Blog Layout

Mixed-Use Assets Legislation

Hamish Pryde • May 6, 2018

Mixed-Use Assets New Legislation

From the beginning of the 2013–14 tax year owners of "mixed-use" holiday homes will have to work out their income tax obligations differently.

You have a mixed-use holiday home if during the tax year; your property is used both for "private use" and "income-earning use".

What is "private use"?

Private use of your property means:

•   Use by you or your family, even if rent is paid.

•   Use by non-associated people if you earn rent at less than 80% of market rates.

What is "income-earning use"?

Income-earning use of your property means use by a non-associated person from which you earn rent at 80% or more of market rates.

Exemptions

If your income from income-earning use is less than $4,000 for the year, you can opt to keep the holiday home outside the tax system. That means your rental activity doesn't need to be included in your income tax return. You don't return any of your income and you can't claim any of your expenses for the holiday home.  You can also choose for your rental activity to remain outside the tax system if:

•   You make a loss, and

•   Your gross income from income-earning use is less than 2% of the rateable value of the property.

What income is taxable?

You must pay income tax on rent earned from income earning use.  Any rent from private use is exempt from income tax.

What expenses are deductible?

Expenses from mixed-use holiday homes fall into three categories:

1.      Fully deductible. You can claim 100% of any expense which relates solely to the income-earning use of the holiday home. Examples: Costs of advertising for tenants, costs of repairing damage caused by tenants.

2.      Not deductible.  You can't claim any expenses relating to the private use of the holiday home.

For example: Costs of a boat and quad bike stored in a locked garage and unavailable to the non-associated people renting the holiday home.

3.      Apportioned. If an expense relates to both income earning use and private use, you need to apportion it using this formula:

 

Apportionment formula:

 

Expense    ×     _____ _Income-earning days__________

                      Income-earning days + private-use days              Examples: mortgage interest, rates, insurance

 

Record keeping

Please keep records so that we can work out your tax obligations at the end of the tax year. Your records should show: private-use days, income-earning days, the expenses you paid, and the name of each tenant together with their relationship to you and the rent they paid.

This new legislation changes to way your income shall be calculated. If you can begin your record keeping under the new rules immediately that shall greatly assist in the preparation of your 2014 income tax returns.

Carry forward of Losses

If you make a loss from your mixed-use holiday home, and your gross income from income-earning use is less than 2% of the rateable value of the property, you can not claim the loss in the current year.  You will have to carry forward the loss to offset against income from your holiday home in a future tax year.

By Hamish Pryde September 11, 2024
Paper is everywhere. We spend a lot of time and money moving paperwork around. But with today’s technology it is now possible to get rid of paper entirely. Digital documents are simpler, easier to store and send, more searchable and permanent. How long does it take to post a document to somebody via the ole stamp and envelope method, that is snail mail? It is more efficient and timelier to email the document. How many times do you go to print a document at home and find that your printer has run out of ink? Why do we still hold onto printing paper documents? Sometimes it’s just because that’s what we’ve always done and let’s face it change can be difficult at first. Paper alone is cheap. But when you start paying for printers, toner, servicing and maintenance, paper starts to look more expensive. Let alone the storage cost. Paper tax records for seven years can be quite a few boxes of paper. We have embraced some paperless technology as part of a modern business practice. This includes digital signatures, digital collaboration, paperless minutes of business improvement and coaching meetings, electronic work papers and my new digital notebook which I am enjoying. We send questionnaires via email to you to gather vital information to enable us to prepare your annual financial statements. This is a PDF document. Instead of printing the questionnaires you could save the document down into a folder of your choice then edit the PDF document and return to us. How do you edit a PDF document you ask? Once you have opened the document the Adobe online editor lets you do some things for free. The online editor works in any web browser and lets you add text, sticky notes and highlights. Click on the fill & sign button to the right of the document, then in the top toolbar click Iab text button. You can add text directly on the PDF document. Have a try next time you have a PDF document open. Xero and Farm Focus users can attach invoices directly to the transaction loaded into Xero. Then if you are looking at the rates expense in the profit and loss account or farm working account, you can drill down into the rates code and see the transactions. Then attached to each transaction is the rates invoice if you use this great functionality. All invoices can now be stored in the cloud. So why paperless? Productivity - electronic documents are instantly and simultaneously available to everyone who needs them. Reduce waiting times with less risk of loss or damage. Cost savings - you will save money on printing, postage and associated costs. You could pay less rent because you won’t need all that space for your files. Security - electronic documents are more secure than printed ones. Digital records can be password protected and rendered unreadable through encryption. Printed documents are only as secure as their proximity to a copy machine. Reduced Clutter - paperwork on desks and shelves are not only untidy it’s inefficient too. The organisation of digital files is simpler and your office will look much neater. That will help you clear your mind to focus on your business. Environmentally friendly - less printing means fewer trees cut down for pulp and less energy used to make and transport paper. Disaster recovery - if there is a fire or flood, recovery from the backup is much easier with digital storage them with paper. There are great help articles available in Xero or Farm Focus if you are not attaching invoices to payments already. To find out how click on the links below: If you would like to explore ways you can go paperless we can help.
By Hamish Pryde September 10, 2024
The Back Pocket Boost
By Hamish Pryde February 24, 2024
When Is the Sale of Land Taxable?
Show More
Share by: