Can it be rented at all?
In Queensland, yes: since 26 September 2022 a secondary dwelling can be rented to anyone, unless an existing development approval carries conditions that restrict who may live there. In Victoria, the planning department says anyone can live in or rent out a small second home, and that the residential tenancy requirements for a home apply to it too, including room sizes, facilities and smoke alarms. The NSW department’s secondary dwelling page does not deal with who may live in one. The Queensland sheet covers the 2022 change and the fire and sound rules a change of use can bring.
Before the first tenant, in Queensland
The Residential Tenancies Authority says the owner must:
- have every approval in place before the secondary dwelling is rented, including development, building and council approvals
- make sure the rental meets smoke alarm requirements and every other health and safety regulation
- have prospective tenants apply on the approved form, the authority’s Rental Application Form (Form 22), and ask for no information beyond what that form specifies.
Which agreement
Depending on how the property is set up, the authority says a secondary dwelling may be let under a general tenancy agreement, if it is a self-contained unit and the tenant has no access to the main house, or a rooming accommodation agreement, if the resident shares the kitchen or other facilities with others in the house. Its two examples of rooming accommodation are a granny flat with more than one bedroom where each bedroom is let separately and the residents share its facilities, and a granny flat without a kitchen whose occupier may use the kitchen or other facilities in the main house.
Whichever applies, the agreement must include the address of the main property, which building or part of it is being rented, how utilities and water are to be paid, and any special terms. The authority suggests special terms covering:
| Shared part of the lot | What to settle in writing |
|---|---|
| Getting in | Access to the dwelling, and parking spaces |
| Day to day | Mail, clotheslines and rubbish bins |
| Services and grounds | Internet charges, and pool and garden maintenance |
Rent needs at least two payment options, one of which must not carry more than reasonable transaction costs and must be reasonably accessible to the tenant. Before the agreement is signed, the owner must give written notice of any costs of the payment methods offered, and disclose any financial benefit they would receive from a particular method.
The bond
In Queensland, if an owner takes a bond they must give the tenant a receipt and lodge it with the authority within 10 days; the authority says it is an offence not to. The maximum for a general tenancy or rooming accommodation is the equivalent of 4 weeks’ rent, and the cap applies to all bonds combined, whatever they are called.
Rental income and the ATO
The ATO says you must declare all the income you receive from renting your property, including renting part or all of your home, and formal and domestic arrangements where you rent to family and friends, at market rates or less. Three points from its page bear on a granny flat:
- Family contributions. Payments from family members that relate to family care or shared household expenses are of a domestic nature: they are not declared as income, and no deductions can be claimed. Amounts are assessable to the extent they are paid for a lease or licence to use the property.
- Rent below market. Where family or friends pay less than market rent, the ATO says deductions should be apportioned to exclude the private use, and it accepts limiting deductions to the rent received, so there is no net rental income or loss.
- Timing and shares. Rental income is declared in the year the tenant pays it, and according to legal ownership: someone who owns 50% declares 50%.
The home and capital gains tax
The ATO says a main residence is exempt from CGT for an Australian resident, but that an owner who rents out part of the home is not entitled to the full exemption, though a partial exemption may be available, and that the part used to earn assessable income is subject to CGT on sale. The calculation looks at the floor area used for rental and the period it was used. If renting began after 20 August 1996, the ATO says you must get a market valuation of the home when you first start using it for rental.
A granny flat arrangement for someone of pension age, or someone who needs help with day-to-day activities because of a disability, is a separate matter: its exemption covers creating, varying and ending the arrangement, and does not apply if the arrangement is commercial. On the main residence, the ATO also says an owner keeps the full main residence exemption when another person uses part of the home to earn income, as long as the owner receives no assessable income from that person for that use.