How to Pay $0 Tax on Boarder Income in NZ (Even If You're a Tenant)

Is there a way to pay $0 tax on rental income?

Yes, there is. In fact, I’ve identified 12 different ways in my research. All completely legal under the Income Tax Act and approved by Inland Revenue (IRD).

In this article, I’ll walk you through one of those ways:

How to pay $0 tax on boarder income using IRD’s standard-cost method.

This applies when you rent out a room in your own home. And yes, even if you’re a tenant and don’t own the property.

Here’s 9 things that I’ll cover:

Why IRD allows these $0 tax rules
How to legally pay no tax on boarder income
Who qualifies as a “boarder” (and who doesn’t)
7 real-life examples of boarders that count
A breakdown of IRD’s 3-part standard cost formula
How much income can actually be tax-free
Whether you need to own your own home (you don’t)
7 common mistakes to avoid
Bonus: links to free resources to check your eligibility

Let’s get into it.

Why Does IRD Allow These $0 Tax Rules?

The IRD introduced this method to reduce compliance costs for everyday taxpayers. In their words, this method exists because it “results in a significant reduction in compliance costs for taxpayers, without inappropriate risk to IRD’s revenue”.

Translation?

If you’re just renting out a room casually and not making a huge profit, the IRD doesn’t want you to deal with tax returns, expense logs, or calculations.

How Do You Pay $0 Tax on Boarder Income?

Short answer: You pay zero tax if your income from boarders is less than or equal to the IRD’s standard-cost amount.

Here’s the rule:

“Income from boarders is exempt up to the amount of standard-cost.”

If you meet the criteria, not only do you not pay tax, but you also don’t need to file a tax return for this income. That’s a win-win.

Who Is Considered a “Boarder”?

IRD defines a boarder (or home-stay student) as someone who:

Lives in your private home (your main residence), and
Pays you for accommodation, plus services such as meals, laundry, or care, as part of that arrangement.

It’s not enough for someone to simply pay rent and split power or internet. That’s a flatmate.

The key difference is the inclusion of regular services, such as:

Daily meals (e.g. breakfast, dinner)
Laundry and clean linen
Transport (if agreed as part of the arrangement)
General household care or personal support

IRD makes it clear that things like “tea and coffee” don’t count. There must be meaningful service alongside accommodation.

So, if you rent a room and provide meals and basic care, that person is a boarder. If you rent a room and they do their own cooking, laundry, and chores, that’s a flat-mate, and different tax rules apply.

7 Practical Examples of Boarders

Here are some real-world examples of people who could qualify as boarders under IRD’s definition, assuming you provide meals or household care:

New immigrants staying temporarily in your home while settling in.
Temporary workers staying short-term and receiving meals and laundry.
Elderly individuals living with your family and receiving meals and care.
Interns or trainees hosted during training with meals and household support
Seasonal agricultural workers staying with your family and receiving meals
Homestay students who attend local schools and live with a Kiwi family
Backpackers or youth travelers staying under informal room-and-board terms

In all cases, it’s not about the person’s visa or employment status, or who they are. What matters is what services you provide as part of the accommodation.

Breaking Down the 3 Categories of Standard Cost

This is the IRD’s way of recognising that hosting a boarder comes with costs. It’s made up of three parts:

1. Weekly Standard Cost

This is a fixed weekly rate per boarder set by the IRD. For the 2024–2025 tax year, it’s $237 per boarder, per week (up to 4 boarders).

So if you have 4 boarders living with you for 52 weeks, that’s:

4×52 × $237 = $49,296 of tax-free income

That’s before even adding any housing or transport costs (see below).

2. Annual Housing Standard Cost

This varies based on whether you rent or own:

If you’re a tenant, it’s based on your annual rent paid.
If you own the home, it’s based on 4% of your home’s market value.

This figure is then prorated based on how many boarders you had and how long they stayed.

It’s added on top of the weekly allowance to increase your tax-free threshold.

3. Annual Transport Standard Cost

IfThis only applies if you provide transport as part of the arrangement. E.g. school drop-offs, regular rides.

You’ll need to keep a record of kilometers and use IRD mileage rates (or actual costs). If you don’t provide transport, you can ignore this part.

The Total Tax-Free Threshold You Can Benefit From

Here’s how it works:

Boarder income is tax-free if it’s less than or equal to:

Weekly Standard Cost + Annual Housing Cost + Transport Cost (if applicable)

If your boarder income is within that threshold, then:

You pay zero tax
You don’t file a tax return for it
You don’t need to keep receipts

Only if your income exceeds the combined standard-cost allowance do you need to file a return. And only pay tax on the excess amount.

Do You Need to Own Your Home to Use This Method?

No. You don’t need to own the home. Tenants are eligible too, as long as you’re renting out your main residence and meet the other criteria.

In the free resources download section below, there’s a section specifically for renters to calculate housing costs based on your rent.

7 Common Mistakes to Avoid

These are the most common mistakes I’ve seen from experience:

Treating flatmates as boarders. If you don’t provide meals or care, they’re flatmates, and you can’t use the standard-cost method.
Exceeding 4 boarders. This method only applies if you have 4 or fewer boarders at any time. If you go over, you must use actual costs and declare all income.
Failing to track how long each boarder stayed. The allowance is based on weeks per boarder, not annual rent divided equally.
Assuming transport costs apply automatically. You must actually provide transport and keep mileage logs if you want to claim this.
Not prorating housing costs properly. For example, if your boarder stayed for only 6 months, you can’t claim the full year’s housing allowance.
Using this method in a GST-registered business. If you’re renting rooms commercially as part of a business, this simplified exemption doesn’t apply.
Forgetting to file if you go over the threshold. If your income exceeds the combined standard-cost figure, you must declare the excess in a tax return.

Key Takeaways

You can legally pay $0 tax on your boarder income, if you stay within IRD’s standard-cost limits. This method is ideal if you’re casually renting out a room in your home, and you’re including services like meals or laundry. No tax. No returns. No admin. Just remember to follow the rules carefully and avoid the common traps above.

Regards,

Baqir Hussain, FCCA

Bonus: Free Tools and Resources

—> Click to Download

The free tools and resources will allow you to:

Check your eligibility (online calculator link); and
Work out your numbers using a worksheet.