The government’s tax grab from bach and boat owners is using a sledgehammer to hit a nail, a tax expert says.

Ernst & Young tax partner Joanna Doolan says there is concern that stricter limits on tax deductions on mixed-use assets – those used by their owners and rented out for income – could force some holiday home owners to sell up and see bach values dip.

If even half that number of owners sold these homes as a result of the income pressure, that could have a substantial impact on values.

“People are being stretched at the moment. Some have really borrowed to fund assets that are at the nice-to-have level.

“It will definitely force some into making decisions on this,” Ms Doolan says.

Budget 2012 confirmed luxury items such as holiday homes, boats and aircraft are one of the areas of the tax system to be tightened.

The changes are expected to claw back about $109 million over the next four years – higher than tax experts anticipated.

When the plan to review the way these assets are taxed made an under-the-radar appearance last year Budget, Revenue Minister Peter Dunne said it was estimated in the residential property area alone there could be about $20 million of revenue the government was not picking up.

Yesterday, he said the changes would help ensure tax deductions and tax credits were being targeted to areas where they were intended and needed.

“In the case of mixed-use assets, such as a holiday home, it is unfair that owners can claim a tax deduction for the majority of their costs because it is available for rent or hire, even if it is mainly used privately.

"In effect, they are getting a taxpayer subsidy for their private use of the asset,” he said.

The new rules will require mixed-used asset owners to apportion their deductions based on the actual income earned and private use of the asset.

For example, owners who rent out their holiday home for 30 days in a year and use it themselves for 30 days in a year will be able to claim a deduction for 50% of their general costs, instead of 90% now.

Ms Doolan said there was no question some people were pushing the boundaries with tax claims on the business-use component of their beach house, either by putting making the rental price so high that no one would want to rent it, or making it unavailable at the times people wanted to book it.

But the strict new rules were like taking a sledgehammer to hit a nail.

“I think they could have dealt with those who are definitely playing the system under existing anti-avoidance rules,” she says.

“The dollars involved are not substantial. They’re prepared to put people through a lot of change to squeeze the last amount of increase.”

Budget 2012: Tax change on mixed-use assets

Assets that are partly used for private purposes and partly for income producing purposes will be subject to tighter restrictions on the deductibility of costs.

The government says these measures are specifically targeted at taxpayers who are offsetting holding costs on assets such as holiday homes, planes, and boats.

Under current rules the costs associated with these assets are tax deductible against income derived from renting the assets out and often the net result is a tax loss which is offset against other income.

The change will limit the deductions available for these types of assets and these changes are expected to save $109m in revenue over four years.