Tricky Question with housemate

[eskimoflick]

Hello everyone!

I have a friend who lives in one of the rooms of my 3 bedroom PPOR.

My partner and I share a bedroom, and the third room is a guest room. Everything else is communal.

My friend pays us weekly "rent" via bank transfer.

This "rent" is below market for the area, factoring in it covering groceries, utilities, cleaning and gardening. As well as all furniture and appliances - he essentially owns his clothes.

Now, do I need to delcare this as income?

(Thank you all for your pearls of wisdom I have enjoyed over some time. Most of the time my questions can be answered from previous threads; however this time it's more unique I think.)

 

[Terry_w]

Now, do I need to delcare this as income?

Yes you do.

 

[Scott No Mates]

Yes, no & maybe - is he a boarder? Plenty of threads about boarders.

 

[datto]

Come on fellas, this is board and lodgings. Have a look at IT2167. Not taxable income.

Where's Paul? He'll back it up.

 

[Terry_w]

Depends what the op means by 'rent'. If it is just for reimbursement of a share of the expenses (not including interest) then it could be board and therefore may not be taxable.

 

[geoffw]

My reading of IT2167 doesn't say that rent is not declarable. It's only not declarable if money paid is used only to cover expenses incurred. However deductions may be made to cover the portion of the rent paid which is used for food, electricity, and depreciation (eg 100% for furniture in the rented room, a proportion of shared furniture- presumably a portion of building depreciation). While a portion of mortgage interest could be claimed, there is a sting- that portion of the profit is not exempt from poor cgt exemption when the house is sold.

 

[Xenia IM]

Home stays are tax free - can he classify under Homestay?

Not sure what rules classify a Homestay from boarding!

 

[Macca]

Professional people on here must give the correct legal viewpoint

Speaking for myself, if I had a friend staying at my place and they contributed to the costs then I would see that as fully expended so no taxable income left to declare.

You might like to create a record and file it of the breakdown of costs and payments, you might find you are funding your friends life style

 

[Paul@PFI]

I'm with Terry here. If it were a friend or relative couch surfing and he is throwing some $ into the pot for food and costs then its not rent. There would need to be some short term arrangement ie : University term, a month etc. That's board and lodging. But if its an advertised space, paid weekly to an agreed value and it is for a agreed portion of the apartment its rent. If I were the ATO I would ask who instituted the arrangement and all its terms. Its seems like rent. And rent is taxable.

The argument raised by some that it covers costs is one that could actually indicate it is rent. Rent is a form of income that compensates a property owner / lessor for their costs. You don't have to make a profit !!! Just look at negative gearing.

The issue here is that the income is assessable and some costs may be deductible against this.

 

[Paul@PFI]

Come on fellas, this is board and lodgings. Have a look at IT2167. Not taxable income.

Where's Paul? He'll back it up.

IT 2167 - about relatives and claiming deductions? About how the rent is assessable from a relative but deductions are reduced if its not market rates but fully allowed if it is.

I don't see how its different.

 

[eskimoflick]

If he didn't live with us, we wouldn't have the room occupied. The space was not advertised, we were initially helping him out in between places and then its lasted awhile (years). There is no formal rental agreement. The EFT has only just begun (previous was cash) and does not say "rent".

I know if I declare it as income to ATO I can claim deductions and it will be negatively geared, but ideally I don't want to do this - as I will only be able to claim a percentage compared with the full amount of depreciation if I didn't live here!

The property will become a rental in a year or two - meaning I am not concerned about CGT.

 

[Paul@PFI]

You know if you want you can NOT claim the negative gearing and this would add to your cost base. Just calculate each years rent less deductions and if that's a loss it adds to cost base with no need to amend. If ATO ever query it your explanation and supporting records should be fine.

If its not neg geared then it would add to taxable income.

 

[eskimoflick]

You know if you want you can NOT claim the negative gearing and this would add to your cost base. Just calculate each years rent less deductions and if that's a loss it adds to cost base with no need to amend. If ATO ever query it your explanation and supporting records should be fine.

If its not neg geared then it would add to taxable income.

Thanks Paul.

I'm confused though, what is cost base?

 

[Paul@PFI]

The cost base is the base price used as the reference point when calculating a CGT sale and any taxable profit.

https://www.ato.gov.au/General/Capi...-capital-gain-or-loss/What-is-the-cost-base-/

The higher the cost base the lower the CGT profit.

 

[datto]

This "rent" is below market for the area, factoring in it covering groceries, utilities, cleaning and gardening. As well as all furniture and appliances - he essentially owns his clothes.

Now, do I need to delcare this as income?

Below market rent therefore not arms length.

Expenses are shared eg food , utilities etc etc

Then this from IT 2167:

"Occupancy of part of a residence on the basis of the occupants' sharing household costs such as food, electricity and cleaning, etc.

18. What will be decisive in cases of this nature will be the characterization of the arrangements, i.e., do they produce assessable income. Situations arise where the owner of a residence permits persons to share the residence on the basis that all the occupants, including the owner, bear an appropriate proportion of the costs actually incurred on food, electricity, etc. Arrangements of this nature are not considered to confer any benefit on the owner. There is no assessable income and the question of allowable deductions does not arise. "

I therefore reckon it's not income. My opinion only, check with a tax agent or ATO.