Turn your main residence into an investment property

If you're considering upgrading your current home or downsizing, retaining your original property as an investment can be a strategic financial move. However, before you embark on this journey, it's crucial to understand the tax implications. 


Here’s a comprehensive guide to ensure you're well-prepared. 

 

Capital Gains Tax & main residence exemption. 


Typically, any profit or loss from selling your main residence is exempt from CGT. However, if you convert your property into a rental, the exemption rules change. Here's what you need to keep in mind: 


  • Initial investment property: If your property was first used as an investment and later became your main residence, you'll need to apportion any capital gains based on the time the property was used for each purpose. 
  • Main residence first: If you first lived in the property and then rented it out, the CGT calculation will involve determining the property's market value at the time you started renting it. You only pay CGT on the gains from that point onward. 
  • Non-residents: If you’re a non-resident when selling your property, you don't qualify for the main residence exemption. This is crucial for expatriates and those living abroad who maintain properties back home. 

 

Six-Year Rule 


Under the Six-Year Rule, you can treat your property as your main residence even after moving out. This allows you to keep the main residence exemption for up to six years if the property is rented. After six years, any gains during the rental period become fully taxable. However, you can only have one main residence at a time; if you buy another property to live in, you might lose your six-year exemption.

 

Here are two important considerations: 

  • If you purchase a new residence, you might forfeit the exemption for the old property if it's rented. 
  • If the property remains vacant (and you don’t own another residence), the exemption period is indefinite. However, recent changes in vacant land costs may make leaving the property empty a costly choice. 

 

Taxable income & deductions 


Rental income is fully taxable, but you can offset it with a variety of deductions. These include immediate deductions and spread deductions. 


  • Immediate deductions: Interest on property loans, advertising costs for tenants, repairs and maintenance (after the property is rented), rates and taxes, body corporate fees, managing agent fees, and insurance premiums. 
  • Spread deductions: Borrowing costs, depreciating assets, and capital works (building costs) are spread over time. 


Note that repairs and improvements made before renting the property are not immediately deductible. They might qualify as depreciation, or they could form part of the capital costs, reducing the overall taxable capital gains later on. 

 

Depreciation, capital works, and the 2017 depreciation deduction change. 


Depreciation and capital works deductions offer substantial benefits. A qualified quantity surveyor can prepare a detailed depreciation report to outline the deductions available. 


However, there have been changes in depreciation rules for previously used residential properties. As of July 1, 2017, Investors can no longer claim depreciation on second-hand assets (e.g., appliances or furniture) purchased with the property. Instead, these assets are factored into the overall capital gain or loss when selling the property. 

 

Important considerations before renting out your home 


Renting out your home involves a number of strategic, and even emotional, decisions. Here are a few key points to keep in mind. 


  1. Market timing: Consider whether it's the right time to rent out your property based on the rental market and property values. Talking with a trusted real estate agent (Ascent Property Co) can provide powerful insights and peace of mind here. 
  2. Property management: Decide if you'll manage the property yourself or hire a professional agent (Ascent Property Co). 
  3. Legal compliance: Understand your obligations as a landlord under local tenancy laws. If you choose to hire a professional property manager, they’ll assist here. 
  4. Insurance coverage: It vital to secure adequate insurance coverage that includes landlord-specific protections. 
  5. Tax planning: Every investment property is unique, and strategic tax planning will ensure you're maximising deductions and minimising future liabilities. The level of equity in your old house also needs to be reviewed to determine whether it’s more tax effective to rent out or sell. 

 

Ready to turn your home into a lucrative investment? 


Retaining your original property as a rental requires expert advice. Every property is unique, and tailored tax planning can ensure you're maximising your investment. Contact us to understand your potential financial gains and minimise any risks involved, and reach out to Ascent Property Co for tailored guidance and support on selling or leasing your property. 

Need help with your accounting?

Find Out What We Do

June 30 Checklist for Business Owners

June 12, 2025
June is zooming by! Here’s another handy checklist for business owners—let’s get you sorted for EOFY and tick off those to-dos.

Our EOFY Guide for Taxpayers.

June 12, 2025
EOFY is almost here. Are you ready? Now’s the time to get your finances in order and maximise your tax return. Our latest guide covers top tax deductions, super contributions & co-contributions, SMSF must-dos, PAYG instalment tips and a 30 June checklist.

Maximise Your Rental Property Tax Deductions this EOFY

June 12, 2025
Whether you're a first-time landlord or managing multiple properties, understanding what you can claim at tax time can make a big difference to your bottom line. In our latest blog, we break down the most common (and often overlooked) deductions.

What is a Bridging Loan? And When Would You Need One?

May 12, 2025
Buying and selling property rarely lines up perfectly. The logistics of it all can be incredibly stressful. If you’ve found the perfect next home but haven’t sold your current one yet, a bridging loan can make your move easier, without having to wait on your current property sale.  What is a bridging loan? A bridging loan is a short-term loan that gives you the funds to buy a new property before your current property has sold. It’s designed to bridge the gap between buying and selling. These loans are generally interest-only and are typically offered for up to 12 months, giving you time to sell and settle on your current home while already owning the next one. When would I need a bridging loan? You might consider bridging finance if: You’ve found your next home but haven’t yet sold your current one. You want to avoid renting or moving twice between sales. You want more time to prepare your home for market to get the best sale price. You're building a new home while still living in your existing one. How does it work? Peak Debt: The lender combines your current mortgage, the cost of the new property (including stamp duty and legal fees), and any interest (if it’s being capitalised). This total is known as your Peak Debt. Interest Only: During the bridging period, you’ll typically pay interest only — or the interest may be capitalised (meaning it’s added to your loan rather than paid upfront). Sell Your Property: Once you sell your existing home, the sale proceeds are used to reduce your Peak Debt. End Debt: The remaining balance becomes your End Debt, which then continues as a standard mortgage. An example of a bridging loan. Your current home loan = $200,000 New home = $800,000 Total bridging loan (Peak Debt) = $1,000,000 After selling your home for $600,000, that amount is used to pay down your loan Remaining loan (End Debt) = $400,000 Things to consider. Like any major financial decision, it’s important to understand all the moving parts before you commit. Time pressure: You typically have 6–12 months to sell. If you don’t sell in time, the lender may step in to sell the property and/or charge default interest. This is an extra interest rate that a lender charges when you fail to meet your loan obligations — in this case, not selling your property within the agreed timeframe. Interest costs: If interest is capitalised, it means you're not making repayments during the loan period, so the interest gets added to the loan balance instead of being paid separately. This means your loan grows each month. Making even small repayments can help keep this under control. Equity & serviceability: Lenders will assess how much equity you have and whether you can manage the loan during the bridging period. Loan-to-value ratio: If your End Debt ends up being more than 80% of the new property’s value, you may have to pay Lenders Mortgage Insurance (LMI). Existing loan setup: If your current lender doesn’t offer bridging loans, refinancing may be required — sometimes triggering break fees if your existing loan is fixed. This means you may have to pay a penalty if you end a fixed-rate home loan early (before the agreed term is up). Is a bridging loan right for you? That’s the big question. Bridging finance can offer flexibility and peace of mind, helping you move forward with confidence rather than being held back by uncertain sale timing. But it’s not without risk or cost — so it’s vital to understand the structure, timeframe, and repayment expectations. If you’re considering your next property move and want tailored advice on whether bridging finance suits your situation, talk to the team at Ascent Property Co. or Ascent Accountants. We can also put you in touch with finance brokers to discuss what is best for you.

The true cost of work perks.

May 12, 2025
That work perk might be costing you more than you think… Fringe Benefits Tax (FBT) is charged at a whopping 47% — the same as the top personal tax rate. That means lower salary or fewer benefits. So, while salary packaging can save tax, in many cases it ends up costing you more.

Act Fast to Reduce Your Tax Bill!

May 12, 2025
If you’re expecting a higher income this financial year, now is the time to act. We’ve put together 9 Smart Tax Planning Tips that could save you thousands — but they only work before 30 June.
More Posts