Rent a room

YOURLifeChoices no-nonsense financial planner Maurice Patane answers Linda’s question about the effect renting out a room in her house will have on her pension.

Q. Linda

I have the chance to rent out a room in my home, but have no idea how this will affect my (full) Age Pension. Are you able to explain?

A. Wow, Linda – imagine the possibilities this will give you.

It is generally recognised that the full Age Pension will provide you with a modest lifestyle, while any additional income will move you towards a more comfortable lifestyle. The benefits of a more comfortable lifestyle include a lower level of financial stress and the ability to enjoy greater financial freedom and peace of mind: going to sleep at night in perfect harmony and waking up the same.

Generally most people tend to remove the luxuries and other expenses from their list of desires in order to cope on the Age Pension, whereas your creative thinking may enable you to enjoy some of the finer things in life.

So let’s understand the effect on your Age Pension.

The good news is that the actual rent you receive is not what is counted as income, but instead a percentage of this rental amount, which will vary between 0 and 70 per cent.

If the boarder or lodger is an immediate family member, the income received from the room rented is not treated as income for social security purposes.

On the other hand, if you are providing accommodation and all meals, then only 20 per cent of the amount is counted as income; whereas it’s 70 per cent if you are only providing accommodation.

So let’s assume you own your home outright (no mortgage) and you receive $100 per week from renting a room to another person. In this case, 70 per cent of the rent received ($3640 per annum) will be assessed as income.

Centrelink allows an income-free threshold whereby you can earn up to $162 per fortnight ($4212 per annum) and continue to receive the full Age Pension. Any income above the income-free threshold will reduce your Age Pension by 50 cents in the dollar for a single pensioner and 25 cents in the dollar for each member of a couple.

Assuming you have no other income, you will continue to receive your full Age Pension.

This is one of those rare cases where you can have your cake and eat it too!

Maurice Patane has been a financial planner for over 25 years. His experience has shown him that many Australians are not living the lives they dream of or wish for, which is often due to poor financial decision-making. Maurice is dedicated to helping everyday Australians take control of their financial future, so that they no longer have to worry about money.

Maurice Patane
Access Financial Management AFSL 229760
Ph (03) 9500 9988
Email: [email protected]

Written by Maurice Patane