Question: To help meet the mortgage costs for a house recently purchased in Auckland, the owner has taken in boarders to use the spare rooms in the house. How many boarders can a person have at any one time without having to declare the board received as taxable income?

ANSWER: A person who receives income from private boarders can choose either the standard-cost method or the actual-cost method to work out whether they have to pay tax on this income. If the person elects to use the actual-cost method, the person will need to file an income tax return including the net income from boarders as taxable income. The person must keep records and can claim a deduction from the income received for the actual costs incurred in providing board to the boarders. The standard-cost method uses an average price for basics such as the cost of food, heating, power and transport. The amount is an average across the country and is inflation-adjusted annually. If the person's income from boarders is less than the standard cost allowed, the person does not need to file a tax return (unless they are otherwise required to file a tax return), keep records of related expenditure or pay tax on the income. If the person's income from boarders exceeds the standard cost allowed, the excess is taxable income. For the year ended 31 March 2016, the standard cost for one to two boarders is $257 a week per boarder. For three to four boarders the standard cost is $257 a week per boarder for the first two boarders and $210 per week for each subsequent boarder. These rates will be adjusted for inflation for the 2017 year. If the person has an average of five or more boarders in residence during the income year, the person cannot use the standard-cost method and must use the actual-cost method. Accordingly, when a person has five or more boarders, income earned from the boarders will be taxable income. REFERENCE: Income Tax Act 2007, ss CW 61, YA 1 ("standard-cost household service"). Inland Revenue Determination DET 05/03: "Standard-cost Household Service for Boarding Service Providers" in Tax Information Bulletin Vol 17, No 10, December 2005