Lets say you rent a room in a ppor for $120 (seems about average for a city). What expenses are you sharing? That would have to be more than just electricity and water?
It can cover whatever you negotiate. If it's your PPOR, as you've suggested, they're helping cover the expense of the right to occupy the property, whether that's via rent or mortgage interest. It need not include anything else, ie it could be $120 is their contribution to household expenses in return for occupying a room, and all utilities are shared on top of that, it doesn't matter,
provided your intent is not to make a profit, ie you're not in the accommodation business. The fact that $120 might be a generous contribution, eg it's for one of three bedrooms in an apartment on which you only pay $250 per week, isn't really relevant.
Gatoblanco said:
I am just not sure I understand the conceptual difference. I can understand your point about whether it is the primary source of someones income. But it is still income isnt it?
I thought whether or not you have to pay tax on rental income in a ppor was whether you provided food or not which classed someone then as a 'boarder'
From the daily telegraph article it seems someone is a boarder or lodger and therefore not income vs a tenant who is income.
Nah, that's nothing to do with it. It's all about your
intent, and that is subjective, so if you're trying to come to a black-and-white understanding, that's probably not going to happen.
The world is complex and has shades of grey.
The poles are:
1) You are a single person and buy a 6-bedroomed home with the purpose of renting out the other 5 rooms and make your living by cleaning the rooms, cooking meals, etc, and having the income from those 5 rooms cover all expenses and have enough left over for you to live off. You used to do a job cleaning houses, but figure you can give that up because the income from (effectively) running a boarding house will substitute.
This is an accommodation business, and income and expenses must be declared. (And you need to get Council approval etc, but only considering ATO issues for the purposes of this thread.)
2) You have lived in a 4-bedroom home for the past 20 years with your growing family. The kids are now grown and have left home, and you find the house is too large for just "Darby and Joan", so you rent out one of the spare bedrooms to a uni student for $150 per week (which is about market rate for renting a room locally).
Even though the mortgage may be paid off, and thus there may be little to no "expense" directly associated with this person moving in, that's because of how much capital you have invested in the property! If you had this money invested elsewhere, it could be earning money, so there is an opportunity cost associated with having capital invested in that "extra bedroom". (OK, you can't slice off the bedroom you don't need, but work with me here!)
So it does "cost" you something to have that bedroom not available for your own usage (even if it's an opportunity cost - where's BayView???
), and the $150 per week is simply compensating you for the loss of enjoyment of use of that bedroom, and the loss of privacy associated with having a stranger living in your home.
Maybe this analogy will help clarify... Let's say you buy a wedding gift on behalf of a group of 11 friends who are all going to a wedding, and the gift costs $836, or $76 per person. They each just say "here's $80", because it's a round figure, and because you've done the running around. You don't have to declare the $40 extra ($4 per person x 10 people who give you $80) as income. It's not something that you did to make a profit; it's a private arrangement between friends, with a view to
sharing cost.
If the ATO insisted that every cost-sharing had to exactly match the associated expense, then we'd all have to declare it every time we split a bill with friends for dinner, paid a friend for a phone call, or whatever. To simplify, the ATO says that private arrangements made for sharing costs are not something that they're interested in.
If, on the other hand, you set up a business where you buy gifts on behalf of groups of friends and make a profit by charging, say, $100 per person for the gift that cost you $76 per person, you're in a gift-buying business and the ATO is interested.
It's also analogous to the ATO's distinction between hobbies and businesses. So many people were claiming expenses for "businesses" which were never going to make a profit (typically network marketing or hobby farms, where many set up a business primarily because they think that all of a sudden all their expenses become tax deductible, without caring whether or not they ever make a profit
), and it was costing the ATO a lot. So there was a ruling - about 10 years ago, I think - that if you're going to claim business expenses, you must demonstrate that the business either makes a profit, or that you have a reasonable expectation that it will make a profit, otherwise it's classified as a hobby and outside the ATO's sphere.
The by-product of this ruling is that some profitable hobbies are not taxed. So if you buy artwork in your own name, and display it in your own home, the fact that it goes up in value is your good luck, and generally not subject to any taxes, if your purpose in buying it was to enjoy looking at it. If you keep the art locked up in secured storage, buy it in your super fund etc, then arguably the purpose was for investment, and profits would be taxable.
It doesn't mean that if you own a business called "ozperp's hobby shop" and work in it as your primary source of income, that it wouldn't be taxed, but it does mean that if in the course of engaging in a hobby, you happen to make a profit, it's not taxable, nor are the expenses of the hobby claimable. For example, if you have a "hobby farm" that you go for weekends away, and you go for years with it costing you money which you don't claim, but then one year it has a bumper crop of avocados (or something) and the income from those avocados is more than your holding costs for that year, that's your good luck. The avocado income isn't taxable.
Hope this helps.