Mixed use treehouse asset

Question from Ingrid updated on 23rd March 2017:

We are building a tree-house and are thinking of offering this as a room on Airbnb. We will also stay in the tree-house from time to time. Does this dual use of the tree-house make it a mixed use asset, with relevant tax rules ?

I only want to rent the accommodation out to make enough money to cover my gardening expenses and perhaps a bit more. We have a large garden which costs about $6000 per annum to maintain and I feel that a well maintained garden is an integral part of the Airbnb.

I phoned Inland Revenue asking about B&B accommodation and they advised that they think any gardening expense would be tax deductible for B&B accommodation, but that I would need to apply for a ruling on it. Somehow their answer doesn't sound right to me as the garden will be shared use between our family and the guests.

Our expert Mark Withers responded:

A mixed use asset is one that is used to generate income and is also utilised privately. It also must be unused for at least 62 days per year. So potentially the treehouse could be a mixed use asset.

But but part of the mixed use asset rules require you to determine the rent as a percentage of the CV and I guess you won't have a CV for the tree house. Note that under the mixed use asset rules there is an opt out option if the rent generated is below $4000 per year.

My feeling though is that this would be best accounted for on an apportionment basis. This relates the deductions to the nexus test - ie: they are deductible to the extent that they are used to produce income.

First step would be to form a basis for apportionment, probably the size of the treehouse as a percentage of the size of your dwelling. Having reduced the expenses by this percentage they would need to be further reduced by an apportionment of rented nights as a percentage of the total nights the treehouse is in use.

Your gardening costs would be one of many costs that could be considered but the fact that the garden is integral to the BnB does not in and of itself entitle you to claim everything when the garden is also available for your personal enjoyment.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer