Taxes For Boarders, Flatmates And Tenants Too?

First, let's define who Boarders, Flatmates And Tenants are in New Zealand terms.

Boarder: A boarder is a person who pays to stay and receive meals and other services in someone else's house. Typically, these are students who stay in a room of someone else's house. They can also be referred to as paying guests.

Flatmate: A flatmate is a person with whom one shares a living facility such as an apartment or a house, with one of them having signed a lease. Generally, both contribute to expenses and perform chores. Flatmates are also commonly known as 'Roommates'.

Tenant: A tenant is usually an adult who has signed a lease or a rental agreement with a landlord to rent property such as an apartment, condo, or a house for a duration of six to twelve months.

So How Do Tax Rules Apply To Them?

Tax rules for flatmates and tenants are usually the same. If one person (typically the house owner) profits from the other by receiving payment for accommodation, it is deemed as taxable income, just as a landlord where ordinary tax rules (rental income, less allowable expenses, etc) apply.

However, if each flatmate share the cost of accommodation, this isn’t likely to fall under taxable income.

For boarders, there are two methods of calculating tax: standard cost method (weekly or annual) and actual cost method.
You cannot use the weekly standard cost method if you have five or more boarders. You will have to include all payments received as income and pay your taxes. But if your income is less than the weekly standard cost allowed, you don’t need to pay tax. This weekly standard cost changes every year and is updated on the IRD website.

If you use actual cost method, you will have to keep full records of your income and expenses for the year and complete a tax return.

All in all, if you receive income for any of the accommodation types above, it is best to always save your income and expenses records every year and apply with Your Refund to know where you stand, after all, we are tax agents and can guide you with what your next step should be.

Imagine a flatmate scenario:

You have a single flatmate living with you and paying $200 towards rent. This covers room, power, phone, internet, and cleaner. But not meals.

Do you have to pay income tax for the rent payments?

Yes. You own the house and have a flatmate, the income is taxable. Only exemption would be if the person is indeed a boarder, then there is a tax free amount/threshold.
Most people don't declare this kind of income, but you should because:

1.  If you already have a high mortgage, then there really is no profit in it.

2.  You could claim expenses incurred in deriving that income through Your Refund.

If you have any questions, contact us or leave your comment below.