 August 1996. The Act’s exact cut-off is 7.30 pm, by legal time in the ACT, on that day. That includes renting out part of it or using part of it for a business.
- A later sale would only be partly exempt because of that use. Your accountant works this out.
When the rule applies, you are generally treated as having bought the home on the day part of it was first used to produce income, at its market value then. The ATO’s steps for working out the taxable part start from that value, then apply the share of floor area used and the period.
Conditions and exceptions apply. For example, the ATO says a home study used for work you would usually do at your workplace does not give an interest deduction. See renting part of your home for the general rules.
What do we value?
Generally the whole home as it was on the day part of it was first used to produce income, because the ATO’s method starts from the home’s value then. Your accountant applies the share of floor area and the period. If your accountant asks for something different, tell us when you request.
The valuer works from sales of comparable homes from around that date, adjusted for their differences, without the benefit of hindsight. Changes made after the date, such as converting a garage into a studio or adding a granny flat, are left out of the value.
Can it be valued years later?
Yes. The ATO’s guidance is to get a market valuation of your home at the time, and it says you can arrange one later if necessary. A retrospective valuation values the home as it was on the day, using sales from around that date, whenever the report is prepared.
Sooner is still easier. Records are easier to find, and the comparable sales are fresher, when the date is recent.
Desktop or inspected?
The Desktop CGT Valuation, $149 including GST, suits most standard homes and works from sales evidence and your records without a visit. The Inspected CGT Valuation, $495, adds a visit and suits unusual, renovated or higher-value homes, a recent date, or an accountant who wants an inspection.
Your accountant has the final say, and we tell you if we think an inspection suits your home better. If tenants live there now, they are entitled to notice before an inspection: the inspected valuation page sets out the notice periods.
What to send us
- which part of the home was rented or used for business, with a floor plan or sketch and rough measurements if you have them
- the date that use started, with something that shows it, such as the first lease, a rental listing or business records
- photos of the home from around that date
- plans, building approvals and invoices for renovations or extensions, with dates, both before and after the date
- the contract of sale and settlement statement from when you bought
- for apartments and townhouses, strata records of any major works
If something cannot be found, the report states what the valuer has assumed. If your accountant asks for values at two dates, the second date goes in the same report for $149. Request your valuation in about two minutes: choose “My home became a rental” as the reason, and say in the notes which part of the home earned income and from when. All fees are on the pricing page.
Still own it on 30 June 2027?
That date may matter as well, under the new capital gains tax rules that start on 1 July 2027. A valuation at 30 June 2027 is prepared after the day. The law also allows for a government-set apportioning method as an alternative, but it has not been finalised yet. See 30 June 2027, where you can register your property free.
We value property. We do not give tax advice. Your accountant decides whether the home first used to produce income rule applies to you and which date to use.