Taking on Flatmates: Financial and Legal Aspects for NZ Homeowners

A homeowner may receive income by renting out a spare room. The amount and reliability vary by location, room, inclusions and the agreement, and the income may have tax consequences.

Do not assume a flatmate, private boarder and tenant are the same. Their legal and tax treatment can differ, so identify the arrangement before advertising or accepting payment.

Understanding the Legal Framework

When an owner gets a flatmate in their own home, the arrangement is not automatically covered by the Residential Tenancies Act. A private boarder is also distinct from an ordinary flatmate for tax purposes, so the label alone does not settle the position.

Check who occupies the home, what space and services are provided, who signed any agreement, and whether the parties have agreed that parts of the Residential Tenancies Act apply. Get legal advice if the status is unclear.

• Flatmate in an owner’s home: not automatically covered by the Residential Tenancies Act; rights depend on the agreement and circumstances.
• Tenant: tenancy status depends on the agreement and legal arrangement, not simply whether a space is self-contained.
• Key implication: record payment, bond, notice and dispute terms in writing and confirm which legal regime applies.

For an ordinary flatmate arrangement outside the Act, rights and notice depend heavily on the agreement. Govt.nz recommends a flat-sharing agreement covering any bond and notice; do not apply tenancy bond or termination rules without first confirming the arrangement.

A written agreement can be legally relevant, and unresolved flatmate disputes about what was agreed may go to the Disputes Tribunal.

Tax Treatment of Boarder Income

IRD treats ordinary flatmates differently from private boarders or home-stay students. Homeowners with flatmates use the actual-cost method to work out any taxable profit; eligible private boarding arrangements may use the standard-cost method.

For eligible private boarders or home-stay students, IRD’s weekly standard-cost rate for the 2025–26 income year is $245 per person, up to four. Eligibility conditions apply, and housing or transport standard costs may also affect the calculation.

• Eligible boarder method: if boarder income is below the weekly standard cost, IRD says no return, related expense records or tax are required for that income.
• Ordinary flatmate income: use IRD’s actual-cost method and keep the records that method requires.
• Do not treat the weekly boarder rate as a flatmate tax-free threshold; confirm eligibility and use IRD’s calculator or worksheet.

If eligible boarder income exceeds the weekly standard cost, housing and transport standard costs may also be deductible if their conditions are met; remaining income is taxable. Flatmate income uses the actual-cost method.

Creating a Flatmate Agreement

Govt.nz and Tenancy Services recommend recording a flat-sharing agreement in writing. Their template covers payment, inclusions, bond, notice and house rules; the agreement does not guarantee that disputes will not arise.

• Weekly rent amount and due date
• Bond amount (if any) and conditions for return
• What is included (utilities, internet, parking, laundry access)
• Notice period required from either party
• House rules (guests, quiet hours, smoking, pets)
• Shared cleaning responsibilities
• Access to specific areas (kitchen times, bathroom arrangements)

The conversation required to create this agreement is as valuable as the document itself. It forces both parties to discuss expectations before moving in, surfacing potential conflicts early when they can still be easily resolved or the arrangement reconsidered.

Insurance and Mortgage Considerations

Before a flatmate moves in, check the home and contents policy and ask the insurer in writing whether the new occupancy must be disclosed, changes cover or requires conditions. Cover and disclosure consequences depend on the policy and circumstances.

Check the mortgage documents and ask the lender whether taking payments from a flatmate requires disclosure or consent. Obtain written confirmation rather than assuming the lender’s position or enforcement approach.

Setting the Right Rent

Research comparable rooms in your area using platforms like Trade Me, Facebook Marketplace, and local community boards. Consider what is included: a room with ensuite, private bathroom access, or exclusive parking is worth more than a basic room with shared facilities.

Think about what services you will provide. If utilities are included, factor that into the rent. If you are providing internet, laundry access, or occasional meals, account for these costs. Being clear about inclusions prevents disagreements later.

Set the payment using comparable room arrangements, the space and services provided, and the household budget. Record what is included, when payment is due and how changes will be handled.

Making the Arrangement Work

An owner-occupied flatting arrangement is a shared living and contractual arrangement. Use the written notice terms and applicable law rather than treating the flatmate as either a casual guest or automatically a tenant.

Establish boundaries early. Be clear about shared spaces and private areas. Discuss how common areas will be maintained and how issues should be raised. Regular, casual check-ins help surface small problems before they become major conflicts.

Use consistent, lawful selection criteria and discuss payment, inclusions, privacy, guests, smoking, pets, cleaning and notice before agreeing. Do not rely on assumptions that have not been recorded and agreed.