Should I set up LAQC if I take in a tenant?

Question from Kate updated on 6th January 2009:

I currently have a mortgage of approx $270,000, and was thinking of getting a flatmate. Would it be possible in this situation to set up a LAQC and claim back a portion of my tax based on having a tenant in the house. It's possible to claim back on the tax paid due to the income earned by a tenant but is there any point setting up a LAQC or would I have to move out entirely to qualify for this? Thanks

Our expert responded:

Where you have a flatmate, in a situation such as this, IRD does not require you to declare the income.  It also means that you can't claim any of the expenses, which would have to be apportioned as you can't claim 100% seeing as your flatmate is not taking over 100% of the house, just one bedroom and a portion of the common areas (eg bathroom, kitchen, lounge).  Putting the house into an LAQC would not really be an option because you also are living in the house.  Generally, you are better off by not declaring the income.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth.  She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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