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Tax Alert - October 2012


Tax AlertTax Alert is a monthly publication that keeps you up to date with the latest developments in tax. The alert is compiled by our national tax specialists who are continually monitoring the outlook for new tax developments and analysing the implications for our clients.

Crack-down on bach and boat deductions

Some assets, such as holiday homes, boats and aircraft are used privately as well as for income earning purposes. These are commonly referred to as mixed-use assets.

Currently, the tax rules allow tax deductions for expenditure incurred in earning taxable income but disallow deductions for expenditure that relates to the private use of an asset.  In the context of holiday homes, expenditure that is not attributable to either private or income earning use of the asset has been allowed as a deduction so long as the asset is “available” for income earning use and the owner makes reasonable attempts to attract tenants.  This can result in a misalignment of tax deductions when compared to the actual level of rental activity undertaken.

In 2011, the government identified this issue as a base maintenance measure that needs to change from the perspective of fairness, certainty and economic efficiency and so an Officials’ issues paper was released in August 2011 outlining various proposals (see our August 2011 Tax Alert).

The proposals have now made their way into a tax bill which, once enacted, will take effect from the 2014 income year.  The measures are different to that originally proposed and in some respects are quite complex, particularly if those assets are held in a close company and interest deductions are involved.

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