Making Your Principal Place of Residence an Investment

Turning a principal place of residence (PPR) into an income producing property has an impact on the owner’s tax situation.

Investment property expenses such as interest costs, rates, and management fees become tax deductible. Rent received from an investment property is considered as assessable income. As soon as the property is deemed ‘available for rent’ – and it does not necessarily need to be occupied to be ‘available for rent’ – the owner can start claiming depreciation deductions on the fittings and fixtures. Also claimable are any capital improvements that have been made, even if they were completed when the property was a PPR.

A Tax Depreciation Report shows the depreciation you are entitled to for each deductible item and for any items in the common areas within your investment property.

It may be wise to have this report done while you are still living at the property – however, be aware that you can only start to claim the depreciation once the property is available for rent.

A PPR will be exempt from Capital Gains Tax (CGT). When a PPR is changed to an investment property however, some CGT may be triggered if the property is eventually sold. There are a number of scenarios which will reduce or create a total CGT exemption; each scenario is different depending on the property’s first use, how long the property was lived in, how long it was income producing and if the owner purchased another PPR. It is therefore important to discuss these various scenarios with your accountant.