GST adjustments on private use
21 Dec 2016
Another area that we notice often confounds clients is how to calculate GST deductions on assets that are partly for business use and partly for private use. You can claim GST but only in proportion to the extent the asset is available for producing income. This is called GST apportionment.
Most commonly, this involves a vehicle used for work but also used privately. Lifestyle blocks where there is some commercial use of the land would be another example.
There are a number of factors which affect the GST apportionment and the resulting claim for GST deductions including:
- proportion of time the asset is available to produce income
- market value of the asset
- costs directly associated with the asset being available to produce income
- overall costs which must be apportioned between business and private use
The calculation changes with factors such as:
- Was the asset acquired before or after 1 April 2011?
- Did it cost more or less than $5,000?
This can be tricky to work out but it becomes trickier when the proportion of business to private use changes. Obviously the amount claimable will change too. In these situations we may need to make an adjustment. Questions to be asked in these situations are:
- Did the asset cost less than $5,000?
- Is the changed proportion of business to private use less than 10%?
- Is the value of the adjustment worth more than $1,000?
There are limits on the number of adjustment periods for which you need to make this adjustment. These are determined by the acquisition value of the asset. Once the limit is reached, no further adjustments are made. For land assets such as lifestyle blocks, there’s no fixed limit for the number of times the adjustment needs to be made.
Adjustments are also required for ‘mixed-use assets’ which include holiday homes, boats and aircraft with a cost or market value of $50,000 or more. An example of this is the family bach or crib which the family use for breaks but also rent out during the year. These particular assets are earmarked as special from an income tax standpoint, and the GST treatment reflects that. The GST deductions will be subject to a proportional limitation based on the income-earning days and days used for private use.
In all of these situations, it’s vital to keep good records of when the asset was available to produce income and of any associated costs.
We see a lot of cases where people have landed themselves in a mess trying to work the deductions out themselves. We’d like to make this easier for you – please let us know if you have assets split across business or personal use and certainly let us know if the proportion of business to private use changes. We can also provide you with some tools to help you keep track of your usage.