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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