Over the years I have had wide-ranging conversations with clients about boarding services and how to qualify. The reason people wish to qualify 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.
Conclusion
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. The 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 significant decrease that may catch out some people.
Please contact us for further information about boarding services by phoning +64 9 522 7955, emailing [email protected] or by filling out the online form.
This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request
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