A great way to earn some extra income to help you get ahead is to rent out any spare rooms you have. You may not like someone else living in your home but the income you earn from them may be a nice compromise and help you achieve some of your financial goals.
Options are:
Boarder – this could be for the full week or part of it and may or may not include meals. I have seen situations where someone who lives somewhere else may board during the work week.
Student homestay – usually they are from overseas and it’s a full board arrangement so you provide everything for them, including a furnished room and all their meals. They will be responsible for their own travel costs, toiletries, spending money etc.
Flatmate – this is where you would charge a rate for the room and they would share the expenses like, telephone, electricity etc. I had a young client recently who purchased his first home and had three flatmates who were paying his mortgage for him.
The IRD treats this income the same and 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.
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. If you have one or two boarders it’s $254 each then $208 each for three or four. If you have more than five boarders then you will need to keep receipts and file a tax return.
Actual-cost method - You need to keep full records of your actual income and expenses for the year. If you choose this option you will need to complete a tax return to declare any profit or claim any loss.
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