Articles by John Heaslip
Over the years I have had wide-ranging conversations with clients about boarding services and how to qualify. The reason people wish to qualify is as providing a boarding service is if the amount of income you receive falls below either the “weekly standard-cost” threshold or the “annual housing standard-cost” threshold, then the income is exempt from tax, i.e. it does not need to be reported to the IRD.
From April 1 2019, this threshold was lowered, so it is harder to qualify.
There are several ways to work out whether you qualify for the exemption.
If the annual income received from boarders is less than the annual standard housing cost amount, then you can treat it as exempt income. There is a worked example below to illustrate.
3. Income and expenses calculation
As an alternative to using either the $186 standard weekly cost or the annual housing standard cost, you can choose to do an actual calculation of income and expenses.
Example of Annual Housing Standard-Cost calculation
Three boarders paid $200 per week for 39 weeks = $23,400. Therefore, as the income from boarders is more than $186 per week, you can either (a) treat the excess as taxable or (b) see if you fall below the annual housing standard-cost threshold.
Method (a) = 3 x $186 x 39 = $21,762 - $23,400 = $1,638 of taxable income.
Method (b): Annual Housing Standard-Cost
• “a” cost of house including improvements = $450,500 x 4% = $18,020
• “b” total accommodation supplement (from WINZ) = $0
• “c” number of boarders = 3, and the number of occupants = 5, as a percentage = 60%
• “d” number of full weeks which the boarding services were provided = 52 divided by 52 = 100%.
($18,020 - $0) x 60% x 100% = $10,812.
As method (b) is more than the weekly standard cost, then choose (a) above or choose to do an actual calculation of income and expenses.
The key thing here is you need to be careful in classifying occupants in your house. The IRD are getting increasingly specific on what exactly the provision of boarding services are and as there had been a drop in the standard cost from $270 per week for the first two boarders and third and fourth boarder being $222 each to $186 per week across up to four boarders is a reasonable drop that may catch out some people.
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Hi Mathew. Thanks for meeting with us. I took your advice and have started on Property 101 and more than half way through. I now realise why you advised us to stay where we are and look for properties with land in Hamilton or Waiuku. Information, calculations and case studies in this book are priceless. I'm so glad you decided to write this book and managed to find time to do it. Thanks very much for this and for advising us to check with you should we need to. Thanks - Helen - July 2015
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