On 21 October 2016, Inland Revenue released draft interpretation statement: "Income tax - deductibility of farmhouse expenses" for consultation. 

The current concession which allows a flat 25% deduction for farmhouse expenses without any evidence, as well as 100% deductions for interest and rates is to be withdrawn. 

However, in situations where any compliance costs of calculating the private use element far outweighs any likely deduction, the interpretation statement allows some sole traders and partners of partnerships to claim an automatic 15% deduction (a more realistic amount) for farmhouse expenses and 100% deductions for interest. These deductions are allowed when the cost of the farmhouse is 20% or less than the total cost of the farm. Other sole traders and partners of partnerships may be able to adopt the measures recently proposed in cl 62 of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill (clause 62 proposes inserting new s DB 18AA to provide a square metre rate method to determine the amount of a deduction for a building that is used partly for business and partly for other purposes). 

Any changes from consultation will apply from the start of the 2017–18 year.

Source: www.ird.govt.nz