How to treat money received from renting rooms in PPOR

[Seeka]

Have an acquaintance who's just hit 65, started getting the pension and plans to rent out two rooms in PPOR. It will be a cash arrangement.

Due to some poor investment advice and action in the past, and a period of ill health, they now have a $150K+ Line of Credit (Property value $400K approx) on a previously fully paid off PPOR.

My interest on their behalf is the best way they can treat/approach any money they receive from the room rent so that it has minimum impact on pension.

I read on other threads that the ATO may not be so concerned about private arrangements, but I wonder how this affects the pension. Under what circumstances might this remain a private arrangement, and not need to be notified to either Centrelink or ATO?

Rent would be around $120 x 2 per week - 'regular' room rent would be $150 per week.

 

[westminster]

Centrelink love to know about any sort of income.

$240/week is not an unsubstantial amount per week but if they read or use the calculators on the Centrelink website they can find out how much it will affect their pension. They can earn some money on the Pension so it might not impact much

There other option is to return to the workforce and rent out the 2 rooms and pay off the debt as quickly as possible then retire

 

[Seeka]

Thought there might be a way that it wouldn't be regarded as income, such as if they could rent as boarders.

I too think that a return to the work force would help in so many ways but a lack of confidence and health concerns are getting in the way of this option, and have done for some time now which lead to an increase in the amount owing on the LOC.

And yes, $240 week isn't insubstantial. I checked the website and up to $152 per fortnight is fine, but loss of 40c in the $ for every dollar over.

Could that $240 be reduced by the costs of running the house as it would be for rental property - electricity, internet, water, gas, rates even?

 

[Aaron_C]

Geez if all you are thinking about is the pension...you got more prolems if you are just going to accept cash money it really is just a moot point otherwise why would it be cash only?

 

[Terry_w]

Sounds like income to me.

Boarders pay only for their share of expenses such as food, electricity, gas, water etc.

 

[Ed Barton]

If he's doing the dodge and renting for cash then he wants to be careful to not take people on benefits.

 

[Seeka]

Sounds like income to me.

Thanks Terry.

And yes, it is unfortunate that some people can hit this stage of their lives in such a weak position.

 

[Tyrael]

Centrelink will treat 70% of the income received from lodgers as income. If they can prove expenses (Tax return etc) they may be able to partially off set the income being assessed for income support purposes with allowable deductions. For full Board and Lodging Centrelink treat 50% of the amount received as Income

 

[AXXO]

ATO point of view:

See Taxation Ruling IT 2167 &

Tax Determination 2001/381

Income from boarders is assessable where there is some element of reward for the owner. Other issues- 1. common expenses apportionment 2. CGT implications.
If what is received is purely a reimbursement of common costs then it's a non-commercial situation and not assessable income.

Centrelink point of view:

Guide to Social Security Law
4.3.8.40 Income treatment of boarding/lodging situations

The following shows the percentage of income from different kinds of boarding/lodging situations that is treated as income for social security purposes.

Lodging. Accommodation only. 70% Treated as Income

Bed and breakfast. Accommodation and
breakfast. 50% Treated as Income

Board. Accommodation and meals in
addition to breakfast. 20% Treated as Income

Exception: If the boarder or lodger is an immediate family member, the income that is received from the rooms rented IS NOT treated as income for social security purposes.

 

[Seeka]

Very helpful Tyrael and AXXO.

Just the kind of information that will make a meaningful difference in this situation.

Getting an idea of how it is treated by both Centrelink and ATO is important.

I'll pass on this information, after I've checked it out courtesy of the specific links provided by AXXO.

Many thanks all.