Flatmate rent income

Question from jim updated on 10th October 2018:

What is the tax position where one party in a long term relationship purchases a property solely and rent/board is paid by the other party? A section 21 contracting out of PRA would be done. Does the owner need to declare this rent/board as income?

Our expert Mark Withers responded:

That would essentially amount to a boarder / flatmate situation. There is in fact a difference between the two. A boarder is someone who is also provided food in addition to lodgings, a flatmate, just a room.

Boarders operate under a specified cost regime, with a single boarder the income must only be declared if it exceeds the standard cost threshold of $266 per week. Flat-mating though has no standard cost regime. Technically, the income is assessable with costs claimable relative to the number of rent payers in the house relative to the total number of residents.

That said, at a practical level, those choosing to own and have flatmates are generally battling with a mortgage and would be extremely unlikely to be showing a profit from the flatmate. Where you can demonstrate that no profit is being made and accordingly, no tax is being avoided I would consider it unlikely that IRD would be too concerned about enforcing a requirement to file a return to declare something as low level as this.

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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