Prior to the Amendment
The Mixed-Use Asset(MuA) rules are in subpart DG of the ITA and apply to natural persons and close companies. Under the provided rules, interest incurred from MuA by is apportioned between income-earning use, private use and no use. The rules allow a deduction for the for the interest apportioned to income earning use.
The legislation does not currently achieve what it was intended to as interest incurred by a close company for a disallowed residential property (DRP) that is a MUA is not subject to MUA rules. This is because interest incurred by a close company for DRP that is a MUA was removed from apportionment under the applicable formula when the interest limitation rules were enacted. The current legislation also does not make clear that separate apportionment is required of interest incurred for DRP that is MUA from other expenses.
Proposed Amendments
The amendments would correct a drafting error to ensure that interest incurred on DRP that is a MuA is apportioned separately from other expenditure. A new section DG 5(2)(d) and amend existing S DG 11(1) (b) to ensure that interest for DRP that is a MuA must be apportioned using the formula in S DG 9(2).
Effective Date
The proposed amendments will take effect from 27th March 2021.
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