If I rent out a room in my home, do I get a tax exemption?

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If I take up Dr Philip Lowe’s suggestion and take in a boarder who pays rent, will the CGT exemption to my main residence be affected?

If this is the first time you have used your house to produce income, the cost base will be reset to market value as of that date. From that point forward, a portion of any capital growth will be subject to CGT. Good record-keeping will help and is required anyway.

If you’re renting out part of your property, there are many expenses you can use to reduce your capital gain.Credit: Louise Kennerley

Anything associated with holding the house that has not otherwise been claimed as a tax deduction can be used to reduce your capital gain, for example, interest, rates, insurance, cleaning materials, repairs – all relating to your use of the house.

I’m seeing a lot of advertising for wills – most free or small cost. What are the downsides of a free will? Are there hidden costs? I need to renew my will and am not sure of the best option to take.

There is an adage “you get what you pay for” but in this case, if you get it wrong, it’s the beneficiaries of your estate who will be the ones to suffer. The law of wills is technical and failure to comply with the technicalities could result in your dying intestate.

I guess a cheap will would be enough if your affairs are simple, but circumstances can change, and when this happens trouble can occur if the will is not updated to reflect the change in your circumstances.

Furthermore, if superannuation is involved, or your beneficiaries have precarious financial circumstances or are in rocky relationships, or there are children from previous relationships the will may be open to challenge. This could mean much time and money involved.

It’s wrong to think that you just need to make one will, and it will last for life. You need expert advice to ensure your will reflects your wishes and then is updated regularly to take account of changing circumstances. This is particularly relevant to older people where aged care is involved or when they take on a new relationship when their long-term partner dies.

I understand that if I leave my shares to somebody for CGT purposes they will take on my base cost when they eventually sell them. Does the same apply to investment properties? I bought an investment property in 1999 for $130,000, and it’s now worth $500,000. When I die and the property passes to my sons, will they have to pay CGT on the difference between $130,000 and whatever price they sell it for? Does the two-year rule apply to investment properties? The property I live in will be left to my step-family, and I assume it will be CGT-free to them. Is that correct?

Under the CGT rules, death does not trigger capital gains tax – as you point out the beneficiaries inherit your base cost and will pay CGT on the difference between that and the sale price if and when they dispose of it. The two-year rule is only for your main residence – it does not apply to investment properties. Your residence will be eligible for the two-year rule which means it will be CGT-free if sold within two years of your death.

I have a 14-year-old grandson who has a part-time job on the weekend. He saves half his pay and keeps the other half to buy clothes or entertainment. He has saved just over $1000, and I would like to encourage him to put it into a savings account that attracts compound interest. However, I do not have any knowledge of financial institutions or products to recommend. Could you help me, please?

The essence of compound interest is that you leave the earnings on an asset to grow instead of withdrawing them and spending them. There are no specific compound interest products – you can leave the interest to accrue in a bank account, and in a share portfolio the growth is automatic unless you cash shares in.

You can boost the compounding effect by reinvesting the dividends on shares and share trusts. I think investments offered by an organisation like Raiz would be ideal for your grandson because they have a range of options and a great app for his phone. This will enable him to learn about money at the same time as his money is growing.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Email: [email protected]

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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