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How to tax income from private boarders

If you receive income from private boarders, including student homestays you can choose either the standard-cost method or the actual-cost method to work out whether you have to pay tax on this income.

The standard-cost method

The standard-cost method uses an average price for basics such as the cost of food, heating, power and transport. The amount is an average across the country and is inflation-adjusted annually.

If your income from boarders is less than the standard cost allowed, you will not have to file a tax return, keep records of related expenditure, or pay tax.

The current year's rates (year ended 31 March 2017) will be adjusted for inflation after 1 April 2017.

For the year ended 31 March 2016

If you have...                                then the standard cost is...

one or two boarders                         $257 a week for each boarder.
three or four boarders                      $257 each for the first two boarders, and
                                                         $210 for each subsequent boarder.

Example 1
If you have two boarders and they pay you $180 each a week, you do not need to file a tax return or pay tax.

Example 2
If you have two boarders each paying you $265 a week, you may need to file a return and pay tax, depending on your circumstances. The standard-cost method includes an annual capital house cost component as a further deduction before tax is payable.
Note
If you have five or more boarders you cannot use the standard-cost method. You are required to complete a tax return and include all payments received as income. You may claim actual allowable expenditure but you must keep records to support your claim.

You can use the Standard cost home-based boarding services calculator to calculate if you have any tax liability

Losses

You are not able to claim any loss if you use the standard-cost method. Losses can only be claimed where you provide a return showing all payments received and claim actual expenditure incurred, with sufficient records available to support your tax position.


Source: www.ird.govt.nz