Home Stay Arrangements: How Does it Compare to Renting a Room?

What is a Homestay Arrangement?

A homestay arrangement goes beyond the standard room rental; it's an immersive experience that welcomes students into a local family environment. Typically coordinated through universities or educational institutions, homestays provide students with full-board accommodation, which includes a private room, daily meals, and shared access to household spaces like the kitchen, laundry, and living areas. Unlike traditional rentals, homestays invite students to become part of their host family's daily life, fostering a sense of belonging and cultural exchange. These arrangements are often short-term, lasting less than a year, making them ideal for students who want a supportive home base while studying in Australia.

How Homestay Differs from Renting a Room

The primary difference between homestay and renting a room is a homestay is considered non-commercial. Payments cover household costs for the student, and hosts are not taxed on these payments. Private room rental is considered a commercial enterprise, making the income assessable. Hosts must declare this rental income and may apportion expenses, such as utilities and mortgage interest, as deductions.

Tax Treatment of Homestay Arrangements

The Australian Taxation Office (ATO) classifies homestay payments as non-assessable income, provided they only cover basic costs like food, utilities, and other necessary living expenses. Hosts have no additional tax obligations or reporting requirements. However, this also means hosts can't claim deductions for expenses. Beyond financial simplicity, hosting creates a unique opportunity for cultural exchange, enriching the lives of both hosts and students in a mutually rewarding experience.

Capital Gains Tax (CGT) Considerations

One notable advantage of homestay arrangements is their minimal impact on Capital Gains Tax. Since the payments are considered non-assessable income, they do not jeopardise any main residence exemption (MRE) entitlement. In contrast, renting out part of a home commercially may expose a portion of the property to CGT upon sale.

Which is Best?

For Australians looking to open their homes to local or international students, homestay arrangements offer a unique blend of cultural enrichment and financial benefit. Unlike commercial rentals with taxable income and potential CGT implications, homestay payments are tax-free, covering only hosting costs, leaving your main residence exemption untouched. A homestay also provides a rewarding way to welcome students into a supportive environment without the complexities of traditional room rental. For more information on whether this arrangement or room rental is best for you, consult your Ascent Accountants advisor.