Bach tax proposals updated
Proposed changes to the taxation of holiday homes, aircraft and boats have been given a further revamp as a result of submissions received by the Government.
At present, owners of assets used both for business and private purposes are allowed a tax deduction for periods if the asset is not being used privately and is available for business use.
The proposed rules will require owners to calculate the tax deductible amount based on an apportionment of the asset's actual private and business use.
The changes from the submission process include an asset cost threshold of $50,000 under which the new rules will not apply. The rules will apply to assets that are unused for 62 days or more in the year.
The rules will apply to all types of owners from individuals to the family trust, but will exclude assets held by a company with a wide group of shareholders.
The proposals also amend the definition of "private use". The new definition includes use by the owner or use for which less than 80 per cent of the market value is charged. This will apply when a bach is rented to a family member for a discounted amount.
Some activities will not be private use such as when the asset is being relocated. An example is the owner sailing the boat to a client for business use.
Another example is a holiday home being repaired when the owner stays there to undertake the repair.
Taxpayers expressed concerns that the rules could lead to double taxation when fringe benefit tax is payable on the private use of an asset and at the same time a tax deduction is denied for the outgoings.
The Government has conceded that an asset that is subject to the mixed-use rules will not also constitute a fringe benefit.
The rules applying to aircraft and boats have been postponed until the year ended March 31, 2015. For holiday homes, the rules will apply for the year ended March 31, 2014.
If it all sounds too difficult, owners will be able to opt out of the rules if income from the asset is less than $4000 or if a loss is incurred.
Greg Harris is a specialist tax partner in the Hamilton office of Deloitte.