Flatmate tax implications?

Question from Andre updated on 15th August 2012:

I own my own house that I live in. I have brought in tenants to help me cover mortgage. Their rent payment covers all expenses plus rent but no food. I am wanting to know what are the tax implications on this rental set-up and do I need to declare their rent as income? Are they deemed to be boarders or tenants?

Our expert Mark Withers responded:

If they are boarders you can elect whether your income will be based on the standard cost of boarding ($243 per week for each boarder for one or two boarders). For boarder two and three the rate reduces to $198 per boarder. Five or more boarders and you can't use weekly standard cost  or actual cost basis. The standard cost is designed to include food, heating, telephone, power and transport. If the rent you collect is less than the standard cost no income need be declared. If the tenants are considered flatmates, you keep a record of actual costs that relate to the area you are renting out or alternatively record the total costs and calculate the deductible portion based on the area rented out. if you visit www.ird.govt.nz have a look at the IR264 guidebook to rental income. Pages 32 - 41 explain the rules in more detail with worked examples.

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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