Business owned assets – I can use those personally too, right?

In New Zealand, business owners often find themselves using business assets, such as vehicles, property, or equipment, for personal use. While this might seem harmless, there are tax implications which are often overlooked. Inland Revenue closely monitors these situations to ensure fairness in the tax system. Here’s what you need to know to stay compliant.

What are business assets?

Business assets are items or property owned by a business that are used to generate income. Common examples include:

• vehicles
• machinery and equipment
• commercial property
• computers and electronic devices.

When business assets are used for private purposes, it can trigger a range of tax consequences. Below we outline some of the tax considerations to be aware of when it comes using business assets privately.

Fringe Benefit Tax

Fringe Benefit Tax (FBT) applies when an employer (including a shareholder-employee in a closely held company) provides non-cash benefits to employees or themselves. Common scenarios include:

• Company vehicles: If a company car is available for private use, FBT is usually payable, regardless of whether the vehicle is actually used privately. This one can be tricky as it is based on availability, not actual use; an important distinction that can create an FBT obligation where a taxpayer may not believe there should be one.
• Discounted goods or services: If goods or services are provided to employees at below-market value, FBT may apply.

GST adjustments

If you are self-employed and claim GST input tax credits on an asset used in your business and you later use that asset personally, you may need to make GST adjustments. For example, if you purchase a vehicle for $34,500 (incl GST) and claim the full GST input tax credit of $4,500 and later use the vehicle 50% for personal use, a GST adjustment is required to reflect the reduced business use, meaning some of the GST will need to be repaid.

Income tax implications

If a business asset is used personally, and no FBT is paid or no market-value rent is paid to the company, Inland Revenue may deem it to be a taxable dividend or extra income depending on the asset, especially in closely held companies. For sole traders or partnerships, the private use portion must be excluded from the business’ deductible expenses, and depreciation must be apportioned accordingly.

Mixed-use assets

If an asset like a holiday home or boat is used for both business and private purposes and is also unused for at least 62 days per year, specific mixed-use asset rules apply. These rules limit deductions based on actual business use days relative to total use days. Record keeping is key!

The personal use of business assets can have complex tax consequences. Ignoring these rules can lead to unexpected tax bills, penalties, or audits. To avoid disputes with Inland Revenue, ensure you keep accurate logbooks or usage diaries for vehicles and mixed used assets, maintain clear separation of personal and business use, review depreciation claims and asset usage annually, and ensure you retain all supporting documents for at least seven years.

Talk to our Experts

Please reach out to one of our Nexia Advisors if you would like to discuss how to maximise your efficiency while remaining compliant with New Zealand tax legislation.