April 1 marks a significant change in the GST tax treatment of mixed-use assets.
Taxpayers can claim 100% of GST for expenses relating to the income-earning use of a mixed-use asset, for example, the cost of advertising a holiday home online.
However, working out GST claims for expenses relating to both the income-earning and private use of the asset has been more difficult to establish.
In the past, a complex calculation has been needed to apportion GST expense claims relating to both income-earning and private use.
As of this month, GST calculations for mixed-use assets have been simplified. You no longer need to use the old method and general apportionment and adjustment rules will apply instead.
The mixed-use asset apportionment method can be used or continue to be used as a fair and reasonable method.
Remember, if you have a mixed-use asset, such as a boat, bach, or plane, please keep records on how and when it is used for business or private purposes.
What Are Mixed Use Assets?
Do you have a holiday home that you also rent out commercially? Or do you own a boat or a plane which you use privately as well as renting out for charter or other commercial purposes? These are known as mixed use assets.
You have a mixed-use asset if, during the tax year, the asset is:
used for both private use and to earn income
unused for 62 days or more.
From the 2013-14 income year until the 2023-24 income year, special rules apply for mixed use assets, governing the way you calculate what is and isn’t deductible on a holiday home, boat or plane that is used both privately and for business.
Under these rules, you are only able to claim deductions for costs incurred that relate to the asset’s income-earning use. You are not able to claim deductions for your own private use (note private use may include renting out mixed-use assets at less than market value). So, you need to keep track of when the asset is used to earn income and when it is used privately.
You can opt out if one of the following apply:
your gross income for the tax year from the income-earning use of the asset is less than $4,000
your asset is loss-making and your gross income from income-earning use is less than 2% of the value of the asset (see below for how to calculate this value).
If you take this option then you will not be able to claim associated expenses.
The above exemptions do not apply to holiday homes owned by companies.
If you’re unsure about these changes, give your adviser a call.
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