Tax treatment of renting rooms to flatmates in your primary residence? Claiming tax back.

[onthepathtogod]

@susier Got it, that’s good. I got the feeling that someone might think you can just deduct 100% of the interest & be done with it…lol

Your example is a good one to demonstrate how this works in a loss making situation & benefits you immensely. Especially as a single owner with a large mortgage.

One thing I’d question is if the property is held in joint ownership then the loss would have to be apportioned accordingly to ownership split right?

Once again mate, we’ll done for posting this. We should be shouting it from the rooftops as I’m almost certain most homeowners would get a flat mate in a heartbeat if they knew how much it could benefit them financially. But I’d be hesitant to do that knowing the current Govt already has fiscal problems & widespread uptake of this would be even worse for them so they’d probably shut it down!

 

[susier]

@natalied The reply was too long, so I've updated the post to show our example. I think the table might have broken though?

 

[fola]

@susier Thank you for taking the time to write this. It will be very helpful for a lot of people here.

 

[docgfd]

@susier Thanks for the post OP.

The $222 tax free threshold mentioned here is actually only the weekly costs of a boarder you can find the full method here:

https://www.ird.govt.nz/property/re...k-out-if-boarder-income-is-taxable-calculator

I did some quick comparisons to the standard cost calculator available for boarders and gives some interesting results.

e.g.

In a 4 person household with 2 boarders/flatmates the standard cost calculator generates 41,088.00 of total costs on a 900,000 home.

The flatmate calculation roughly gives 30,000, for a 700,000 loan of a 900,000 home.

This means if your total rental income is quite high (over 30k in this scenario) it would be more beneficial to be classed as boarders. However I imagine in most cases the method posted here would be the correct choice + deductibility on chattels.

 

[susier]

@docgfd Thanks for the comment, I'm not sure I understand it though. You can't deduct expenses for the two non-boarders, only the two boarders so I'm not sure how you get to $41k? Or have I misunderstood.

Otherwise I take your point, if your actual expense come out below the $222 pp p/w then you should absolutely take the standard deduction. However, this only applies to boarders and not flatmates paying rent which creates the song and dance of whether a bottle of milk and a loaf of bread counts as a meal service.

 

[docgfd]

@susier The $222 a week figure is only the weekly standard costs of a boarder.

You are also able to deduct Annual housing costs which are a proportion of the number of boarders vs the total number of people in the household in this example 50%.

These added together give the 41,088 figure.

Unsure how to add images to comments but if you go through the linked calculator it gives this value.

 

[susier]

@docgfd Ah yep, seen. Althought it spits this back out at me "You cannot claim any losses from providing the boarding service" which is why flatmates is better if you're running at a loss.

 

[anxiousonthebrightside]

@susier Is the apportioned amount you can claim based on square foot? My grandad rents a 1bedroom unit on my property for super cheap ($100 per week including utilities and his own internet), and the square foot area of his property is over 1/3 of my property as he has the flat with a huge wheel chair accesable bathroom and a backyard, so I could actually get quite a big refund if this is the case.

 

[terrenzio46]

@anxiousonthebrightside Sure.

Until IRD ask you why you are claiming a loss form something when you aren't renting at market rates....

 

[susier]

@terrenzio46 True, my understanding is that he would be limited to claim expenses to reflect the percentage of the market rate i.e. 50% of market rate then he would only be able to claim 50% of the expenses.

 

[onthepathtogod]

@susier Part 3

 

[susier]

@onthepathtogod Have a look at footnote 1 on para 11.

"The deduction amount may be limited to the amount of income derived where a flatmate pays less than a market value rent (Case E54 (1982) 5 NZTC 59,312 (TRA)). However, these situations are outside the scope of this QWBA."

 

[onthepathtogod]

@susier Yeah that needs qualified advice because you can’t just artificially or generously lower your income and claim a fully apportioned expense, that’s fraud.

 

[onthepathtogod]

@anxiousonthebrightside Careful.

Is your grandads unit attached? Or seperate to the main dwelling? Is it consented?

Does it have it’s own kitchen?

You’d need to increase his rent to market rates.

You could open a can of worms around development contributions & increased rates depending on your answers.

 

[anxiousonthebrightside]

@onthepathtogod It's detached, shared laundry but it's a sleepout style studio. No bedroom just one big bed room, lounge kitchen and a bathroom. Thanks for clarifying, I will only subtract up to the value of his rent, as I can't raise his rent.

 

[onthepathtogod]

@anxiousonthebrightside I wouldn’t do anything if I was you,

First, these rules don’t apply to seperate dwellings. (# 33 of the link)

Second, they also don’t apply to renting to Family members under market rates. (# 3 of the link)

Lastly, from what you’ve described you’ll open yourself up to having to pay development contributions & higher rates, especially if it’s not a consented minor dwelling. (Council district plan rules)

 

[anxiousonthebrightside]

@onthepathtogod It's consented but as per council by laws it is not considered a second dwelling due to the square footage.

 

[onthepathtogod]

@anxiousonthebrightside Ok but #3 of the link still applies.
Suggest you show the link to your accountant if you can to get qualified advice. If you don’t have one, any accountant would be able to advise probably free for a simple question.

 

[susier]

@onthepathtogod Bringing my other comment into this thread: Have a look at footnote 1 on para 11.

"The deduction amount may be limited to the amount of income derived where a flatmate pays less than a market value rent (Case E54 (1982) 5 NZTC 59,312 (TRA)). However, these situations are outside the scope of this QWBA

 

[susier]

@anxiousonthebrightside Yes, you calculate the floor space as a total i.e. grandad's unit/grandad's unit+main house = percentage of the shared expenses that you can apportion.

If you really wanted to push it, I'm pretty sure I saw the old fella in your kitchen making a cuppa then chilling out on the couch in your living room. In that case you can apportion 50% of that floor space to him too.