If you’ve ever taken in a boarder, hosted an international student, or rented out a spare room through Airbnb or Stayz, you’ve probably wondered exactly where the tax line sits. Is the money you receive taxable income? Can you claim a slice of your mortgage interest or electricity bill? The ATO has recently issued detailed guidance clarifying both questions, and the answers aren’t always what people assume.

When is money from a boarder or student actually assessable income?

The starting point is simple: a genuine household or family arrangement, where someone living with you contributes toward shared costs like food, electricityand other everyday expenses, is not assessable income to you. It’s just cost-sharing, not rent.

But the moment a payment starts to reflect the right to occupy part of your property, rather than just a contribution to shared running costs, that portion becomes assessable.

Two ATO examples illustrate the distinction clearly:

Pure cost-sharing (not assessable)

Bart lives with his daughter Mary and her two children. Mary pays Bart $200 a week forboard, covering roughly a quarter of the household's food, electricity, and other costs. Because this reflects Mary’s fair share of household expenses, not payment for the right to occupy the home, none of it is assessable income to Bart.

Mixed arrangement (partly assessable)

Ben and Jill host an international student, Michael, who lives in a spare room and eats meals with the family. If Michael’s sponsor pays $80 a week purely to cover his share of food and household costs, none of it is assessable to Ben and Jill, and they can’t claim any deductions either, since there’s no rental income to offset. But if the payment is instead $400 a week, made up of $80 for householdc osts plus a genuine $320 rent component, that $320 is assessable rental income. In that case, Ben and Jill can also claim apportioned deductions against it, such as a share of mortgage interest, council rates and building insurance.

The practical test

Does the payment represent your share of genuinely shared costs, or does it represent someone paying for the right to use part of your home? The first isn’t taxable. The second is, and once it is, you also unlock the ability to claim relevant deductions.

This same principle applies to flatmates pooling money to pay rent to a landlord, if everyone has an equal obligation to pay their share and one person simply collects and forwards the pooled amount, that's not income to the collector.

If you do have rental income, how do you workout your deductions?

Once part of your property is genuinely producing rental income, whether from a long-termtenant, a boarder paying genuine rent, or short-term guests through an accommodation platform, you’ll usually need to apportion your expenses between the private and income-producing use of the property.

The ATO has recently released a Practical Compliance Guideline providing clearer guidance on how this apportionment should work. The good news is that if you apply the ATO’s accepted methods sensibly, the ATO has confirmed it won’t have cause to dedicate compliance resources to challenging your claim.

What needs to be apportioned?

Common expenses requiring apportionment include:

• Holding costs; mortgage interest, council rates, land tax, building insurance;
• Depreciation (decline in value) deductions;
• Capital works (building write-off) deductions; and
• Capital works (building write-off) deductions; and

Some costs, by contrast, never need apportioning because they relate solely to the income-producing use of the property; these are fully deductible regardless of how much of the property is rented:

• Cleaning costs between tenancies or after guests depart.

The two accepted methods

Time-based apportionment applies where a property is used to produce rental income for only part of the year, for example, you rent the whole property out, then later move into it yourself. The formula is:

Days the property was rented or genuinely available for rent ÷ total days you owned it that year

Example: Jerry rents his unit to long-term tenants until they vacate on 9 March, then renovates and moves in himself by June. His property was rented for 252 of the 365 days in the income year. On $14,200 of mortgage interest and council rates, his deductible claim is $14,200 × 252/365 = $9,804.

Area-based apportionment applies where only part of a property is used to produce rental income, for example, you live in part of a home while renting out another part. The formula is:

(Floor area exclusively used by the tenant + half the shared common area) ÷ total floor area

Example: Barry rents the bottom floor of his two-storey townhouse to a long-term tenant, sharing the garden. The bottom floor is 45m², the top floor 55m², and the garden 35m². His apportionment percentage is (45 + 35÷2) ÷ 135 = 46.3% of relevant property expenses.

Combining both methods

Where part of your property is rented for only part of the year, the classic “spare roomon Airbnb” scenario, you generally need to combine both methods.

Important trap: the ATO has clarified that days a room is merely listed for rentbut not actually booked count as zero toward your time-based apportionment. A spare room sitting unbooked is treated as private use of your home during that time, not as “genuinely available for rent.”

Example: Jane lets out her spare bedroom (10m² out of an 80m² unit, with access to 50m²of common areas) for 100 actual rental days during the year, plus 45 days it was listed but unbooked (which don’t count). Her combined apportionment is:

• Area-based: (10 + 50÷2) ÷ 80 = 43.75%
• Combined with time-based: 43.75% × (100 ÷ 365) = 11.99% of her ownership-related holding costs (mortgage interest, rates).

Jane can separately claim 100% of costs that relate solely to the rental activity, such as platform fees and cleaning specific to guest stays.

The depreciation trap many people miss

If you’re renting out part of your own home, a spare room via Airbnb, for instance, there’s a specific and easily-missed restriction on claiming depreciation forfurniture, appliances, and fittings in that space. Under the “previously used asset” rules, if an asset (acquired after 9 May 2017) has at any point beenused in your own residence or for private purposes, depreciation deductions aregenerally denied entirely while you continue to use part of the home privately, even though you're legitimately earning rental income from it.

This is a different rule from the apportionment principles above, and it catches out alot of people who assume that because they’re earning genuine rental income, they should be entitled to claim a depreciation deduction on the furniture in the room they’re renting out. In most owner-occupier short-term letting situations, they’re not.

If you’d like help working out how these rules apply, get in touch with our office

If you take in a boarder, host a student, or rent out part of your home, it’s worth pinning down exactly what your arrangement actually is, genuine cost-sharing, or a rental arrangement, before you decide what (if anything) needs to go in your tax return. And if you do have a genuine rental component, getting your apportionment method right matters: done correctly using the ATO’s accepted methods, you get the benefit of reduced compliance scrutiny; done incorrectly, you risk both under-claiming and overclaiming.

This article is general in nature and does not constitute tax advice. It is based on draft ATO guidance current as at mid-2026. Speak with us about how these rules apply to your specific circumstances.