Apportionment of mixed-use expenditure

(Clause 19)

Summary of proposed amendments

This is the key element of the proposed new rules. Expenses which are neither solely private in nature nor eligible to be deducted in full will be required to be apportioned by dividing the income-earning use by the total use (income-earning use plus private use) of the asset. The resulting amount will be an allowable deduction.

Application date

The amendments will apply from the beginning of the 2013–14 income year.

Key features

Section DG 8 applies to apportion the expenditure incurred by persons that hold a mixed-use asset and section DG 9 sets out the method for apportioning expenditure relating to the asset. Under section DG 9(2), the amount of deductible expenditure, including depreciation, will be calculated as:

The expenditure subject to the formula is the total expenditure incurred minus purely income-earning expenditure under section DG 7 (discussed earlier) and purely private expenditure.

“Income-earning days” is defined in section DG 9(3)(b) as the total number of days or other appropriate unit the asset is used to earn income at or above market value. This excludes any days on which the asset is used by the owner, unless that use is an incident of ordinary commercial use (as described in the definition of private use under section DG 4).

“Private days” is defined in section DG 9(3)(c) as the total number of days or other appropriate unit the asset is in active use and is not regarded as an income-earning day. For example, days when the owner of a holiday home rents it out to friends and family at below market value will be regarded as private-use days.

The unit of measurement used in the formula is a unit that achieves the most appropriate apportionment of expenditure. This might be by reference to days, nights, or hours depending on the asset and how that asset is used.