Mixed-Use Assets: Tax Rules for Holiday Homes, Boats, and Aircraft in NZ

If you own a holiday home, boat, or aircraft that you use personally some of the time and rent out (or try to rent out) at other times, it is a mixed-use asset under New Zealand tax law. The mixed-use asset rules — found in subpart DG of the Income Tax Act 2007 — determine how much of your expenses you can deduct, and the answer depends heavily on how many days the asset is actually used (by you, by tenants, or by no one).

The rules are surprisingly prescriptive, and getting the apportionment wrong — or claiming 100% of expenses when you used the bach for two weeks at Christmas — is a common IRD audit trigger.

What Counts as a Mixed-Use Asset

An asset falls under the mixed-use rules if it meets all three of these criteria in an income year:

1. The asset is used both personally by you (or an associated person) and for income-earning purposes — e.g., you use the holiday home yourself, and also rent it out on Bookabach or Airbnb

2. The asset is unused (neither personal use nor income-earning) for 62 days or more during the year — this is the key threshold. If the asset is in use (personal or rental) almost every day, the standard rental property rules apply instead. If it sits empty for significant periods — as most holiday homes do between guest bookings and family use — the mixed-use rules apply.

3. The asset is land (including buildings), a boat, or an aircraft — the rules are intentionally limited to these three categories. A car used partly for Uber and partly for personal transport is not a mixed-use asset (different rules apply).

The Apportionment Formula

Once the mixed-use rules apply, your deductible expenses are calculated based on actual days of use, not floor area or some other proxy. The formula:

Deductible percentage = Income-earning days ÷ (Income-earning days + Personal-use days)

Days when the asset is unused (empty, not generating income, not being used by you) are ignored in the numerator and denominator — they do not reduce your deduction. The days you use it personally, however, do reduce the deduction proportionally.

Example: Over the year, your holiday home is:

• Rented to paying guests: 60 days
• Used by your family: 30 days
• Empty (unused): 275 days

Total days: 365. Total used days: 60 + 30 = 90 days. Of those 90 days, 60 are income-earning.

Deductible percentage = 60 ÷ (60 + 30) = 66.7% of expenses are deductible.

This is significantly better than a flat 60/365 = 16.4% approach. The mixed-use rules specifically exclude unused days from the denominator, which recognises that a holiday home’s natural state is “empty” and you should not be penalised for that.

If Personal Use Is Very Low

If you use the asset personally for fewer than 15% of the total used days, the asset is treated as fully income-earning for deduction purposes — you can claim 100% of expenses. However, you still cannot claim deductions for periods when the asset was not genuinely available for rental (e.g., if you blocked out peak summer season for yourself and did not make the property available during that period, those days may be treated as personal use or constructive personal use).

If Income-Earning Use Is Very Low

If income-earning use is fewer than 15% of total used days, deductions are limited to the income earned — you cannot create a tax loss from the mixed-use asset. Any excess deductions are carried forward to offset future income from the same asset.

What Expenses Can Be Apportioned

The mixed-use rules divide expenses into categories:

Fully deductible regardless of the apportionment:

• Advertising and listing fees (trade me, Bookabach, Airbnb host fees)
• Commission paid to property managers on actual bookings
• Costs directly attributable to a specific rental period (e.g., cleaning immediately before a guest’s stay, welcome-pack supplies)

Apportioned based on the days formula:

• Mortgage interest (subject to the interest deductibility rules — see below)
• Rates and insurance
• Repairs and maintenance (general upkeep of the property)
• Utilities (power, internet, water) that are not separately metered for rental periods
• Depreciation on chattels (furniture, appliances, linen)
• Body corporate fees (for apartments)

Not deductible at all (private in nature):

• Expenses for periods when the asset is used personally — the personal-use portion of apportioned expenses is non-deductible
• Capital improvements (these are added to the asset’s cost base, not expensed)

Interest Deductibility for Mixed-Use Land

The interest limitation rules for residential investment property also apply to mixed-use assets that are land. As of 2025-26, 100% of interest is deductible for residential investment property. However, the mixed-use apportionment is applied to the interest before the deductibility rules — so the personal-use portion of interest remains non-deductible, and the income-earning portion is then subject to the interest limitation rules (which are currently at 100% deductibility).

Rent Below Market Rate to Family or Friends

If you rent your holiday home to family or friends at below market rate, the IRD treats those days as personal use, not income-earning days. This is a common trap: you charge your cousin $200 a night when market rate is $400 a night, thinking the property is “rented.” The IRD position is that below-market rental to associated persons is personal use — those days reduce your deductible percentage and the “income” you received is not rental income for tax purposes.

To count as an income-earning day, the rental must be at market rate and to an arm’s-length party — typically a stranger booking through a public platform at the going rate.

Mixed-Use Assets and GST

If you are GST-registered and the mixed-use asset is used in your taxable activity, the GST apportionment follows a different set of rules than the income tax apportionment. The GST adjustment is based on the actual use of the asset over its life, compared to the intended use when you claimed the original input tax deduction. This is a separate calculation and a separate compliance obligation.

Most individual owners of a single holiday home used partly for short-stay rental are not GST-registered (the rental income is below the $60,000 registration threshold), so GST does not arise. However, if you own multiple short-stay properties and are GST-registered, obtain advice on the GST mixed-use adjustments — they are complex and fact-specific.

Record-Keeping

To support your apportionment, keep:

• A use diary or calendar showing each day the asset was used: by you personally, by paying guests, or unused (and available for rental)
• Booking records, invoices, and receipts for all rental income
• Listing screenshots showing the property was publicly available for rent during periods when it was not in personal use
• Invoices and receipts for all expenses, categorised by type (directly attributable, apportionable, private)
• For boats and aircraft, logbooks showing hours of personal use vs charter use, and location records

The IRD can request this evidence up to seven years after the relevant tax year.

A Common Scenario: The Family Bach

A family owns a bach in Coromandel. During the 2025-26 income year:

• Booked through Bookabach for paying guests: 45 nights
• Used by the family: 35 nights (two weeks at Christmas, Easter weekend, various weekends through the year)
• Empty the rest of the time: 285 nights

Total used nights = 80. Income-earning proportion = 45 ÷ 80 = 56.25%.

Annual expenses: rates $4,000, insurance $2,500, power $1,800, repairs $3,000, interest $15,000, bookabach fees $600, cleaning for guests $1,200, chattel depreciation $2,000.

• Directly attributable (listing fees + guest cleaning): $1,800 — fully deductible
• Apportionable pool: rates + insurance + power + repairs + interest + depreciation = $28,300
• Deductible portion of apportionable: $28,300 × 56.25% = $15,919
• Total deductions: $1,800 + $15,919 = $17,719

Gross rental income (45 nights × $250/night avg): $11,250.

The deductions ($17,719) exceed the income ($11,250). Under the mixed-use rules, the excess deductions of $6,469 are quarantined — carried forward to offset future years’ rental income from the same asset. They cannot be offset against salary, business income, or other investment income. This is the key constraint: mixed-use assets cannot produce tax losses that reduce your overall taxable income.

When the Mixed-Use Rules Don’t Apply

If your holiday home is rented for more than 62 days of non-use — meaning it is in use (personal or rental) for more than 303 days — the standard rental property rules apply instead. This is unusual for holiday homes (most are empty far more often than that), but an urban apartment rented on Airbnb with high occupancy and minimal personal use could fall into standard rental property treatment, which has different deduction rules.

Conversely, if you use the asset only personally, you are not in the mixed-use regime — there is no income-earning activity, so no deductions are available. And if you use it only for income-earning (no personal use), standard business or rental property rules apply.

Sources

• IRD — Property rules and mixed-use assets
• IRD — Rental income
• NZ Legislation — Income Tax Act 2007, Subpart DG