Lyndall Bryant, Queensland University of Technology
While there’s little relief in sight for Australia’s housing crisis, with new projects years away from completion, there appear to be as many as 13 million unused spare bedrooms across the country.
In a new briefing paper for the QUT Centre for Justice, I suggest that, at least in the interim, these spare rooms ought to be part of the solution.
Here’s where you find them. The census says about 3.2 million Australian homes have one spare bedroom, another three million have two spare rooms and 1.2 million have three spare bedrooms or more.
They are more common in the homes of older than younger Australians.
A survey by the Australian Housing and Urban Research Institute found that more than three-quarters of homeowners aged 74 and older had spare rooms compared to less than two-thirds of homeowners aged 55 and younger.
These older owners are often “asset rich and income poor”. Most rely at least in part on the Age Pension and could do with the income that would come from renting out a room, so long as it didn’t cut into their pension or present them with a capital gains tax bill when their home is eventually sold.
My work suggests these fears are largely unfounded, even though it’s hard to convince many older Australians of that.
Rent needn’t mean income tax
The tax office has long provided for ‘domestic arrangements‘ and other arrangements where board and lodging provided at non-commercial rates is not considered assessable income for taxation purposes.
The downside is that expenses are not tax deductible.
These arrangements are said to occur when all residents including the owner bear an appropriate proportion of the costs actually incurred on food, electricity, heating and other costs of running the home.
‘Homestay’ for international students is an example. Homestay hosts can receive about $350 per week for providing a fully furnished room, main meals and utilities in an arrangement the tax office has ruled need not be taxable.
Rent needn’t cut off the pension
All pensioners are currently eligible for the work bonus scheme that allows additional earnings of up to $504 a fortnight for singles and $660 per fortnight for couples without loss of any pension.
It ought to be easy enough to apply the scheme to rent as well as income from work, as it arguably already does given that renting out spare bedrooms is a form of self-employment and hence ‘work’.
As important would be making pensioners aware of any changes or clarifications to the rules in a way that normalised ‘taking in boarders’.
Rent needn’t mean capital gains tax
Anecdotal evidence suggests homeowners fear that renting out a spare bedroom will make their home liable for the capital gains tax that applies to rented properties when they are eventually sold.
While this may be true in some situations, it is somewhat of an urban myth, and the amounts of tax involved can be small.
- capital gains tax only applies to properties bought after September 20 1985
- any gain is taxed only at the marginal rate in the year the property is sold
- only half of each gain is taxed
- gains can be offset against capital losses
- only the net gain is taxed after costs.
And capital gains tax only applies for the portion of the home that is rented out, and for the portion of time it is rented out.
In my paper I explain how an apparent capital gain of $100,000 is taxed less where a room is only let for one year in five and is one of three bedrooms in the home, cutting the taxable capital gain to just $3333.
If the very concept of the calculation remains a barrier, it might be possible to offer homeowners who let out rooms a short-term ‘capital gains tax holiday’ for the next three to five years while new housing stock is being built.
Rules for safety and boarder matching essential
Another barrier is concern about safety, both personal and financial for older homeowners. Surprisingly, there are few rules governing boarding, with tenancy legislation saying little, forcing homeowners and tenants to rely on common law.
Australians letting out rooms need legislated protections from elder abuse and spurious claims of cohabitation and other rights.
Tenant matching and management systems could make the process simpler.
Imagine being able to walk into your local real estate agency and list your spare room to rent. If the agency offered boarder management services you could outline your preferences and ask it to put forward a list of candidates to interview.
Good matches would provide benefits for both older Australians and younger companions. Boarder management could become a new business model for real estate agents as well as non-profits.
Please note: This article does not provide tax or financial advice. It is general in nature and should not be relied on for taxation or financial purposes.
Lyndall Bryant, Lecturer in Property Economics, Queensland University of Technology
This article is republished from The Conversation under a Creative Commons licence. Read the original article.
Would you be comfortable renting a spare bedroom out? Why not share your opinion in the comments section below?
I have tried it and it is a pain in the arse. They bring nothing else but a suit case and an attitude. You then have to share the bathroom, the fridge, the stove, the dishwasher, and the TV. Trying to balance all that was a nightmare. He finally moved out because I was too demanding especially when I charred him for leaving the house open when he left for work. I also had trouble with insurance so – stick their communist thoughts up where the sunshine don’t shine
I have a spare bedroom but I wouldn’t want to rent it out because I use it when my children and friends visit. Also, I’m vegetarian and don’t want meat or pets in my house and I certainly don’t want to be cleaning up after anyone at my age. Occasionally, when I go overseas to visit family, I rent out my whole apartment through an agent, for 3 months. This entails lots of work putting personal things away, cleaning, etc. Despite my being eligible for $7800 per year in “earned” income without it affecting my pension, this rent is considered “unearned” and Centrelink takes a third. Agents need their cut as well. In addition, the tax implications mean that there is really no incentive for people to go to all that trouble and lose their privacy and peace of mind in the mix.
I wouldn’t feel comfortable and neither would any of my friends.
We wouldn’t like strangers in our homes and we like being able to leave our things wherever we want without them potentially being moved or taken.
Our spare rooms usually have things we still use but haven’t got room for elsewhere.
In a case I heard a man had rented out a room to a woman and when he died her children, whom he had never met, won a court case for part of his estate. They had not been in a relationship.
Why should I, it’s my HOME, the one I purchased to retire in, and I will decide who stays or lives here, and that will never include a total stranger.
The other reason is:- I am a Part Pensioner, and any income generated from a boarder will be seen as Income, and I probably will lose my Pension !
For those those self funded retirees who have a loved one in an Aged care facility and are paying a disproportional means test feel the rent income would be offset by the increase in the means test.
Some of the moonbeams who think up this stuff should do there maths.
Absolutely NO. Not a hope in hell. Far too many other complications – Centrelink, Insurance, future capital gains implications, not to mention lack of privacy. I am single, now 72yo, and have a small home, and a few years ago let the daughter of a very close friend stay in my home after she moved to my state. Initially was only for a month or 2 whilst she found her feet, but her feet became far too comfortable in my home. In the end, I had to ask her to leave, causing some animosity with my close friend. I am even reluctant to let family or friends stay more than a few nights at my place. I have always been single, and fought and worked damn hard to finally own my humble little home, with the emphasis on MY home.
One thing I can absolutely guarantee – that politicians won’t be renting out a room in one of their many homes.
Put a stop to immigration for a few years and let the housing market catch up with demand. Otherwise force wealthy homeowners to downsize into units and flog off the house. Too hard ?
Then vote for a new government next year.