Is this income taxable?

Question from Stephanie updated on 13th May 2011:

My mother has been admitted to full time residential care and we wish to rent out her house to help offset the resthome fees, does she have to pay tax on the rental income?

She is ineligible for the subsidy due to the house being worth more than $200,000. We don't wish to sell the home yet until the property market has recovered. The weekly rent is less than half of what she will pay to the resthome but she has enough savings and super to enable her to rent her home for 4-5 years.

Our expert Mark Withers responded:

Yes, the net rental income will be subject to tax at her marginal tax rate. She is entitled to deduct normal holding costs from the gross rent reciepts, deductible expenses may include, rates, insurance, water, property management fees, repairs & maintenance and any interest if she still carries any debt associated with the properties purchase. So her best bet will be to trap and record all the relevant expenditure so that the taxable rental income can be legitamately minimised. 

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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