By Varun Agarwal, co-founder of PropRetire · Published · Law as read · 2 min read
Renting to family for less: how the tax works
Your daughter needs a place to live, and you would rather she paid you less than a stranger would. What does that do to the tax on the rent?
The rent she pays is still income. As part of the home's use is now private, the costs come down with it, and the ATO accepts them cut to the rent, so the rental shows no loss.
Is rent from family still income?
Yes. Rent is income under section 6-5 of the Income Tax Assessment Act 1997, and the ATO's ruling TR 2026/1 says, in paragraph 21, that it counts "even if the income is not received at commercial arm's length rates".
Can the costs still be claimed?
In part. A cost comes off only to the extent it earns income, and not where it is "private or domestic", under section 8-1. Renting to family for less is partly both, so the costs are shared between the two.
Where the costs would be more than the rent, the ATO "will accept" them limited to the rent, leaving "no net rental taxable income or loss". That is its guideline PCG 2026/2, paragraph 44.
In its example, Jana rents a house to her mother for less than the market rent. She declares her mother's rent, and claims the interest, capital works and council rates up to that rent.
What if they pay the market rent?
Then the costs aren't shared. At the market rent, PCG 2026/2 paragraph 47 says, they need no apportioning.
The ATO asks for how the market rent was worked out when it was set, such as an agent's rent appraisal, or listings at the time for similar homes nearby. In its example, Bartolo rents to his son at the rent an agent's appraisal gave, and his costs aren't apportioned.
What if they live with you and chip in?
Money from family toward the household's costs, or for their care, isn't income, in TR 2026/1 paragraph 23, and the ATO says nothing is claimed against it. Payment for the use of a room or the home, such as under a lease, can be income, in paragraph 24.
What if it was our home before?
The next question is capital gains tax when it sells. The 6 year rule, renting out your home and the CGT exemption covers how long a former home can stay your main residence.
What should I keep?
The lease, with the rent it sets and when each family member lived there.
If the rent is the market rent, how that was worked out when it was set, such as an agent's appraisal or listings of similar homes nearby.
See it for your own rentals
What the year leaves you, after costs and tax.