While there’s little relief in sight for Australia’s housing crisis, with new projects , there appear to be as many as unused spare bedrooms across the country.
Author
Lyndall Bryant
Lecturer in Property Economics, Queensland University of Technology
In a new 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 Australian homes have one spare bedroom, another 3 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 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 “” 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 bear an appropriate proportion of the costs actually incurred on food, electricity, heating and other costs of running the home.
“³Ô¹ÏÍøÕ¾stay” for international students is an example. ³Ô¹ÏÍøÕ¾stay hosts can receive about for providing a fully furnished room, main meals and utilities in an arrangement the Tax Office has ruled .
Rent needn’t cut off the pension
All pensioners are currently eligible for the 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 .
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.
