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Inland Revenue

Tax Policy

Assets used in business

(Clause 19)

Summary of proposed amendments

The new rules will exclude assets predominantly used in business from the quarantining provisions.

Application date

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

Key features

The new rules will apply to assets which are used in business as well as rented out. However, section DG 20 provides that the quarantining provisions will not apply when the asset is used in business activities and, because of the nature of that activity, income derived by that asset is not separately identifiable.

An exception to this is if 80 percent or more of the income-earning use of the asset is a use to which income can be separately attributed to. Income that can easily be attributed to the asset use will normally be rental income.


A helicopter is used both in a farming business and for the farmer’s personal enjoyment. The total farming operation earns $100,000 of gross income. It is difficult to determine how much of the total farming operation’s gross income is derived from the use of the helicopter. Therefore, the quarantining provisions will not apply unless the exception applies.

If the helicopter is used in the farming operations for 10 hours in an income year and is also rented out for 90 hours, the helicopter is subject to the quarantining provisions. This is because the rental use is 90 percent of the total income-earning use of the asset, which is greater than the 80 percent exception threshold.


It is difficult to apply the 2 percent quarantining threshold to assets used in business. This is because it is impractical to distinguish the gross income derived directly from the mixed-use asset from the income derived from other assets or from labour.

Consequently, assets that are predominantly used in business will be excluded from quarantining rules. However, the expenditure relating to an asset will still be required to be apportioned based on the asset’s income-earning days and private-use days.

Assets that have an income-earning use of 80 percent or more from rental (or other use where the monetary return on the use is clear) are still subject to the quarantining rules. This is necessary to prevent owners avoiding the quarantining rule by using their asset for a token amount of business use when the majority of the income-earning use was from rental.


In an income year a helicopter is used in a farming operation for 50 hours, rented out for 100 hours, and used privately for 20 hours. Of the total income-earning use of 150 hours, 100 hours is rental use. This is 66.7 percent, and less than the 80 percent exception threshold. This means that quarantining does not apply expenses related to the helicopter. Apportionment still applies to the expenditure – with the apportionment calculation here being 150/170.