My sister and I own our property (with mortgage) and have for 3 years. We are currently residing there but have 2 boarders. one of the boarders pays $140 a week (this covers, a cleaner once a fortnight, mower man, and bills) the other pays $100 a week for the same. The $140 is a girl that we found on gumtree who has worked out quite well, the other is a friend. Can I claim partial tax deductions on boarders? I have been told that I can. So if I were to claim electricity bill I can claim half of it as there are 4 people living here and 2 of these people are boarders.
I would like to know:
Can I claim anything?
What can I claim?
What documents do I need to keep?
Do I need to pay tax weekly or can this come out when i put in my return?
How would I split the deductions with my sister who also owns half of the property?
And any other information, this is my first property, our second property is probably going to be a holiday house in Europe which both my sister, my partner, and a friend are going to be going in on, any info on thsi would also be greatly appreciated.
Thanks
Newbie Kelie
Assuming you declare the income from the rent as income on your tax return you can claim deductions.
A lot of people do not declare the income from boarders, stating they are just contributing to the upkeep of the property, thereby avoiding income tax.
Best to speak to your accountant on the legalities.
Hi Kelie,
Heres a link from the ATO site regarding part renting a property.
http://www.ato.gov.au/corporate/content.aspx?menuid=0&doc=/content/00262404.htm&page=10
From what it says, If you do claim deductions, it is done a floor basis area.
As Catalyst says, your accountant will know better.
Cheers
Tom
You can't claim deductions for boarders. Boarders don't provide income but just pay for 'board' ie expenses such as power and food.
But are your people boarders or tenants? Sounds like they are not paying market rents but paying more than boarding. Therefore I would guess you couldn't claim a full deduction for costs based on floor area, but may be able to claim a partial deduciton.
You will also lose the CGT exemption on your house (in part) so consider carefully.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Say they are tenants, could you claim the interest on the loan? If only part of it can be claimed how is it calculated?
jmsrachel wrote:Say they are tenants, could you claim the interest on the loan? If only part of it can be claimed how is it calculated?Only if renting at market rates, otherwise maybe a portion of the interest.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:jmsrachel wrote:Say they are tenants, could you claim the interest on the loan? If only part of it can be claimed how is it calculated?Only if renting at market rates, otherwise maybe a portion of the interest.
How is it calculated? Well if you would have to make reasonable effect to apportion the interest.
If you are renting out half of your house then maybe 50% of the costs. But if you are rent out half of your house for $200 when the market rate would be $400 then maybe 50% of 50% or 25% of the costs.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The calculation is the same as if you were running a business from home and wanted to claim a proportion of the rent / lighting / power etc.
As has been mentioned it is done on a percentage of the overall square metreage area.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Example Scenario:
You have a 3 bedroom house. You have the master bedroom and rent the other two rooms to your best friend and another random person found from an online property investing forum
The master bedroom is slightly larger than the other two bedrooms. The master also has an en suite bathroom.
The common areas such as lounge, kitchen & bathroom are shared equally. Total house floor plan is 130m2.
- Master bedroom #1 (20m2) inc Ensuite
- Bedroom #2 (10m2)
- Bedroom #3 (10m2)
- Remaing house area (90m2)
Market rent for a similar house in similar location is $470 per week.
Fair market rent;
- $170 p/w for bedroom #1 (Master)
- $150 p/w for bedroom #2
- $150 p/w for bedroom #3
I only charge by best friend $100 p/w
I charge the other tenant $150 p/w
Tax deduction for interest, council, depreciation/capital works etc;
Total house area = 130m2
Rented house area = bed 2 + bed 3 + 2/3rd common area = 10 + 10 + 60 = 80m2
Rented house area @ market rates = rented area x actual rent / market rent = 80m2 x (100 + 150) / (150 + 150) = 66.67m2
% claim for expenses = total house area / rented @ market rates = 66.67m2 / 130m2 = 51.28%
Also 51.28% would be subject to CGT for this year, but thats another calc upon sale (not counting any PPOR exemptions that might be available here)
Clear as mud?
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