Renting part of your home-Airbnb and Age Pension

Renting part of your home-Airbnb and Age Pension

Renting part of your home-Airbnb and Age Pension

Many retirees are looking for various forms of an additional income stream in retirement and the question I often get asked is:

“Can I rent part of my home and how is my home assessed by Centrelink for the Age Pension?”

Therefore, today’s discussion is relevant for you if:

    • You are a homeowner
    • You wish to rent part of your home – either long or short-term
    • You receive part or full Age Pension.

Many retirees wonder if setting up Airbnb is a good idea, is it profitable and how is Centrelink assessing home and rent earned under means testing. So the idea of renting part of the home is based on financial needs.

Others are happy to rent a room in their home not necessarily for the financial reasons, but more of the social reasons, companionship or security not to live alone.

Whatever your reasons are, before you start such an arrangement, you need to understand the rules and consequences.

As you know, your family home is generally exempt from means testing when calculating your Age Pension eligibility, however rules are different if you:

    1. Rent part of your home
    2. Rent a self-contained living area or
    3. You have another building that you are renting that is on the same property title as your family home.

This is what I will try to explain today.

1.      Rent part of your home

Asset Test:

If you rent a room or two in your family home, any rental income is then assessed under the “boarders and lodgers’ provisions”, but your rooms continue to be Asset Test exempt under your principal home exemption.

Income Test:

Only a part of the income earned is assessed:

  • Lodging – accommodation only – 70% of income is assessed
  • Bed & breakfast – accommodation & breakfast – 50% of income is assessed
  • Board – accommodation and meals in addition to breakfast – 20% of income is assessed.

If your expenses are greater than the general allowance provided, then you can discuss it with the Centrelink office by providing our tax return as a prove of your expenses.

Keep in mind however that your near relatives are exempt from the above rules and income received from them is not included in your assessable income under the Income Test.

A near relative is:

  • Your parent
  • Your child
  • Your sibling

It includes step, foster or adoptive relatives.

Let’s look at an example:

Susan is retired on part Age Pension, and she decided to rent one room with breakfast included receiving $150per week.

Under the Asset Test there is no change, Susan’s home will continue to be an excluded asset.

Under the Income Test, Centrelink will apply the following formula:

$150pw X 52 weeks = $7,800pa – this is an estimated gross annual income

$7,800 X 50% = $3,900pa – this is the level of assessable income counted by Centrelink based on bed and breakfast arrangement.

If you have mortgage repayments, this will further reduce the Centrelink assessment.

If you rent more than 5 rooms, Centrelink will treat this as a business, therefore your income will no longer be assessed under the boarder and lodger provision, but rather based on your net profit and most likely based on your tax return.

2.      Rent a self-contained living area

What is regarded as a self-contained living area?

A self-contained living area is the area that contains private or separate sleeping, cooking and bathroom facilities, for example a flat that is attached to your home.

Asset Test

The Centrelink assessment of your self-contained living area is based on who is renting the area from you. If your renter is you near relative, then the full value of it is exempt from the Asset Test as being part of your family home.

Income Test

Additionally, any income received from your near relative will not be assessed.

If however, the self-contained living area is rented to a non-near relative, then the area is no longer exempt from means testing and the rental income is assessed under the Income Test.

The following table summarises the assessment of a self-contained living area:

Rent

Centrelink most likely will perform their own Asset Test assessment to value the part of your property that belongs to the rented living area.

Rental income will no longer be assessed under the boarder and lodgers rules, but rather those of the usual rental property, therefore gross rental less allowable deductions.

3.      You have another building that you are renting that is on the same property title as your family home.

In the situation of having another building on your property that is on the same title as your family home, the Centrelink assessment is based under the “dual occupancy” rules.

In this situation, the assessment will depend on:

  • Is the second building rented to your near relative
  • Who paid for the construction costs

As this is becoming a bit complex, explanation of this situation is beyond the scope of a short video and a full personal advice is highly recommended.

Actually, my sincere recommendation is to ask for the full advice and assessment of possible cashflow and personal impact on Age Pension in any situation when you are thinking about renting your home.

Simply, just visit our website AboutRetirement.com.au and click the button BOOK A MEETING. Organise a meeting either with myself or Shaun at your preferred time. Meeting can be organised in our Boronia office or online via Zoom facility. We both specialise in retirement planning, so you will always receive the most appropriate and consistent advice, no matter who you organise the meeting with.

By: Katherine Isbrandt CFP® and Shaun Jones FP
Money Strategist & Retirement Planner
Principal of About Retirement

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