Tax threat to $1bn homestay industry

Host families for overseas students were already in short supply before tax warnings. SIMON COLLINS reports.

Homestay families are rebelling against an Inland Revenue Department plan to tax them if they take in more than one overseas student.

The department has written to Auckland host families asking for information about all homestay students since April 1998, in an apparent attempt to collect back taxes for the past four years.

But homestay coordinators for several leading institutions say host families do not need to pay tax unless they have more than two students.

Val Foreman, a coordinator who supervises 300 overseas students at six Auckland secondary schools and an English language school, says the Inland Revenue move will kill the market.

She has surveyed 80 of her host families who have two students, and found that 78 of them would refuse to take any more overseas students if they had to pay tax.

Mrs Foreman's agency, Home Care Services, collects payments from the students' parents and pays host families $160 a week for each student.

But Mrs Foreman said students often cost families more than that.

"So Inland Revenue may have to pay back [refunds]. I don't know if they'll like that," she said.

Inland Revenue's official guide to rental income (IR264 on its website) says income from a single boarder is tax-free, apparently on the basis that it is difficult to disentangle costs for a single person from a household budget.

All income from boarders who are relatives of the hosts is also tax-free.

But families who host two, three or four boarders must pay tax at their normal tax rate on 20 per cent of their gross income from all boarders, including the first one. They cannot claim deductions for expenses.

Alternatively, host families with two or more boarders may choose to declare all the income, and may then claim deductions for expenses, including a share of the rates and other household expenses.

Although these guidelines are dated 1999, many homestay coordinators have not been aware of them.

Tina Angelova, of Auckland Homestay Services, which handles students for Unitec and Auckland College of Education, said: "Until recently we were told by Inland Revenue that families can have two [students] without paying tax."

The chairman of the Combined Registered English Language Schools, Cleve Brown, said the Inland Revenue crackdown was "a bit of a shock for a lot of people".

The chairwoman of the Association of Private Providers of English Language, Barbara Takase, said the move would worsen a serious shortage of families willing to take homestay students.

"We are in a situation, especially in Auckland and Christchurch, where the whole homestay setup is just saturated with overseas students. We just can't find suitable families," she said.

The chief executive of the industry umbrella group Education NZ, Lester Taylor, said the number of foreign students had grown by about 5000 a year in the past few years and was expected to top 50,000 this year, bringing in more than $1 billion a year in total foreign exchange.

He estimated that about 20,000 of the foreign students were in homestays.

Mrs Foreman said the 10,000 or so hosts with secondary school students should be exempted from tax.

"What I'm saying is leave our high school students alone.

"Hosting a high-school student means including them as part of your family.

"You are helping them with their homework, going to parent interviews, cooking and cleaning for them and running them around."

IRD