Social security: How income from boarders and lodgers is assessed

For clients living in a property they own, renting out a room presents an opportunity to generate extra cashflow that can be used to help manage the rising cost of living.

For retirees, income generated from renting out a room can supplement any superannuation pension and guaranteed lifetime income streams, but it could also impact the Age Pension. Likewise, other social security and DVA recipients receiving income from lodgers may also have their benefits impacted.

Unlike a tenant and landlord arrangement, boarders and lodgers pay for the right to occupy a residential premises; however, the arrangement is generally not covered by legislation affecting rental agreements.

Boarders and lodgers are effectively renting a room whilst sharing the common space and there is no expectation on a landlord to give a long notice period to end the arrangement. Also, there is no need for this type of renter to put up a deposit.

Rent received from boarders and lodgers is assessed for the Income test depending on the situation as detailed in the table below.

  Situation

  Description

  % treated as income

  Lodging

  Accommodation only

  70%

  Bed and breakfast

  Accommodation and breakfast

  50%

  Board

  Accommodation and meals in addition to     breakfast

  20%

There is an exception ensuring income from these arrangements is not assessable for social security purposes if rent is received from a boarder or lodger who is the homeowner’s:

  • parent (may include step-parent, foster parent or adoptive parent)
  • child (may include step-child, foster child or adoptive child), or
  • sibling (may include step-brother, step-sister, foster brother, foster sister, adoptive brother or adoptive sister).

If there is a mortgage against the primary home, assessable income from a boarding or logging arrangement could also be offset as detailed in example 2.

  Example 1 – Raj

  Raj (72) is starting to live alone for the first time in a very long time. For the past 40 years, he lived with his wife, Sonita. When his wife was diagnosed with Stage 4 cancer, about 18 months ago, she tried to prepare him for living alone. 

  However, since Sonita’s passing three months ago, Raj has struggled to cope with living alone in a house suitable for four people. Despite taking on the advice of his younger sister to ‘reach out to friends and family’, he doesn’t want to inconvenience people who are busy leading their own lives and he recognises that regular catch ups do not replace the feeling of coming home to an empty house.  

  Having recently discussed these thoughts with his eldest daughter, she mentions that her son, Karthik, would be open to moving in with Raj to keep him company whilst completing the last two years of his university degree.

  Having a close relationship, Raj and Karthik agree to the arrangement with a few basic house rules e.g. Karthik would keep the his room neat and tidy and help with general house chores where necessary. Despite Raj’s insistence that Karthik would be living with him at no cost, Karthik acknowledges that his grandfather lives very frugally and insists on paying $100 per week to help with household expenses.

  For the Age Pension income test, Raj is receiving $5,200 p.a. of income from a lodger, of which 70% ($3,640 p.a.) is assessable. Despite being a family member, Karthik does not satisfy the requirements to ensure the rent paid to Raj is exempt from the income test.

 

  Example 2 – Sally

  Sally (60) lives in her own home with a mortgage of $60,000 at 6%. Having been made redundant in November 2023, she is currently in receipt of the JobSeeker Payment whilst she continues to look for suitable employment.

  Her friend, Melissa (54), has recently separated from her husband of 10 years and is looking for alternative accommodation until her divorce is finalised. As Sally has two spare rooms, she asks Melissa if she would be interested in renting a room at a cost of $300 per week, which she gladly accepts.

  For the JobSeeker income test, Sally is receiving rent of $15,600 p.a. of which 70% ($10,920 p.a.) is assessable. The interest on her mortgage is $3,600 ($60,000 at 6% p.a.), which reduces the assessable amount of the rental income to $7,320 p.a.

 

For more information on how income from boarders and lodgers is assessed, refer to 4.3.8.40 Income from boarders or lodgers | Social Security Guide (dss.gov.au)

Social security rates and thresholds as at 1 July 2024.

 

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This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at August 2024 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial adviser and consider the appropriateness of the information received, having regard to your objectives, financial situation and needs. Any tax and social security information in this material sets out our understanding of current legislation and practice as at the date of this document. It is only intended to be general in nature and does not constitute tax or social security advice. We recommend that you seek specific tax and social security financial advice on your personal circumstances before acting on this information or making an investment decision. No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Past performance is not a reliable indicator of future performance. Use of the word ‘guarantee’ in this material refers to an assurance that certain conditions or contractual promises will be fulfilled by Allianz Retire+ from the available assets of its Statutory Fund No 2, in relation to the product terms. This includes ‘guaranteed’ income payments in the Lifetime Income Phase which will be paid from the available assets of Statutory Fund No 2, noting that Allianz Retire+ may terminate the product in certain limited circumstances as outlined in the Product Disclosure Statement referred below. Allianz Australia Life Insurance Limited is the issuer of Allianz Guaranteed Income for Life (AGILE). Prior to making an investment decision, investors should consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) which are available on our website (www.allianzretireplus.com.au). PIMCO provides investment management and other support services to Allianz Retire+ but is not responsible for the performance of any Allianz Retire+ product, or any other product or service promoted or supplied by Allianz. Use of the POWERED BY PIMCO trade mark, or any other use of the PIMCO name, is not a recommendation of any particular security, strategy or investment product.

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