Mixed-Use Asset
Mixed-use asset (MUA) rules — Income Tax Act 2007 sections DG 1 to DG 22 — apply to an asset (typically a bach/holiday home, boat, or plane) that is used BOTH for income-earning purposes (rented out at market rates to unrelated people) AND for private use (by you, family, friends, or rented below market rate), and that sits unused for at least 62 days in the year. If the asset is vacant fewer than 62 days, the MUA rules don't apply and ordinary rental-property rules apply instead.
Where the rules apply, expenses are apportioned by the ratio of income-earning days to total used days (income-earning days plus private-use days — vacant days are excluded from the apportionment). A loss-quarantine rule then kicks in if gross income from the asset is less than 2% of its market value for the year: any resulting loss is quarantined and carried forward against future income from the SAME asset, rather than being deductible against other income immediately.
An opt-out election (s DG 21) is available if gross income from the asset is $4,000 or less for the year — electing out makes the asset effectively invisible for tax purposes (no income to declare, but also no deductions to claim).
How it works
The 62-day vacancy threshold is the gateway test: if an asset used for both income-earning and private purposes sits unused for fewer than 62 days in the year, the MUA regime doesn't apply at all and ordinary rental-property deduction rules take over instead, generally allowing a more straightforward apportionment based on days rented versus days used privately. Once vacancy hits 62 days or more, the more restrictive MUA apportionment and loss-quarantine rules switch on.
Expenses are apportioned only across days the asset was actually USED (income-earning plus private-use days) — vacant days are excluded from the calculation entirely, which means a bach that sits empty most of the year but is rented out and used privately in roughly equal measure can still get a meaningful deduction, because the vacant days simply don't dilute the ratio the way they would if included.
The loss-quarantine trigger (gross income under 2% of market value) is a separate check from the 62-day gateway test, and catches assets that technically qualify for MUA treatment but generate very little rental income relative to their value — a common outcome for a bach only rented occasionally at a modest rate. Quarantined losses aren't lost permanently; they carry forward and can offset future income from that same asset once it starts generating enough gross income to escape the quarantine.
Example: apportioning expenses on a holiday home
A bach is rented out to unrelated holidaymakers at market rates for 40 days in the year, used privately by the owner's family for 20 days, and sits vacant for the remaining 305 days. Because it's vacant more than 62 days, the MUA rules apply.
Expenses are apportioned only across the 60 used days (40 income-earning + 20 private), not the full 365. The income-earning ratio is 40 / 60 = 66.7%, so 66.7% of apportionable expenses like rates, insurance, and interest can be claimed against the rental income.
Frequently asked questions
Do the mixed-use asset rules apply if I never rent out my holiday home to anyone?
No — MUA rules only apply where the asset is used for BOTH income-earning purposes (rented at market rate to unrelated people) and private use; a holiday home used purely privately falls outside the MUA regime entirely.
What happens if my bach is vacant more than 62 days but I don't rent it out at all?
If there's no income-earning use at all, it isn't a mixed-use asset regardless of how many days it's vacant — the MUA rules specifically require a mix of income-earning and private use, not vacancy on its own.
Can I claim all my mortgage interest on a mixed-use holiday home?
No — only the portion of apportionable expenses like interest, rates, and insurance matching the ratio of income-earning days to total used days can be claimed, with vacant days excluded from the calculation altogether.
Related Terms
Depreciation
Depreciation is a tax deduction that allows businesses and property investors to spread the cost of assets (machinery, vehicles, equipment, furniture) over their useful life rather than claiming the full cost in the year of purchase.
Bright-Line Test
The bright-line test taxes profits from selling residential property if the property was acquired and sold within a specified period.
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