If you own a holiday home (bach) or another asset — boat, aircraft, accommodation property — that you use privately and also rent out to earn income, NZ’s mixed-use asset rules apply. These rules, introduced in 2013, limit the expenses you can deduct to prevent owners from writing off largely private costs against minimal rental income.
The mixed-use asset rules apply when an asset is used privately for 2+ days AND used to earn income for 2+ days in a year AND is not used for income for more than 62 days in the year (if used more than 62 income days, ordinary rental rules apply instead). Under the mixed-use rules, deductible expenses are calculated as: income days ÷ (income days + private days) × total expenses. Unused losses cannot offset other income — they carry forward to future years from the same asset.
What Is a Mixed-Use Asset?
An asset is a mixed-use asset under the Income Tax Act 2007 (subpart DG) if during the income year:
- It is used privately for 2 or more days, AND
- It is used to earn income for 2 or more days, AND
- It is not used to earn income for more than 62 days
If the income-earning use exceeds 62 days, the asset exits the mixed-use rules and is treated as an ordinary rental — in which case normal rental deductibility applies (with some restrictions under the ring-fencing rules).
Common mixed-use assets:
- A holiday home (bach) rented on Bookabach, Airbnb or through a property manager for part of the year
- A boat used privately and chartered out occasionally
- A light aircraft used personally and commercially
- A campervan rented out between personal trips
The Three Categories of Days
Under the mixed-use rules, days are classified as:
| Day type | Definition |
|---|---|
| Income days | Days the asset is rented or available for rent at market rates to an unrelated person |
| Private days | Days the owner (or related persons at below-market rates) uses the asset |
| Empty/available days | Days the asset is vacant and available for rent but not actually rented |
Note: Empty days are treated as a special category — the expenses attributed to empty days cannot be deducted at all.
Calculating Deductible Expenses
The formula for deductible expenses:
$$\text{Deductible expenses} = \frac{\text{Income days}}{\text{Income days + Private days}} \times \text{Total expenses}$$
Empty days are excluded from both the numerator and denominator — the expenses for those days are simply not deductible.
Example — holiday bach:
- Income days (rented): 30
- Private days: 20
- Empty days (vacant but available): 100
- Total annual expenses: $24,000
Step 1: Calculate the deductible fraction: $$\frac{30}{30 + 20} = \frac{30}{50} = 60%$$
Step 2: Apply to total expenses: $$60% \times $24,000 = $14,400 \text{ deductible}$$
The expenses for empty days (100/150 × $24,000 = $16,000) would be potentially claimable under standard rules — but the mixed-use rules remove them entirely. Only $14,400 is deductible, not the full $24,000.
Loss Ring-Fencing Under Mixed-Use Rules
Under the mixed-use rules, losses cannot offset other income:
- If total expenses exceed income from the asset, the loss is ring-fenced
- The loss carries forward and can only be offset against future income from the same asset
- You cannot use a holiday home loss to reduce your salary or other income
This is different from ordinary business losses (which can often offset other income) and is one of the key restrictions of the mixed-use asset rules.
How to Keep Records
To apply the mixed-use formula correctly, keep a day-by-day usage log:
- Record every day the property is occupied (by whom — owner/family/paying guests)
- Record every day the property is actively available for rent but vacant
- Record every day the property is completely unavailable (e.g., under repair)
A simple spreadsheet or calendar works. Keep booking records, rental agreements, and invoices for income-earning days.
Expenses You Can Claim the Deductible Portion Of
- Interest on mortgage (if property has a mortgage — subject to interest deductibility rules)
- Rates and insurance
- Property management fees
- Repairs and maintenance
- Power, water, internet (if not charged to guests separately)
- Depreciation on chattels (furniture, appliances)
Note: The residential interest deductibility rules that apply to standard rental properties also apply to the income-earning portion of a mixed-use holiday home. Check the current phase-in rules.
Mixed-Use vs Ordinary Rental — Which Applies?
| Income days | Tax treatment |
|---|---|
| 1 day | Insufficient — may not qualify as rental at all |
| 2–62 days | Mixed-use asset rules apply |
| 63+ days | Ordinary rental property rules apply (normal deductibility, loss ring-fencing still applies under rental rules) |
| 0 income days | Purely private — no deductions at all |
If you plan to rent your bach frequently, reaching 63 income days may be advantageous — ordinary rental rules allow a fuller deduction (including expenses on vacant days where you were genuinely seeking tenants).
Frequently Asked Questions
We own a bach jointly with my parents. Do the mixed-use rules still apply?
Yes — the rules apply to the asset regardless of ownership structure. The income and deductions are allocated in proportion to ownership share.
We rent our holiday home to friends at a discount. Does that count as income days?
No — below-market rentals to related parties or friends count as private use, not income days. You must charge market rates to unrelated parties for the days to count as income days.
We didn’t rent the bach at all this year. Can we still claim expenses?
No — if the property was not rented at all (0 income days), you cannot claim any expenses under the mixed-use rules. There is no deductibility for purely private property.
Our bach is part of our estate/trust. Do the same rules apply?
Yes — the mixed-use asset rules apply regardless of who owns the asset (individual, company, or trust).