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Should you declare income when renting rooms in your home?

We’ve seen quite a bit of confusion recently around whether renting out a room in your primary residence counts as declarable income to the Australian Tax Office (ATO). Guidelines that are available on this topic tend to be rather difficult for the layperson to decipher, leading to many incorrect claims – whether people declaring income when they don’t have to, or not declaring income when they should.

It’s essential that you get this aspect of your tax return correct – not just because it’s important to declare your income accurately, but also because unnecessary declaration of rental income in your primary place of residence can open you up to complications around capital gains tax if and when you sell your home.

Is it an income-producing activity?

The primary question that you should be asking yourself is: are you taking in boarders/renters to make an income, or is any money that you receive simply meant to recoup your expenses (extra utility costs, food, etc)? Generally speaking, if you’re taking rent money merely to offset your

expenses, then it won’t count as declarable income.

Are you providing a room for a student through the Department of Education?

This is one case in which the ATO has made a fairly clear and unambiguous ruling, and stated that income derived from providing accommodation organised with the Department of Education is definitively not considered assessable income. This means that it doesn’t have to be entered on your tax return at all.

Are you renting rooms as a business?

If you are renting out rooms for the income, the next question to ask is: are you doing so as part of a business? Typically, unless you’re running a B&B or something of the sort, the answer to this will be no – and you should declare the income not as business income (causing you to be assessed as a sole trader), but as rental income. We’ve seen a few cases recently where people have declared their room rental in situations where it should definitely have been declared – but have classified it incorrectly.

If in doubt…
Your best bet is always to talk to an accountant for help in figuring out whether your rental income needs to be declared on your tax return. They can help you to figure out whether the ATO would consider it assessable income, and if so, which type of income.

More information

Renting out part or all of your home

Taxation Ruling IT 2167 – Income Tax: rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases

ATO Interpretative Decision: Income Tax: Payments received under a homestay arrangement

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