Declaring rent cash from friends

Hi guys,

About to settle for my first home and have a couple of friends ready to take a couple of rooms to live with me

Am I required to declare the cash they pay me for rent in my tax return? My broker advised they can even pay me in bank transfer if I want as long as its classed as board money rather than rent for tax purposes and it won’t be classed as taxable income as long as I’m living in the property as well

cheers!

 

Yes

and why is a broker giving tax advice?

 

Taxable - if are just renting them the rooms.

 

I wonder...

 

Ha ha. They might be licensed but prob not

 

Lol I would have them buy food for the house each week instead of collecting rent and pay half the bills, then they just living with you

You have no option if they need a record of paying you rent for the dole or so they can rent elsewhere later on but if that's not the case why cant the just fill your petrol tank occasionally without it being rent

Note, not financial advice, don't come looking for me when you get audited.

 

Is this house going to be an IP in the future? If so, then it probably doesn’t matter too much. If not, you lose CGT exemption by collecting rent.

 

Maybe also look with the insurance side IF there is ever a accident on your property and who has the liabilities..
One small item as the bank transfers from your mates will be taxable and your Accountant would have already advised..
Good Luck..

 

Board is really just a nominal sum to cover food, electricity, internet etc
Any more over this would be taxable income which you would required to declare, but you could offset this will claiming a portion of expenses such as rates, interest, insurance etc. However, if you are charging less than market rent you would have to reduce the amount you can claim.

If your main residence is income producing you will lose the full CGT exemption too..

 

The Residential Tenancy Laws in each state require a lease to be in written terms including the rent. Rent must also be receipted showing the date paid and the period being paid. Where it isnt a lease but a rooming agreement then it also must be in writing. A proportionate deduction for costs may be available. Note of course that letting two rooms in NSW could produce a land tax issue even if you reside there. Potentially under threshold however. The CGT main residence exemption is only patially available too but this could later broaden and make third element costs a future benefit if you maintain the right records.

The ATO would consider all the income is rent and if there was not genuine basis to determine the rent was a market rates the ATO can cancel any tax loss and merely allow deductions to the limit of rent received. In a rental review audit rentals that are not through a agency are typically subjected to a more diligent review of these issues. The ATO has heard it all before.

 

Well technically yes, I've never in my life heard of anyone actually doing it tho... especially when its as casual as a couple of your own mates staying in your house with you.

 

The big problem is that it affects your capital gains tax exemption. This can end up costing you far more than the board money you receive. This doesn't seem to bother the taxman.

Receiving cash and not declaring the income avoids a world of admin and tax pain but it's not legal.