Do you rent out your holiday home or bach?
The new rules on mixed-use assets could affect you.
From the beginning of the 2013/2014 income year, if you have a property that you sometimes live in it and sometimes rent it out, then it is a mixed use holiday home and the new formula for working out the effect on your income has changed.
Now this is all to do with the ability to deduct associated expenses and whether income is exempt from tax. It only relates, however, to land (including buildings) and assets that cost $50,000 or more and the asset must be used both privately and earn income, and not be used for at least 62 days (or 62 working days if that is typical of the normal use of the asset) of the income year.
These rules relate to assets held by an individual, a trust, or a partnership, or a small (close) company.
Don’t worry though – your car is not included and your home office, or the extra bedroom used by a boarder should be fine as in the office or bedroom you will already be apportioning their use as to size in your income tax calculations.
‘Private-use’ is defined as the owner, or anyone associated with the owner, even if the use of the asset is non-exclusive, or the amount of income received is in line with market value, or where the amount received is more of a token amount.
The mixed-use of holiday homes can be really varied – Inland Revenue is basically only interested where there is a definite attempt to rent out a home to the public – not just friends who want to pay you something for the privilege of using your house by the sea. The deductions for expenses are allied to the number of days of official renting of the house at a market rent and private use – e.g. an owner spends $5,000 on general repairs and maintenance to a holiday house used by his family for 28 days a year and rented out to a third party for 14 days over the Christmas/New Year period for $2,000.
If the owner wants to work out how much of the deductible costs he can claim for 2013/2014 he will calculate it as $5000 multiplied by the income earning days (14) divided by the income earning days plus private use days (14 + 28). This can be applied to hours or nights if it is a fairer apportionment.
i.e. Income earning days
Expenditure x _____________________________
Income earning days + private days.
Expenses are classified as subject to this apportionment if they relate to the private and income-earning use. If however they are incurred solely for income earning purposes – advertising or building requirements for non-private use they may be fully deductible. If however they are incurred solely for the private use of an asset, they are non-deductible.
It is worth knowing too that if the income for your holiday home is less than $1000, you can elect not to be part of this rule and your income will be exempt from tax and any expenses will be non-deductible.