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Is you client renting out a portion of her home to a tenant?
If so, you are correct, she would be required to declare rental income on her tax return. If she charged her tenant under the market value, she is only able to claim a deduction up to the amount of rent she received.
You are correct, as she is using her home to produce an income while she is living in it, she will be required to pay CGT using the home first used to produce income rule for that portion when she sells.
If not, these expenses would be considered private in nature and not allowable deductions.