Tax implications of renting out my spare bedroom (PPOR)

[rizzle]

As the title suggests, what are the tax implications of renting out the spare bedroom in my PPOR?

I assume:

• Rental income taxed at my marginal rate
• Partial deductions for home repairs (e.g. to replace faulty hot water system I might get deductions on 50% of overall cost)

Are those assumptions correct and are there any others I need to look out for?

Is there some kind of standard process I should follow or a template legal document I can use to legitimise such an arrangement?

Finally would insurance be necessary?

Thanks in advance.

 

[MRO]

Dont forget CGT implications when you sell.

 

[Propertunity]

Don't declare the income & don't claim any deductions. This is OK if the border is considered to be sharing the household expenses. No CGT implications this way. *edit* - sorry this only applies to family members.

Insurance for contents will be an issue for some (all??) companies as you can't keep your goods secured if someone else has a key. I know AAMI won't do it.

 

[albanga]

My wifes cousin lives with us and we charge him minimal rent so have not declared this. Hope the ATO would not be upset with that!

 

[BMT Tax Depreciation]

Of course, if you do go down the road of declaring the income, as long as it's a reasonable amount of rent you can claim the depreciation on the boarder's private assets (e.g., their bedroom), and also a percentage of any common area assets. There would be thousands of dollars in deductions in most scenarios like this.

 

[Paul@PFI]

A fail to the previous posts who all advocate tax avoidance. The rental income is assessable and cant just be overlooked. There are so many ways to get caught - Like a tenancy dispute !! After deductions it may be neutral or even negative. ie Depreciation and capital allowances, interest etc...

Boarding income is not exempt. Board collected from family is different. But for a arms length party its income and yes some costs will be deductible
https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/

Deductions may be minor. Not 50%...depends on area etc. 2BR sure maybe 50%.

 

[rizzle]

There would be thousands of dollars in deductions in most scenarios like this.

Even in a small (99m2 including courtyard) 1960's 2 bedroom unit?

 

[rizzle]

https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/.

Thanks for the link

 

[BMT Tax Depreciation]

Even in a small (99m2 including courtyard) 1960's 2 bedroom unit?

Absolutely, though it will largely depend on how long you've owned it. That is the most important factor here. When did you buy it?

Your fixtures and fittings will depreciate from the settlement date of purchase. This will include the oven, hot water system, air conditioning, floor coverings, window furnishings, etc.

Depreciation will also (in most states) apply to a percentage of common area assets like external light fittings, fire safety equipment, etc.

And then there's the furniture and appliances. Again, this will depend on the period the property has been owned for (and how many items have been installed since purchase), but think about it: how many items in the unit would be used by your boarder as well as you? There are the obvious ones like the lounges and tables, and the microwave and television, but you'll be able to depreciate part of everything right down to the toaster, the iron and the cutlery and crockery.

Go on, think of the potential value of all of those common assets put together and then approximately halve it. Still a decent figure, right?

 

[rizzle]

When did you buy it?

I settled on it September 30th. If you think there's likely to be value there then perhaps we should have a longer discussion when I get a tenant in. I assume a depreciation schedule would identify all the plausible deductions?

 

[BMT Tax Depreciation]

I settled on it September 30th.

Correct answer. The more recently, the better.

If you think there's likely to be value there then perhaps we should have a longer discussion when I get a tenant in. I assume a depreciation schedule would identify all the plausible deductions?

Absolutely. If you are declaring the income from this then you would be mad not to take advantage of all the depreciation available.

 

[rizzle]

Just bumping this old thread because a tenant is moving in Tuesday.

If the tenant pays $200 each week for example, what's to stop me at tax time saying that only $150 of that is rent, and $50 is for bills? I would assume money received for splitting bills is NOT classified as income, so it would be in my interests to minimise rental income, and maximise 'bills' if my understanding is correct?

What are the caveat's on saying $150 is for bills and only $50 is for rent? (this will not be a contractual arrangement, it is a friend moving into the second bedroom).

 

[Ed Barton]

what's to stop me at tax time saying that only $150 of that is rent, and $50 is for bills?

Big Bob in the cell next door.

 

[Paul@PFI]

Just bumping this old thread because a tenant is moving in Tuesday.

If the tenant pays $200 each week for example, what's to stop me at tax time saying that only $150 of that is rent, and $50 is for bills? I would assume money received for splitting bills is NOT classified as income, so it would be in my interests to minimise rental income, and maximise 'bills' if my understanding is correct?

What are the caveat's on saying $150 is for bills and only $50 is for rent? (this will not be a contractual arrangement, it is a friend moving into the second bedroom).

No difference. The "bills" being reimbursed are deductible eg phone, elec etc to the extent tenant incurs the cost against the income received so its a no win position. (ie $50 income is assessable anyway and those bills are deductible anyway)

Think of all proceeds you receive from a tenant as income and then think of all costs as deductions against this. The exception is generally if a tenant has to compensate for damage / loss - Eevn then you probably have a deductible.

 

[datto]

Careful Rizzle the tax office is a highly efficient agency that comes down hard , I mean real hard on people who have boarders paying 200 pw. So much resources have utilised to flush out these tax evaders that the multi billion dollar cash economy has now disappeared. Even Corporations are so scared they now pay their fair share of tax. Pigs are flying everywhere lol.

 

[rizzle]

$50 income is assessable anyway)

Damn I did not think that would be the case. Thanks for the info.

 

[vaughan]

... I would assume money received for splitting bills is NOT classified as income, so it would be in my interests to minimise rental income, and maximise 'bills' if my understanding is correct?

Correct, partly. As others have said, income is income regardless of how it is spent. What is important is to maximise your *deductible" expenses which could be phone, electricity etc. It may be beneficial to pay for a cleaner and gardening service, for instance. Get real tax invoices don't just pay cash, you cannot claim these..

The smart thing is to look at maximising the "non-cash" deductible expenses such as depreciation -- you get a tax benefit without actually spending any of your money. Get good accounting advice because there are some gotchas.