Capital Gains Tax Implications When Converting PPOR to STR

How CGT Applies to Short Term Rental Accommodation

When you start using your home as a short-term rental property, the Australian Taxation Office (ATO) may consider it an investment property for tax purposes. This can have a big impact on your CGT obligations when you eventually sell. The main residence exemption, which usually means you do not pay CGT on your home, may no longer apply if you use your property for short term rental accommodation.

If you rent out your entire dwelling or just part of your home—such as a granny flat—you need to keep good records of the income you earn and the expenses you incur. In certain circumstances, you may still be able to claim the main residence exemption for part of your property, but this depends on how much of your home you use for short term rental accommodation and for how long.

Planning and Regulatory Requirements

Before you start renting out your residential property as short term rental accommodation, check if you need to obtain development approval or register your property. Some local councils require property owners to register their premises and comply with local planning schemes. For example, in Western Australia, there are specific rules for hosted and unhosted short stay accommodation, and you may need to register your property on the STRA register.

Policy changes and industry regulation can also affect how you use your property. Some areas have strict rules about the number of nights you can rent out your property each year, or they may require you to ensure the safety and consumer protection of your guests. It is important to keep up to date with any changes to the planning system or local planning policy in your area.

If you are unsure about your obligations, you can contact your local council or the relevant department for further information. They can help you understand if your property is exempt from certain requirements or if you need to complete a registration process.

Practical Strategies and Solutions

Making the switch from living in your home to renting it out as short term rental accommodation requires careful planning. Here are some practical steps you can take to manage your tax and regulatory obligations.

Know Your Local Rules

Start by gathering information about your local planning scheme and any requirements for short term rental accommodation. Some councils have specific rules about how you can use your residential premises for tourist accommodation, especially if you want to rent out your property for up to three months or more. Check if you need to obtain development approval or register your property, and make sure you understand any strata by-laws that could affect your plans.

If you live in a heritage-listed property or a special planning zone, you may need to check the heritage website or contact your local council for advice. Policy changes are common in the STRA sector, so it is important to stay informed about any new rules or registration obligations.

Manage Your Tax Position

When you convert your primary residence to short term rental accommodation, you need to keep track of all income and expenses. This includes any money you earn from renting out your property on a nightly or weekly basis, as well as costs like cleaning, maintenance, and platform fees.

If you only rent out part of your home, you may be able to claim the main residence exemption for the part you still live in. However, if you rent out your entire property and move elsewhere, you may be eligible for the six-year rule, which allows you to continue treating your former home as your main residence for CGT purposes for up to six years.

It is always a good idea to seek advice from a qualified tax professional to make sure you understand your obligations and opportunities. They can help you with data driven decision making and ensure you are compliant with all tax rules.

Keep Good Records

Good record keeping is essential for managing your short-term rental property. Keep track of all bookings, income, and expenses, as well as any approvals or registrations you need to obtain. This will help you stay compliant with industry regulation and safety requirements and make it easier to manage your tax affairs.

If you have guests staying in your property, make sure you understand your obligations around safety and consumer protection. This includes providing a safe environment for your guests and following any local rules about guest numbers, noise, and other issues.

Conclusion

Turning your home into a short-term rental accommodation (STRA) property can help you earn extra income, especially if your property is in demand by visitors on business trips or holidays. STRA refers to renting out all or part of your home for a short period, often through online platforms, giving guests exclusive use of the space. This can include anything from a holiday home, a serviced apartment, or even just a room, depending on your setup and local rules.

Before you begin, it is important to check if you need development approval or if your property must be registered as STRA premises. Some areas have specific rules for hosted STRA, where the primary owner lives on site, or for unhosted arrangements, where guests have full access to the property. The rules may differ from those for traditional forms of accommodation such as hotels or long-term rentals, so it is wise to gather information from your local council and understand your obligations as a property owner.

Managing a short-term rental property involves keeping good records, understanding your tax responsibilities, and sometimes seeking professional advice. If you have questions or need help with planning or tax matters, your local council or a qualified tax professional can guide you through the process. This will help you make informed decisions and manage your property successfully as part of the growing STRA sector.