Tax Obligations for Owners of Mixed Use Assets
The mixed use asset rules are an intricate piece of tax legislation designed to ensure that taxpayers who own ‘mixed use assets’ pay their share of tax for income earning activity. They apply in very specific circumstances: when an asset is used for both private and income generating purposes, and is unused for 62 days or more per year. These rules will generally apply to income generating holiday homes, boats and aircraft, but are broad enough to apply to a wide range of assets.
In addition to the circumstances mentioned above, boats or aircraft are only considered ‘mixed use assets’ if the cost or market value was $50,000 or more at the date of purchase. There is no cost or market value limit for holiday homes.
‘Private use’ is defined as use by you or associated people, (usually family members) regardless of whether income is derived from this. It also applies when an asset is rented or hired at less than 80% of the market rate. Any income received from private use of your asset is non-assessable, however no expenses relating to private use can be deducted.
‘Income earning use’ of your mixed asset is the opposite of private use; the asset is rented or hired at more than 80% of market value, by non-associated people. Any income received from income earning use of your asset is assessable. Expenses related to the income earning use of your mixed asset are usually deductible.
Expenses associated with both income earning and private use, such as insurance and rates, are apportioned between private use and income earning use over the tax year to determine their deductibility.
Mixed assets provide a means to claim deductions on expenses you would not get for assets used wholly privately, but you also need to be aware of your tax obligations for any income you earn.
For advice or assistance on any aspects of mixed use assets discussed above, please contact your local BDO adviser.