Question
A client owns a lakeside holiday home used 42 days privately and rented short-term for 98 days last year. It sat vacant the rest of the year. Can she register for GST and claim input tax on rates, mortgage interest, and a new deck?
Issue
Whether the holiday home is a mixed-use asset, how input tax is apportioned between income-earning and private use, and whether the deck is treated as capital expenditure subject to the same apportionment.
Rule
- ITA 2007, s DG 3 — an asset is a mixed-use asset if, in the income year, it is used both for deriving income and for private use, and is unused for 62 days or more.
- ITA 2007, s DG 9 — deductible expenditure is apportioned on the formula income-earning days ÷ (income-earning + private days).
- ITA 2007, s DG 14 — the same apportionment applies to GST input tax on mixed-use assets; the standard change-in-use adjustments in the GST Act are displaced while subpart DG applies.
Application
The property was unused for 225 days, clearing the 62-day threshold in s DG 3. The apportionment ratio is 98 ÷ (98 + 42) = 70%. Rates and interest referable to the property are claimable at 70%. The deck is capital expenditure directed to the mixed-use asset, so input tax on it is claimable at 70% under s DG 14, not 100%.
Conclusion
She may register for GST where the activity meets the threshold in s 51 of the GST Act. Input tax on rates, interest, and the deck is recoverable at 70%. The private-use portion is not deductible and is not recoverable elsewhere.
Cited: ITA 2007 ss DG 3, DG 9, DG 14 · GST Act 1985 s 51