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Renting Out The Spare Room

Renting out a bedroom can be potentially lucrative, but there are tax implications. By Matthew Gilligan.

By: Matthew Gilligan

1 August 2019

If you have a spare bedroom or two at home, you may consider renting it out to generate additional income. As you might expect, there are potential tax implications, and these differ depending on the arrangement you have with the occupant. Broadly speaking, there are three different types of occupants:

Boarders

According to the IRD’s latest statement, a boarder is somebody (often a student) who is provided accommodation “in conjunction with regular meals and other associated care, activities and benefits that usually, or commonly, occur in a domestic (‘family’) household”. While something of a mouthful, essentially a boarder is someone who lives with you as part of your family and in return for paying board gets not only accommodation but also meals, laundry, and so on. If you are providing boarding services, the income you receive is taxable, but there is an exemption if the amount you receive does not exceed the standard cost set by the IRD.

There has been a recent change to the thresholds applicable from the 2020 income year. In the 2019 income year the standard cost is $270 per week for the first two boarders and $222 per week for subsequent boarders. If the amount you receive exceeds this, you can still be exempt if the surplus does not exceed an additional allowance for the cost of the housing. From the 2020 year the IRD have reduced this threshold to $186 per week, per boarder. It has dropped so significantly because the IRD has removed an allowance for transport that was previously included. If you do incur transport costs and the amount you receive exceeds the $186 per week, plus the additional allowance for housing cost, you can get an additional allowance for transport costs associated with the boarding activity.

In summary, income received from boarders is taxable, but you can get an exemption if the income falls below the standard cost threshold. There has been a significant reduction in this threshold which applies from April 1, 2019 onwards. If you are not eligible for the exemption or voluntarily choose not to apply it, then you work out your actual income and expenditure and include that in your tax return.

Short-Term Stay Occupant

It may be that you rent out the spare bedroom (or two) via Airbnb to shortterm occupants. Again, there is an IRD approved exemption which applies if you receive no more than $50 per night and you do not rent out rooms for more than 100 nights per year, counting each room that is rented out separately. If you are getting more than $50 per night, you have to return the surplus as taxable income or otherwise complete a calculation of the actual expenses incurred. Note that if you rent out multiple rooms and your gross income totals more than $60,000 per annum, then GST also enters the picture.

Tenant

The final type of occupant is a tenant, which in many situations might also be described as a flatmate. If you have somebody living with you and paying rent, but not classified as a boarder, then the amount received is income. There are no standard cost exemptions for a tenant. Instead you need to calculate the actual expenditure incurred in providing the tenant with accommodation. Usually this means you calculate what proportion of the home you are renting and then claim an equivalent proportion of general costs incurred. Any costs that relate directly to the tenancy can be claimed as deductible, but expenses that relate solely to your private occupation of the home are not deductible.

Summary

If you generate additional income through renting out spare space in your home, be conscious of the potential tax implications. It is important to identify what type of service you are providing, as different rules apply to different occupants.

If you have been providing boarding services in the past, be aware of the new exemption thresholds that apply from April 1, 2019.

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