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Income Tax Act 2007
Income Tax Act 2007
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Income Tax Act 2007
Part D Deductions
Subpart DA—General rules
Contents
DA 1 General permission
Nexus with income
(1)
A person is allowed a deduction for an amount of expenditure or loss, including an amount of depreciation loss, to the extent to which the expenditure or loss is—
(a)
incurred by them in deriving—
(i)
their assessable income; or
(ii)
their excluded income; or
(iii)
a combination of their assessable income and excluded income; or
(b)
incurred by them in the course of carrying on a business for the purpose of deriving—
(i)
their assessable income; or
(ii)
their excluded income; or
(iii)
a combination of their assessable income and excluded income.
General permission
(2)
Subsection (1) is called the general permission.
Avoidance arrangements
(3)
Section GB 33 (Arrangements involving depreciation loss) may apply to override the general permission in relation to an amount of depreciation loss.
Defined in this Act: amount, assessable income, business, deduction, depreciation loss, excluded income, general permission, loss
Compare: 2004 No 35 s DA 1
DA 2 General limitations
Capital limitation
(1)
A person is denied a deduction for an amount of expenditure or loss to the extent to which it is of a capital nature. This rule is called the capital limitation.
Private limitation
(2)
A person is denied a deduction for an amount of expenditure or loss to the extent to which it is of a private or domestic nature. This rule is called the private limitation.
Exempt income limitation
(3)
A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving exempt income. This rule is called the exempt income limitation.
Employment limitation
(4)
A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving income from employment. This rule is called the employment limitation.
Withholding tax limitation
(5)
A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving non-resident passive income of the kind referred to in section RF 2(3) (Non-resident passive income). This rule is called the withholding tax limitation.
Non-residents’ foreign-sourced income limitation
(6)
A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving non-residents’ foreign-sourced income. This rule is called the non-residents’ foreign-sourced income limitation.
Relationship of general limitations to general permission
(7)
Each of the general limitations in this section overrides the general permission.
Defined in this Act: amount, capital limitation, deduction, employment limitation, exempt income, exempt income limitation, general limitation, general permission, income from employment, loss, non-residents’ foreign-sourced income, non-residents’ foreign-sourced income limitation, private limitation, withholding tax limitation
Compare: 2004 No 35 s DA 2
DA 3 Effect of specific rules on general rules
Supplements to general permission
(1)
A provision in any of subparts DB to DZ may supplement the general permission. In that case, a person to whom the provision applies does not have to satisfy the general permission to be allowed a deduction.
Express reference needed to supplement
(2)
A provision in any of subparts DB to DZ takes effect to supplement the general permission only if it expressly states that it supplements the general permission.
Relationship of general limitations to supplements to general permission
(3)
Each of the general limitations overrides a supplement to the general permission in any of subparts DB to DZ, unless the provision creating the supplement expressly states otherwise.
Relationship between other specific provisions and general permission or general limitations
(4)
A provision in any of subparts DB to DZ may override any 1 or more of the general permission and the general limitations.
Express reference needed to override
(5)
A provision in any of subparts DB to DZ takes effect to override the general permission or a general limitation only if it expressly states that—
(a)
it overrides the general permission or the relevant limitation; or
(b)
the general permission or the relevant limitation does not apply.
Part E
(6)
No provision in Part E (Timing and quantifying rules) supplements the general permission or overrides the general permission or a general limitation.
Defined in this Act: deduction, general limitation, general permission, supplement
Compare: 2004 No 35 s DA 3
DA 4 Treatment of amount of depreciation loss
The capital limitation does not apply to an amount of depreciation loss merely because the item of property is itself of a capital nature.
Defined in this Act: amount, capital limitation, depreciation loss
Compare: 2004 No 35 s DA 4
DA 5 Treatment of expenditure for commercial fit-out
[Repealed]Section DA 5: repealed (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 24 February 2016, by section 93(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Subpart DB—Specific rules for expenditure types
Contents
Taxes and other amounts
Heading: substituted (with effect on 1 April 2008), on 29 August 2011, by section 12 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DB 1 Taxes, other than GST, and penalties
No deduction
(1)
A person is denied a deduction for the following:
(a)
income tax:
(b)
a tax imposed in a country or territory outside New Zealand that is substantially the same as income tax:
(bb)
an amount withheld under section 1471 or 1472 of the Internal Revenue Code of 1986 (USA), as amended from time to time:
(c)
ancillary tax, unless listed in subsection (2):
(d)
a civil penalty under Part 9 of the Tax Administration Act 1994:
(e)
a tax, a penalty, or interest on unpaid tax that is—
(i)
payable under the laws of a country or territory outside New Zealand; and
(ii)
substantially the same as a civil penalty as defined in section 3(1) of the Tax Administration Act 1994, or a criminal penalty under Part 9 of the Act, or interest imposed under Part 7 of the Act.
Some ancillary tax excluded
(2)
Subsection (1) does not apply to—
(a)
pay-as-you-earn (PAYE):
(b)
fringe benefit tax (FBT):
(c)
employer’s superannuation contribution tax (ESCT):
(d)
resident withholding tax (RWT):
(e)
non-resident withholding tax (NRWT).
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: ancillary tax, deduction, ESCT, FBT, general permission, income tax, New Zealand, NRWT, pay, PAYE, RWT, tax
Compare: 2004 No 35 s DB 1
Section DB 1(1)(bb): inserted, on 1 July 2014, by section 41 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 2 Goods and services tax
No deduction
(1)
A registered person is denied a deduction for the following:
(a)
input tax on a supply of goods or services to them:
(b)
goods and services tax (GST) payable by them to the Commissioner.
Deduction
(2)
A registered person is allowed a deduction for deductible output tax but only to the extent to which—
(a)
they are allowed a deduction for expenditure that they incur in acquiring or producing the goods or services; or
(b)
they are allowed a deduction for an amount of depreciation loss for the goods or services.
Exclusion
(3)
Subsection (2) does not apply to an adjustment made in relation to a capital asset.
Depreciable property
(4)
The provisions that apply when an amount of depreciation loss is quantified by reference to the cost of an item of depreciable property to a person are in section EE 54 (Cost: GST).
Link with subpart DA
(5)
The link between this section and subpart DA (General rules) is as follows:
(a)
subsection (1) overrides the general permission:
(b)
subsection (2) supplements the general permission; the general limitations still apply.
Defined in this Act: amount, Commissioner, deductible output tax, deduction, depreciable property, depreciation loss, general limitation, general permission, goods, GST, GST payable, income, input tax, output tax, pay, registered person, services, supplement
Compare: 2004 No 35 s DB 2
Section DB 2(2): amended, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 37(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DB 2(2): amended (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 37(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DB 2(2): amended (with effect on 1 April 2008), on 7 December 2009, by section 10 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 2(3): substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 37(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DB 2 list of defined terms deductible output tax: inserted, on 21 December 2010, by section 37(4)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DB 2 list of defined terms taxable supply: repealed, on 21 December 2010, by section 37(4)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DB 3 Determining tax liabilities
Deduction
(1)
A person is allowed a deduction for expenditure that they incur in connection with the following matters:
(a)
calculating or determining their income tax liability for a tax year:
(b)
calculating or determining the GST payable by them in a taxable period:
(c)
preparing, instituting, or presenting an objection or challenge to, or an appeal following, a determination or assessment made under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985:
(d)
making a contribution towards the expenditure incurred by another person if—
(i)
the other person is allowed a deduction for that expenditure; and
(ii)
the expenditure relates to a matter affecting the determination of the first person’s liability for income tax or GST; and
(iii)
the first person has objected to, challenged, or appealed against an assessment or determination made in relation to the matter under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985.
Exclusions
(2)
This section does not apply to expenditure that a person incurs in connection with the following matters:
(a)
a matter arising from a return of income or a return under the Goods and Services Tax Act 1985 that was fraudulent or wilfully misleading:
(b)
an offence under any of the Inland Revenue Acts:
(c)
a shortfall penalty assessed under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985 (but not an assessment that is later cancelled):
(d)
an objection, challenge, or appeal that is inconsequential or frivolous:
(e)
a matter arising under the Goods and Services Tax Act 1985 to the extent to which it relates to a taxable activity that does not constitute a business for the purposes of this Act.
Taxable activity
(3)
In this section, taxable activity is defined in section 6 of the Goods and Services Tax Act 1985.
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation, the private limitation, and the employment limitation. The other general limitations still apply.
Defined in this Act: amount, assessment, business, capital limitation, deduction, employment limitation, general limitation, general permission, GST, GST payable, income tax liability, Inland Revenue Acts, pay, private limitation, return of income, supplement, tax year, taxable activity, taxable period
Compare: 2004 No 35 s DB 3
Section DB 3(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 68(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 3(4) list of defined terms capital limitation: inserted (with effect on 1 April 2008), on 6 October 2009, by section 68(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 3B Use of money interest
Deduction
(1)
A person is allowed a deduction for an amount of interest they are liable to pay under Part 7 of the Tax Administration Act 1994.
Timing of deduction
(2)
The deduction is allocated under section EF 5 (Use of money interest payable by person).
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation, the private limitation, and the employment limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, employment limitation, general limitation, general permission, private limitation
Section DB 3B: inserted (with effect on 1 April 2008), on 29 August 2011, by section 13(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DB 4 Chatham Islands dues
Deduction
(1)
A person is allowed a deduction for expenditure incurred on dues levied under the Chatham Islands Council Act 1995 that relate to goods that the person uses in connection with carrying on a business.
Timing of deduction
(2)
The deduction is allocated to the income year in which the dues are paid.
Exclusion of expenditure: other deductions
(3)
Expenditure to which subsection (1) applies must not be taken into account in calculating the cost of the goods for the purpose of a deduction relating to the goods under any other provision of this Act.
Link with subpart DA
(4)
The link between this section and subpart DA (General rules) is as follows:
(a)
subsection (1) supplements the general permission and overrides the capital limitation; the other general limitations still apply:
(b)
subsection (3) overrides the general permission.
Defined in this Act: business, capital limitation, deduction, general permission, general limitation, income year, pay, supplement
Compare: 2004 No 35 s DB 4
DB 4B Fees to purchase funds in tax pooling accounts
Deduction
(1)
A person is allowed a deduction for expenditure incurred in purchasing an amount held in a tax pooling account to pay a liability for provisional tax, terminal tax, or an increase in an assessment of tax as described in sections RP 17 to RP 21 (which relate to tax pooling intermediaries).
Timing of deduction
(2)
The deduction is allocated to the income year in which the amount is transferred into the person’s tax account by the Commissioner to satisfy the person’s obligation to pay the tax.
Link with subpart DA
(3)
This section supplements the general permission and overrides the private limitation, the employment limitation, and the withholding tax limitation. The other general limitations still apply.
Defined in this Act: amount, assessment, Commissioner, deduction, employment limitation, general permission, income year, intermediary, pay, private limitation, provisional tax, tax account with the Commissioner, tax pooling account, terminal tax, withholding tax limitation
Section DB 4B: inserted, on 29 August 2011, by section 14 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Financing costs
DB 5 Transaction costs: borrowing money for use as capital
Deduction
(1)
A person is allowed a deduction for expenditure incurred in borrowing money that is used as capital in deriving their income.
Relationship with subpart DG
(1B)
Subpart DG (Expenditure related to use of certain assets) overrides this section for expenditure to which that subpart relates.
Link with subpart DA
(2)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, income
Compare: 2004 No 35 s DB 5
Section DB 5(1B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 24(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 5(1B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 24(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DB 6 Interest: not capital expenditure
Deduction
(1)
A person is allowed a deduction for interest incurred.
Exclusion
(2)
Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.
Conduit financing arrangements[Repealed]
(3)
[Repealed]Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, interest
Compare: 2004 No 35 s DB 6
Section DB 6(3) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 69(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 6(3): repealed (with effect on 30 June 2009), on 6 October 2009, by section 69(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 7 Interest: most companies need no nexus with income
Deduction
(1)
A company is allowed a deduction for interest incurred.
Exclusion: qualifying company
(2)
Subsection (1) does not apply to a qualifying company.
Exclusion: exempt income
(3)
If a company (company A) derives exempt income or another company (company B) that is part of the same wholly-owned group of companies derives exempt income, subsection (1) applies to company A only if all the exempt income is 1 or more of the following:
(a)
dividends:
(b)
income exempted under section CW 58 (Disposal of companies’ own shares):
(bb)
income exempted under section CW 59C (Life reinsurance claims from reinsurer outside New Zealand):
(c)
income exempted under section CW 60 (Stake money) and ancillary to the company’s business of breeding.
Exclusion: non-resident company
(4)
If a company is a non-resident company, subsection (1) applies only to the extent to which the company incurs interest in the course of carrying on a business through a fixed establishment in New Zealand.
Exclusion: interest related to tax
(5)
Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.
Consolidated groups
(6)
Section FM 12 (Expenditure when deduction would be denied to consolidated group) may apply to allow a deduction under this section to a company that is part of a consolidated group.
Relationship with subpart DE
(6BA)
Subpart DE (Motor vehicle expenditure) overrides this section for expenditure to which that subpart relates, if a company is a close company that has chosen to apply that subpart instead of the FBT rules, in accordance with section CX 17(4B)(c) (Benefits provided to employees who are shareholders or investors).
Relationship with subpart DG
(6B)
Subpart DG (Expenditure related to use of certain assets) overrides this section for expenditure to which that subpart relates.
Relationship with subpart DH
(6C)
Subpart DH (Interest incurred in relation to certain land) overrides this section for interest to which that subpart relates.
Conduit financing arrangements[Repealed]
(7)
[Repealed]Link with subpart DA
(8)
This section supplements the general permission and overrides the capital limitation, the exempt income limitation, and the withholding tax limitation. The other general limitations still apply.
Defined in this Act: business, capital limitation, close company, company, consolidated group, deduction, dividend, exempt income, exempt income limitation, FBT rules, fixed establishment, general limitation, general permission, income, interest, New Zealand, non-resident company, qualifying company, supplement, wholly-owned group of companies, withholding tax limitation
Compare: 2004 No 35 s DB 7
Section DB 7(3)(a): amended (with effect on 1 July 2010 and applying for the income year including 1 July 2010 and later income years), on 30 March 2017, by section 45(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 7(3)(b): amended (with effect on 1 July 2010 and applying for the income year including 1 July 2010 and later income years), on 30 March 2017, by section 45(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 7(3)(bb): inserted (with effect on 1 July 2010 and applying for the income year including 1 July 2010 and later income years), on 30 March 2017, by section 45(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 7(3)(bb): amended, on 1 July 2018, by section 9 of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DB 7(6BA) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DB 7(6BA): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DB 7(6B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 25(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 7(6B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 25(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 7(6C) heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 63 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 7(6C): inserted (with effect on 27 March 2021), on 30 March 2022, by section 63 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 7(7) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 70(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 7(7): repealed (with effect on 30 June 2009), on 6 October 2009, by section 70(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 7 list of defined terms close company: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DB 7 list of defined terms FBT rules: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
DB 8 Interest: money borrowed to acquire shares in group companies
Deduction: borrowing to acquire group company shares
(1)
A company is allowed a deduction for interest incurred on money borrowed to acquire shares in another company that is part of the same group of companies.
Exclusion: group not in existence at year end
(2)
Subsection (1) does not apply if the 2 companies are not part of the same group of companies at the end of the tax year that corresponds to the income year in which the deduction is allowed.
Deduction: interest after resident’s restricted amalgamation
(3)
A company is allowed a deduction for interest incurred on money borrowed to acquire shares in another company that has ended its existence on a resident’s restricted amalgamation.
Exclusion: group not in existence immediately before resident’s restricted amalgamation
(4)
Subsection (3) does not apply if the 2 companies were not part of the same group of companies immediately before the resident’s restricted amalgamation.
Application from income year of resident’s restricted amalgamation
(5)
Subsection (3) applies in the income year in which the resident’s restricted amalgamation occurs and in later income years.
Consolidated groups
(6)
Section FM 12 (Expenditure when deduction would be denied to consolidated group) may apply to allow a deduction under this section to a company that is part of a consolidated group.
Relationship with subpart DE
(6BA)
Subpart DE (Motor vehicle expenditure) overrides this section for expenditure to which that subpart relates, if a company is a close company that has chosen to apply that subpart instead of the FBT rules, in accordance with section CX 17(4B)(c) (Benefits provided to employees who are shareholders or investors).
Relationship with subpart DG
(6B)
Subpart DG (Expenditure related to use of certain assets) overrides this section for expenditure to which that subpart relates.
Relationship with subpart DH
(6C)
Subpart DH (Interest incurred in relation to certain land) overrides this section for interest to which that subpart relates.
Conduit financing arrangements[Repealed]
(7)
[Repealed]Link with subpart DA
(8)
This section supplements the general permission and overrides the capital limitation, the exempt income limitation, and the withholding tax limitation. The other general limitations still apply.
Defined in this Act: close company, company, consolidated group, deduction, exempt income limitation, FBT rules, general limitation, general permission, group of companies, income year, interest, resident’s restricted amalgamation, share, supplement, withholding tax limitation
Compare: 2004 No 35 s DB 8
Section DB 8(6BA) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 70(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DB 8(6BA): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 70(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DB 8(6B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 26(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 8(6B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 26(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 8(6C) heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 64 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 8(6C): inserted (with effect on 27 March 2021), on 30 March 2022, by section 64 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 8(7) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 71(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 8(7): repealed (with effect on 30 June 2009), on 6 October 2009, by section 71(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 8 list of defined terms close company: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 70(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DB 8 list of defined terms FBT rules: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 70(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
DB 9 Interest incurred on money borrowed to acquire shares in qualifying companies
Deduction for interest incurred
(1)
The deduction that a shareholder in a qualifying company has for interest in an income year is reduced by the amount of non-cash dividends, other than taxable bonus issues, derived by them or an associated person from the company in the income year.
Exempt income
(2)
In determining the amount of the deduction that the shareholder has for the interest, section CW 15(1) (Dividends paid by qualifying companies) does not apply to treat as exempt income a distribution from the qualifying company to the shareholder, and the distribution is excluded from the definition of dividend.
Associated persons
(3)
If the associated person referred to in subsection (1) is associated with more than 1 shareholder in the company, the amount of non-cash dividends is apportioned among the associated shareholders according to their effective interests in the company in the income year.
Allocation of dividend
(4)
If section CD 39 (Calculation of amount of dividend when property made available) applies to a dividend derived by a shareholder of a qualifying company, the dividend is treated as having been paid and derived at the end of the quarter in which the amount is calculated.
Link with subpart DA
(5)
This section overrides—
(a)
the general permission; and
(b)
the exempt income limitation.
Defined in this Act: amount, associated person, bonus issue, deduction, dividend, effective interest, exempt income, exempt income limitation, general permission, income year, interest, non-cash dividend, pay, qualifying company, share, shareholder, taxable bonus issue
Compare: 2004 No 35 s HG 9(3)–(5)
DB 10 Interest or expenditure connected to profit-related debentures
When this section applies
(1)
This section applies for the purposes of section FA 2 (Recharacterisation of certain debentures).
No deduction
(2)
A company issuing a profit-related debenture is denied a deduction for—
(a)
interest payable under the debenture; or
(b)
expenditure or loss incurred in connection with the debenture; or
(c)
expenditure or loss incurred in borrowing the money secured by or owing under the debenture.
Relationship with sections DB 5 to DB 8
(3)
This section overrides sections DB 5 to DB 8.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: debenture, deduction, general permission, interest, pay, profit-related debenture
Compare: 2004 No 35 ss FC 1(1), FC 2(2)
Section DB 10 heading: amended, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 42(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 10(2): amended, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 42(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 10 list of defined terms substituting debenture: repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 42(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 10B Interest or expenditure connected to stapled debt security
No deduction
(1)
A company that issues a stapled debt security is denied, while section FA 2B(2) (Stapled debt securities) applies to the security, a deduction for—
(a)
interest payable under the security:
(b)
expenditure or loss incurred in connection with the security:
(c)
expenditure or loss incurred in borrowing the money secured by or owing under the security.
Relationship with sections DB 5 to DB 8
(2)
This section overrides sections DB 5 to DB 8.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: deduction, general permission, interest, pay, stapled debt security
Section DB 10B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 72 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Financial arrangements adjustments
DB 11 Negative base price adjustment
Deduction
(1)
A person who has a negative base price adjustment under section EW 31(4) (Base price adjustment formula) is allowed a deduction for the expenditure to the extent to which it arises from assessable income, under section CC 3 (Financial arrangements), derived by the person under the financial arrangement in earlier income years.
Deduction: self-remission
(1B)
A person who has a negative base price adjustment under section EW 31(4) for a financial arrangement is allowed a deduction for an amount of the negative base price adjustment up to the maximum of their amount of self-remission for the financial arrangement.
Deduction: cessation of LTCs and dissolution of limited partnerships
(1C)
A person who has a negative base price adjustment under section EW 31(4) for a financial arrangement is allowed a deduction for an amount of the negative base price adjustment to the extent to which—
(a)
section EW 47B (Cessation of LTCs and dissolution of partnerships) applies; and
(b)
the amount is equal to or less than the consideration that they are treated as having paid, or that is or will be payable, by them for or under the relevant financial arrangement, under section EW 47B(2)(a).
Link with subpart DA
(2)
This section supplements the general permission and overrides all the general limitations.
Defined in this Act: assessable income, deduction, financial arrangement, general limitation, general permission, income year, self-remission, supplement
Compare: 2004 No 35 s DB 9
Section DB 11(1B) heading: inserted (with effect on 1 April 2011 and applying for income years beginning on or after that date), on 30 March 2017, by section 46(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 11(1B): inserted (with effect on 1 April 2011 and applying for income years beginning on or after that date), on 30 March 2017, by section 46(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 11(1C) heading: inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 44(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DB 11(1C): inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 44(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DB 11 list of defined terms self-remission: inserted (with effect on 1 April 2011), on 30 March 2017, by section 46(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
DB 12 Base price adjustment under old financial arrangements rules
Deduction
(1)
A person is allowed a deduction for an amount that is a deduction under section EZ 37(6) (Cash basis holder) or EZ 38(3) or (4) (Income and expenditure where financial arrangement redeemed or disposed of).
Link with subpart DA
(2)
This section supplements the general permission and overrides all the general limitations.
Defined in this Act: amount, deduction, general limitation, general permission, supplement
Compare: 2004 No 35 s DB 9B
DB 13 Repayment of debt in certain circumstances
Deduction
(1)
When section EW 49(5)(b) (Income and deduction when debt disposed of at discount to associate of debtor) or EW 49B(5)(b) (Guarantees within economic group) applies, the debtor is allowed a deduction for the amount quantified in the relevant subsection.
Link with subpart DA
(2)
This section supplements the general permission and overrides all the general limitations.
Defined in this Act: amount, associated person, deduction, general limitation, general permission, supplement
Compare: 2004 No 35 s DB 10
Section DB 13 heading: amended, on 1 April 2017, by section 47(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 13(1): amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 47(2)(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 13(1): amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 47(2)(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 13(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DB 14 Security payment
When subsection (2) applies
(1)
Subsection (2) applies when—
(a)
a person receives a security payment for a loss; and
(b)
no other provision of this Act allows the person a deduction for the loss.
Deduction: loss
(2)
The person is allowed a deduction for the loss quantified in section EW 51(2) (Deduction for security payment).
When subsection (4) applies
(3)
Subsection (4) applies when—
(a)
a person receives a security payment for a share loss as described in section DB 24; and
(b)
the requirements of section DB 24 are met; and
(c)
no other provision of this Act allows the person a deduction for the loss.
Deduction: share loss
(4)
The person is allowed a deduction for the share loss quantified in section EW 51(4).
Link with subpart DA
(5)
This section supplements the general permission and overrides all the general limitations.
Defined in this Act: deduction, general limitation, general permission, loss, pay, security payment, supplement
Compare: 2004 No 35 s DB 11
DB 15 Sureties
When this section applies
(1)
This section applies when a surety incurs expenditure or loss under a security arrangement.
No deduction (with exceptions)
(2)
Neither the surety nor a person with whom the surety was an associated person over the security arrangement’s term is allowed a deduction for the expenditure or loss to the extent to which the expenditure or loss is due to—
(a)
the actions of the surety or a person with whom the surety was an associated person over the arrangement’s term; or
(b)
the occurrence of an event, if the occurrence could have been influenced by the surety or a person with whom the surety was an associated person over the arrangement’s term; or
(c)
the non-occurrence of an event, if the non-occurrence could have been influenced by the surety or a person with whom the surety was an associated person over the arrangement’s term.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: associated person, deduction, general permission, loss, security arrangement
Compare: 2004 No 35 s DB 12
Share-lending arrangements and excepted financial arrangements
Heading: amended (with effect on 1 April 2018), on 26 June 2019, by section 55 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
DB 16 Share-lending collateral under share-lending arrangements
No deduction
(1)
A person is denied a deduction for the amount of expenditure incurred as share-lending collateral under a share-lending arrangement.
Link with subpart DA and other subject matter
(2)
Defined in this Act: amount, deduction, general permission, share-lending arrangement, share-lending collateral
Compare: 2004 No 35 s DB 12B
DB 17 Replacement payments and imputation credits under share-lending arrangements
A person is allowed a deduction for—
(a)
the amount of expenditure incurred as a replacement payment under a share-lending arrangement:
(b)
the amount of imputation credit attached under sections OB 64 (Replacement payments) and RE 25 (When amount of tax treated as imputation credit) to the replacement payment.
Defined in this Act: amount, deduction, imputation credit, pay, replacement payment, share-lending arrangement
Compare: 2004 No 35 s DB 12C
Section DB 17 list of defined terms portfolio investment-linked life fund: repealed (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DB 17B Transfers of emissions units under certain excepted financial arrangements
A person is denied a deduction for an amount of expenditure that relates to the market value of an emissions unit and is incurred by a person in a transfer of the emissions unit under an arrangement that is an excepted financial arrangement under section EW 5(11C) (What is an excepted financial arrangement?).
Defined in this Act: amount, arrangement, emissions unit, excepted financial arrangement, excluded income
Section DB 17B: inserted (with effect on 1 April 2018), on 26 June 2019, by section 56 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Premises or land costs
DB 18AA Square metre rate method
When this section applies
(1)
A person may choose to apply this section to determine the amount of a deduction, in an income year, for the proportion of business use of a premises (the premises) that is used partly for business purposes and partly for other purposes.
Amount of deduction
(2)
The amount of the deduction allowed in an income year for the business use of the premises is calculated using the formula—
(total premise costs × business proportion) +
(business square metres × square metre rate).
Definition of items in formula
(3)
In the formula,—
(a)
total premise costs is the total amount of actual mortgage interest, rates, and rent that the person has paid with respect to buildings and their curtilage on the premises in the income year:
(b)
business proportion is determined by dividing business square metres by the total area of buildings on the premises in square metres:
(c)
business square metres is the total area, in square metres, of any separately identifiable parts of buildings on the premises that are used primarily for business purposes:
(d)
square metre rate is the applicable square metre rate that is published by the Commissioner.
No other deductions allowed
(4)
A person who makes an election to apply this section under subsection (1) is not entitled to claim any other deductions for the business use of the premises.
Setting square metre rates
(5)
For the purposes of this section, the Commissioner must from time to time set and publish square metre rates.
Defined in this Act: amount, business use, Commissioner, deduction, income year
Section DB 18AA: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 71(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DB 18AA(1): amended (with effect on 1 April 2017), on 18 March 2019, by section 150(1) (and see section 150(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DB 18AA(3): replaced (with effect on 1 April 2017), on 18 March 2019, by section 150(2) (and see section 150(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
DB 18A Ring-fenced allocations: disposal of residential land within 5 years
[Repealed]Section DB 18A: repealed (with effect on 1 April 2019), on 26 June 2019, by section 57 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
DB 18AB Deduction cap: disposal of residential land within 5 years to associated persons
[Repealed]Section DB 18AB: repealed (with effect on 1 April 2019), on 26 June 2019, by section 58 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
DB 18 Transaction costs: leases
Deduction
(1)
A person is allowed a deduction for expenditure that they incur for the preparation and registration, or the renewal, of a lease of property.
Link with subpart DA
(2)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, lease
Compare: 2004 No 35 s DB 13
DB 19 Expenses in application for resource consent
When this section applies
(1)
This section applies when a person who incurs expenditure for the purpose of applying for the grant of a resource consent under the Resource Management Act 1991—
(a)
does not obtain the grant because the application is not lodged or is withdrawn, or because the grant is refused:
(b)
obtains the grant but does not use the resource consent before it lapses or is surrendered.
Deduction
(1B)
The person is allowed a deduction for the expenditure—
(a)
that the person incurs in relation to the application or intended application; and
(b)
that would have been part of the cost of depreciable property, or otherwise a deduction, if the application or intended application had been granted or if the resource consent had been used; and
(c)
for which the person is not allowed a deduction under another provision.
Timing of deduction
(2)
The deduction is allocated to the income year in which—
(a)
the person decides not to lodge the application, withdraws the application, or is refused the grant; or
(b)
the resource consent lapses or is surrendered.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission and other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, income year
Compare: 2004 No 35 s DB 13B
Section DB 19 heading: replaced (with effect on 1 April 2014), on 30 June 2014, by section 43(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 19(1) heading: replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 43(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 19(1): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 43(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 19(1): amended, on 23 December 2023, by section 6 of the Resource Management (Natural and Built Environment and Spatial Planning Repeal and Interim Fast-track Consenting) Act 2023 (2023 No 68).
Section DB 19(1B) heading: inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 43(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 19(1B): inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 43(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 19(2): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 43(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 19 list of defined terms accounting year: repealed, on 30 March 2017, by section 48 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
DB 20 Destruction of temporary building
Deduction
(1)
A person is allowed a deduction for a loss that they incur through the destruction of a temporary building.
Link with subpart DA
(2)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, loss, supplement, temporary building
Compare: 2004 No 35 s DB 14
DB 20B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence
When this section applies
(1)
This section applies when—
(a)
a person (the payer) incurs an amount of expenditure as consideration for the agreement by another person (the payee) to the grant, renewal, extension, or transfer of a right (the land right) that is a leasehold estate not including a perpetual right of renewal, or is a licence to use land; and
(b)
the payer is the person who owns—
(i)
the land right:
(ii)
the estate in land from which the land right is granted; and
(c)
the payee is the person who is obtaining the land right.
Deduction
(2)
The payer is allowed a deduction for the amount.
Relationship with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, estate, general limitation, general permission, land, leasehold estate, own
Section DB 20B: inserted (with effect on 1 April 2013 and applying to an amount that is incurred on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on 17 July 2013, by section 27(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 20B(1)(a): amended, on 1 April 2015 (applying to an amount incurred on or after that date), by section 44(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 20B list of defined terms depreciable intangible property: repealed (with effect on 1 April 2013), on 30 March 2022, by section 65 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DB 20C Consideration for agreement to surrender leasehold estate or terminate licence
When this section applies
(1)
This section applies when—
(a)
a person (the payer) incurs an amount of expenditure as consideration for the agreement by another person (the payee) to the surrender or termination of a right (the land right) that is a leasehold estate not including a perpetual right of renewal or is a licence to use land; and
(b)
the payer is a person who owns the land right or a person who owns the estate in land from which the land right is granted; and
(c)
the payee is a person who owns the estate in land from which the land right is granted or a person who owns the land right.
Deduction
(2)
The payer is allowed a deduction for the amount.
Relationship with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, estate, general limitation, general permission, land, leasehold estate, own
Section DB 20C: inserted (with effect on 1 April 2013 and applying to an amount that is incurred on or after that date), on 17 July 2013, by section 27(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 20C(1)(a): amended (with effect on 1 April 2013 and applying to an amount incurred on or after that date), on 30 June 2014, by section 45(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 21 Amounts paid for non-compliance with covenant for repair
When this section applies
(1)
This section applies when—
(a)
a person who is a lessee of land uses it to derive income; and
(b)
the lease contains a covenant requiring the lessee to maintain the land or to make repairs to improvements on the land; and
(c)
the lessee does not comply with the covenant; and
(d)
the lessee is, consequently, liable to pay an amount to the lessor; and
(e)
either—
(i)
the lessee, during the term of the lease or after it ends, pays the amount to the lessor; or
(ii)
the lessor recovers the amount from the lessee during the term of the lease or after it ends.
Deduction
(2)
The lessee is allowed a deduction for the amount paid to the extent to which it relates to maintenance or repairs and to the extent to which the lessee would have been allowed a deduction for the expenditure had the lessee incurred it during the term of the lease.
Timing of deduction
(3)
The deduction is allocated to the income year in which the lessee pays the amount or the lessor recovers the amount.
Relationship with section EJ 11
(4)
This section is overridden by section EJ 11 (Amount paid by lessee for non-compliance with covenant for repair).
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, income, income year, lease, pay, repairs, supplement, term of the lease
Compare: 2004 No 35 s DB 15
DB 22 Amounts paid for non-compliance and change in use
When this section applies
(1)
This section applies when—
(a)
a person who is a lessor receives an amount for non-compliance with a covenant for repair that is assessable income under section CC 2 (Non-compliance with covenant for repair); and
(b)
in the income year in which the lessor receives the amount or in any of the following 4 income years,—
(i)
the lessor does not use the land to which the amount relates to derive assessable income, but continues to own the land; and
(ii)
the lessor incurs expenditure in maintaining the land or in making repairs to improvements on the land, including painting and general maintenance; and
(iii)
the lessor would have been allowed a deduction if the land had been used for the purpose of deriving assessable income; and
(iv)
in the absence of section DB 46, no other provision of this Act would allow the lessor a deduction for the expenditure.
Deduction
(2)
The lessor is allowed a deduction for the expenditure.
Amount of deduction
(3)
The amount of the deduction is the lesser of—
(a)
the amount of the expenditure; and
(b)
the part of the amount that is assessable income derived by the lessor in the income year in which the expenditure is incurred through the operation of—
(i)
section CC 2; or
(ii)
section EI 5 (Amount paid to lessor for non-compliance with covenant for repair); or
(iii)
section EI 6 (Amount paid for non-compliance: when lessor ceases to own land).
Link with subpart DA
(4)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, assessable income, deduction, general limitation, general permission, income year, own, supplement
Compare: 2004 No 35 s DB 16
DB 22B Amounts paid for commercial fit-out for building
When this section applies
(1)
This section applies when a person incurs expenditure relating to a building.
Determining whether expenditure of capital nature
(2)
For the purpose of determining whether the expenditure is capital in nature, expenditure relating to an item of commercial fit-out for the building is treated as not relating to the building.
Defined in this Act: commercial fit-out
Section DB 22B: inserted (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 24 February 2016, by section 94(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Revenue account property
DB 23 Cost of revenue account property
Deduction
(1)
A person is allowed a deduction for expenditure that they incur as the cost of revenue account property.
No deduction
(2)
Despite subsection (1), a person is denied a deduction for expenditure incurred as the cost of revenue account property if—
(a)
[Repealed](b)
section CX 55, CX 56B, or CX 56C (which relate to portfolio investment income) applies to income derived by the person from the disposal of the revenue account property; and
(c)
for a person who is a life insurer, the expenditure would, in the absence of this subsection, be a deduction included as their policyholder base allowable deduction.
Relationship with sections CU 2 and DU 3
(2B)
Sections CU 2 (Treatment of mining land) and DU 3 (Acquisition of land for mining operations) override this section in relation to land or an interest in land as described in section CU 2(1)(b) that a mineral miner acquires for the purposes of their mining operations or associated mining operations.
Link with subpart DA
(3)
Subsection (1) supplements the general permission and overrides the capital limitation and the private limitation. Subsection (2) overrides the general permission. The other general limitations still apply.
Defined in this Act: associated mining operations, capital limitation, deduction, general limitation, general permission, land, life insurer, mineral miner, mining operations, policyholder base allowable deduction, private limitation, revenue account property
Compare: 2004 No 35 s DB 17
Section DB 23(2) heading: substituted, on 29 August 2011, by section 15(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DB 23(2)(a): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 73(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 23(2)(b): amended (with effect on 1 July 2010 and applying for income years that include 1 July 2010 and later income years), on 30 March 2017, by section 49(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 23(2)(b): amended, on 29 August 2011, by section 15(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DB 23(2)(c): inserted (with effect on 1 July 2010 and applying for income years that include 1 July 2010 and later income years), on 30 March 2017, by section 49(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 23(2B) heading: inserted, on 1 April 2014, by section 32(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 23(2B): inserted, on 1 April 2014, by section 32(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 23(3): replaced (with effect on 1 April 2008), on 30 March 2021, by section 27(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section DB 23 list of defined terms associated mining operations: inserted, on 1 April 2014, by section 32(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 23 list of defined terms land: inserted, on 1 April 2014, by section 32(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 23 list of defined terms life insurer: inserted (with effect on 1 July 2010), on 30 March 2017, by section 49(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 23 list of defined terms mineral miner: inserted, on 1 April 2014, by section 32(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 23 list of defined terms mining operations: inserted, on 1 April 2014, by section 32(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 23 list of defined terms policyholder base allowable deduction: inserted (with effect on 1 July 2010), on 30 March 2017, by section 49(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 23 list of defined terms portfolio investment entity: repealed (with effect on 1 April 2008), on 6 October 2009, by section 73(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 23 list of defined terms private limitation: inserted (with effect on 1 April 2008), on 30 March 2021, by section 27(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
DB 23B Revenue account property: certain intra-group transactions
When this section applies
(1)
This section applies when—
(a)
a company that is part of a consolidated group at a time during an income year derives an amount of income from a transaction or arrangement with another company in the consolidated group at the same time; and
(b)
the transaction or arrangement relates to an excepted financial arrangement that—
(i)
is revenue account property; and
(ii)
ceases to exist, whether through redemption or cancellation, or on amalgamation or liquidation, or otherwise; and
(c)
the amount is excluded income under section FM 8 (Transactions between group companies: income).
No deduction for expenditure incurred
(2)
Despite section DB 23, the company is denied a deduction for expenditure incurred in relation to the excepted financial arrangement as the cost of revenue account property.
No deduction for closing value
(3)
Despite section DB 49, the company is denied a deduction for the value that the excepted financial arrangement had at the end of the previous income year.
Link with subpart DA
(4)
This section overrides the general permission. The other general limitations still apply.
Defined in this Act: amalgamation, amount, arrangement, cancellation, company, consolidated group, deduction, excepted financial arrangement, excluded income, general permission, income, income year, liquidation, revenue account property
Section DB 23B: inserted, on 29 March 2018 (with effect on 1 April 2016 and applying for the 2016–17 and later income years), by section 47(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DB 23C Revenue account property: cost of some residential land reduced
Cost reduced
(1)
For the purposes of section DB 23, the cost of residential land for which income is derived under section CB 6A(8) (Disposal within 10 years: bright-line test for residential land) is reduced by the excluded adjustment amount calculated using the formula in subsection (2).
Excluded adjustment amount formula
(2)
The excluded adjustment amount for the purposes of subsection (1) is calculated using the following formula:
cost × (exempted non-predominant main home days × main home percentage + exempted predominant main home days) / total days.
Definition of items in formula
(3)
The items in the formula are defined in subsections (4) to (7).
Cost
(4)
Cost is the cost of the land.
Exempted non-predominant main home days
(5)
Exempted non-predominant main home days has the same meaning as in section CB 6A(11).
Main home percentage
(6)
Main home percentage has the same meaning as in section CB 6A(11B).
Exempted predominant main home days
(7)
Exempted predominant main home days has the same meaning as in section CB 6A(11C).
Total days
(8)
Total days has the same meaning as in section CB 6A(11D).
Defined in this Act: amount, income, residential land
Section DB 23C: inserted (with effect on 27 March 2021), on 30 March 2021, by section 28(1) (and see section 28(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section DB 23C(1): amended (with effect on 27 March 2021), on 30 March 2022, by section 66(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(2) heading: replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(2): replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(3) heading: replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(3): replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(4) heading: replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(4): replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(5) heading: replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(5): replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(6) heading: replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(6): replaced (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(7) heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(7): inserted (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(8) heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 23C(8): inserted (with effect on 27 March 2021), on 30 March 2022, by section 66(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DB 24 Share losses
When this section applies
(1)
This section applies when—
(a)
a company (company A) acquires a share in another company (company B); and
(b)
the share declines in value; and
(c)
because of the decline in value, company A incurs a loss (the share loss), whether on a disposal of the share or a valuation of it under subpart ED (Valuation of excepted financial arrangements) or in any other way; and
(d)
company B—
(i)
itself uses the amount subscribed for the share; or
(ii)
uses it to fund directly or indirectly another company (company C); and
(e)
company B or company C has a tax loss, in the calculation of which the amount used is taken into account; and
(f)
company A, or a company that is part of the same group of companies as company A at any time in the income year in which company B or company C has the tax loss, offsets an amount for the tax loss under section IC 1 (Company A making tax loss available to company B); and
(g)
the offset is in a tax year before the tax year that corresponds to the income year in which company A incurs the share loss.
No deduction (with exception)
(2)
Company A is denied a deduction for the share loss, except to the extent to which the share loss, as adjusted under subsection (3), is more than the amount offset under section IC 1, as adjusted under subsection (4).
Other denied deductions added
(3)
When subsection (2) applies, the share loss is adjusted by adding every loss to which all the following apply:
(a)
company A incurs it as a result of the share’s decline in value or the decline in value of another share if the use of the amount subscribed for the other share is taken into account in calculating the tax loss; and
(b)
company A incurs it in an income year before the income year referred to in subsection (1)(g); and
(c)
company A has been denied a deduction for it by the operation of subsection (2).
Other offsets added
(4)
The amount offset under section IC 1 includes every amount that company A, or a company that is part of the same group of companies as company A at any time in the income year in which company A has the tax loss, has offset for the tax loss under that section in a tax year before the tax year that corresponds to the income year in which the share loss is incurred.
Link with subpart DA
(5)
This section overrides the general permission.
Defined in this Act: amount, company, deduction, general permission, group of companies, income year, loss, share, tax loss, tax year
Compare: 2004 No 35 s DB 18
DB 25 Cancellation of shares held as revenue account property
When this section applies
(1)
This section applies for the purposes of section FA 4(3)(b) (Recharacterisation of shareholder’s base: company reacquiring share).
No deduction
(2)
A shareholder is denied a deduction for the amount added to the cost of their remaining shares of the same class as that of the share cancelled, unless the share is trading stock of the shareholder.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: deduction, general permission, interest
Compare: 2004 No 35 s FC 4(f)(iv)
Section DB 25(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 25 list of defined terms profit-related debenture: repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 46(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 25 list of defined terms substituting debenture: repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 46(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 26 Amount from profit-making undertaking or scheme and not already in income
When this section applies
(1)
This section applies when a person derives income under section CB 3 (Profit-making undertaking or scheme) that is not their income under any other provision of this Act.
Deduction
(2)
The person is allowed a deduction for the value of the property, as determined under subsection (3).
Determining amount of deduction
(3)
For the purpose of determining the amount of the deduction, the person is treated as—
(a)
having disposed of the property to an unrelated third party immediately before the start of the undertaking or scheme; and
(b)
having reacquired the property immediately after the start of the undertaking or scheme at the market value of the property at the time.
Link with subpart DA
(4)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission, income, supplement
Compare: 2004 No 35 s DB 19
DB 27 Amount from major development or division and not already in income
When this section applies
(1)
This section applies when a person derives income under section CB 13 (Disposal: amount from major development or division and not already in income) that is not their income under any other provision of this Act.
Deduction
(2)
The person is allowed a deduction for the value of the land, as determined under subsection (3).
Determining amount of deduction
(3)
For the purpose of determining the amount of the deduction, the person is treated as—
(a)
having disposed of the land to an unrelated third party immediately before the start of the undertaking or scheme; and
(b)
having reacquired it immediately after the start of the undertaking or scheme at the market value of the land at the time.
Link with subpart DA
(4)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission, income, land, supplement
Compare: 2004 No 35 s DB 20
DB 28 Amount from land affected by change and not already in income
When this section applies
(1)
This section applies when a person derives income under section CB 14 (Disposal: amount from land affected by change and not already in income) that is not their income under any other provision of this Act.
Deduction
(2)
The person is allowed—
(a)
a deduction allowed under any other provision of this Act; and
(b)
a deduction to the extent described in subsection (3).
Calculation of deduction
(3)
The maximum amount of the deduction is the greater of $1,000 and an amount calculated using the formula in subsection (4). However, the amount must not be more than the profit obtained from the disposal of the land.
Formula
(4)
The formula is—
percentage of profit × years.
Definition of items in formula
(5)
In the formula,—
(a)
percentage of profit is 10% of the profit on the disposal of the land:
(b)
years is the number, up to and including 10, of consecutive years between the date on which the person acquired the land and the date on which they disposed of it, with the first year starting on the date on which the person acquired the land.
Meaning of profit
(6)
In this section, profit means the excess of the amount derived over the cost of the land.
Link with subpart DA
(7)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission, income, land, profit, supplement, year
Compare: 2004 No 35 s DB 21
DB 29 Apportionment when land acquired with other property
If a person derives income under any of sections CB 6A to CB 14 and CZ 39 (which relate to the disposal of land) from the disposal of land, and the land is acquired together with other property, the cost of acquisition must be apportioned between the land and the other property.
Defined in this Act: income, land, property
Compare: 2004 No 35 s FB 4A
Section DB 29: amended (with effect on 27 March 2021), on 30 March 2021, by section 29 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
DB 30 Cost of certain minerals
When this section applies
(1)
This section applies when—
(a)
an amount of cost of a mineral is treated by a person under generally accepted accounting practice as a cost of the mineral for the person and reported accordingly for financial reporting purposes; and
(b)
the mineral is not a listed industrial mineral; and
(c)
no other provision of this Act allows the person a deduction for the amount; and
(d)
an amount derived by the person from disposing of the mineral would be income of the person under section CB 29 (Disposal of minerals).
Deduction
(2)
The person is allowed a deduction for the amount.
Timing of deduction: trading stock
(3)
If the amount is a cost of trading stock, the deduction is allocated to the income year in which the mineral first becomes trading stock of the person.
Timing of deduction: not trading stock
(4)
If the amount is not a cost of trading stock, the deduction is allocated by section EA 2 (Other revenue account property).
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, dispose, general limitation, general permission, generally accepted accounting practice, income, income year, mineral, specified mineral, trading stock
Compare: 2004 No 35 s DB 22
Section DB 30 heading: replaced, on 1 April 2014, by section 33(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 30(1)(b): amended, on 1 April 2014, by section 33(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Bad debts
DB 31 Bad debts
No deduction (with exception)
(1)
A person is denied a deduction in an income year for a bad debt, except to the extent to which—
(a)
the debt is a debt—
(i)
written off as bad in the income year:
(ii)
for which the debtor is released from making all remaining payments under the Insolvency Act 2006 excluding Part 5, subparts 1 and 2 of that Act, or under the Companies Act 1993, or under the laws of a country or territory other than New Zealand, and the person is required to calculate a base price adjustment by section EW 29 (When calculation of base price adjustment required) for the debt for the income year:
(iii)
for which the debtor is a company that is released from making all remaining payments by a deed or agreement of composition, and the person is required to calculate a base price adjustment by section EW 29 for the debt for the income year; and
(b)
in the case of the bad debts described in subsections (2) to (5), the requirements of the relevant subsection are met.
Deduction: financial arrangement debt: amount of income
(2)
A person who derives assessable income from a financial arrangement to which the financial arrangements rules apply is allowed a deduction for an amount owing under the financial arrangement, but only to the extent to which—
(a)
the amount is a bad debt and a requirement of subsection (1)(a) is met; and
(b)
the amount is attributable to the income; and
(bb)
the person is not associated with the debtor, or is associated with the debtor but the debtor has no deductions for the financial arrangement; and
(c)
subsection (5) does not limit the deduction.
Deduction: financial arrangement debt: dealers and holders
(3)
A person is allowed a deduction, quantified in subsection (3B), for an amount of a bad debt owing under a financial arrangement to which the financial arrangement rules apply, if—
(a)
the person carries on a business for the purpose of deriving assessable income; and
(b)
the business includes dealing in or holding financial arrangements that are the same as, or similar to, the financial arrangement; and
(c)
a requirement of subsection (1)(a) is met for the bad debt; and
(d)
the person is not associated with the person owing the amount written off.
Amount of deduction under subsection (3)
(3B)
For the purposes of subsection (3), the amount of the deduction for the amount owing under the financial arrangement is the lesser of—
(a)
the amount provided by subsection (4B); and
(b)
the amount provided by subsection (5).
Deduction: financial arrangement debt: dealers in property or services
(4)
A person is allowed a deduction for an amount owing under a financial arrangement to which the financial arrangements rules apply, but only to the extent to which—
(a)
the amount is a bad debt and the requirement of subsection (1)(a)(i) is met; and
(b)
the financial arrangement is an agreement for the sale and purchase of property or services; and
(c)
the person carries on a business of dealing in the property or services that are the subject of the agreement; and
(d)
the person carries on the business for the purpose of deriving assessable income; and
(e)
subsection (5) does not limit the deduction.
Amount for purposes of subsections (3) and (3B)
(4B)
For the purposes of subsections (3) and (3B), the amount is the least of—
(a)
the amount of consideration that the person pays for acquiring the financial arrangement:
(b)
the amount owing under the financial arrangement:
(c)
the amount calculated using the following formula, treating the calculation of a negative amount as zero:
amount owing − limited recourse consideration + adjustment amount.
Definition of items in formula
(4C)
In the formula in subsection (4B)(c),—
(a)
amount owing is the lesser of—
(i)
the amount of consideration that the person pays for acquiring the financial arrangement:
(ii)
the amount owing under the financial arrangement:
(b)
limited recourse consideration is the amount of consideration paid to the person under a limited-recourse arrangement that relates to the financial arrangement:
(c)
adjustment amount is an amount allocated for the income year under section EW 15D (IFRS financial reporting method) for the limited-recourse arrangement, to the extent to which the amount arises solely because of the reduction in the value of the limited-recourse arrangement due to the financial arrangement’s relevant bad debt amount.
Limited recourse: base price adjustment
(4D)
If subsection (4B)(c) applies for an amount owing under a financial arrangement, then the person is allowed a deduction, at the time the person performs a base price adjustment for the related limited-recourse arrangement, of an amount equal to the amount owing under the financial arrangement minus the total amount of deductions for the financial arrangement under subsections (2) and (3) that have arisen before the base price adjustment.
Definition of items in formula[Repealed]
(4E)
[Repealed]Deduction: bad debt representing loss already offset
(5)
A person is allowed a deduction for a bad debt only to the extent to which it is more than the total of the amounts offset under section IC 1 (Company A making tax loss available to company B) that are described in paragraphs (e) and (f) if—
(a)
the person writing off the amount of debt is a company (company A); and
(b)
the debt is owed to it by another company (company B); and
(c)
company B—
(i)
itself uses the amount giving rise to the debt; or
(ii)
uses it to fund directly or indirectly another company (company C) that uses the amount; and
(d)
company B or company C has a tax loss, in the calculation of which the amount used is taken into account; and
(e)
company A, or a company that is part of the same group of companies as company A at any time in the income year in which company B or company C has the tax loss, offsets an amount for the tax loss under section IC 1; and
(f)
the offset is in a tax year before the tax year that corresponds to the income year in which company A writes off the amount of debt, but not before the 1993–94 tax year.
A definition
(5B)
In this section, limited-recourse arrangement means, in relation to an amount owing under a financial arrangement (the debt), an arrangement that is for the person’s business of dealing in or holding financial arrangements, and that provides for payment or non-payment by the person, contingent upon—
(a)
payment of some or all of the debt to the person:
(b)
failure to make payment of some or all of the debt to the person.
Link with subpart DA
(6)
The link between this section and subpart DA (General rules) is as follows:
(a)
subsection (1) overrides the general permission; and
(b)
for subsections (2) to (5),—
(i)
they supplement the general permission, to the extent to which they allow a deduction that is denied under the general permission; and
(ii)
they override the general permission, to the extent to which they deny a deduction that is allowed under the general permission; and
(iii)
the general limitations still apply, except that subsections (3) and (4D) override the capital limitation for a financial arrangement held as part of a business that includes dealing in or holding financial arrangements.
Defined in this Act: agreement for the sale and purchase of property or services, amount, arrangement, assessable income, associated person, business, company, deduction, financial arrangement, financial arrangements rules, general limitation, general permission, group of companies, income year, limited-recourse arrangement, supplement, tax loss, tax year
Compare: 2004 No 35 s DB 23
Section DB 31(1)(a): replaced (with effect on 1 April 2008 and applying for a debt that goes bad in the 2008–09 and later income years), on 27 February 2014, by section 34(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 31(2)(a): amended (with effect on 1 April 2008 and applying for a debt that goes bad in the 2008–09 and later income years), on 27 February 2014, by section 34(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 31(2)(bb): inserted, on 1 July 2017, by section 50(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 31(3) heading: replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(3): replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(3B) heading: inserted (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(3B): inserted (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4)(a): amended (with effect on 1 April 2008 and applying for a debt that goes bad in the 2008–09 and later income years), on 27 February 2014, by section 34(5) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 31(4B) heading: replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4B): replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4B)(c) formula: amended (with effect on 20 May 2013), on 30 March 2017, by section 50(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 31(4C) heading: replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4C): replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4C)(b): amended (with effect on 20 May 2013), on 30 March 2017, by section 50(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 31(4C)(c): inserted (with effect on 20 May 2013), on 30 March 2017, by section 50(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DB 31(4D) heading: replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4D): replaced (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4E) heading: repealed (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(4E): repealed (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(5B) heading: inserted (with effect on 20 May 2013), on 27 February 2014, by section 34(7) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 31(5B): inserted (with effect on 20 May 2013), on 27 February 2014, by section 34(7) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 31(5B): amended (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(6)(b)(iii): amended (with effect on 20 May 2013 and applying for a debt that goes bad in the 2008–09 or later income year), on 24 February 2016, by section 95(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31(6)(b)(iii): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 95(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 31 list of defined terms arrangement: inserted (with effect on 20 May 2013), on 27 February 2014, by section 34(8) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DB 31 list of defined terms limited-recourse arrangement: inserted (with effect on 20 May 2013), on 27 February 2014, by section 34(8) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DB 32 Bad debts owed to estates
When this section applies
(1)
This section applies when—
(a)
a debt owing to a person at the date of their death is, in an income year,—
(i)
assessable income of the person; or
(ii)
assessable income of the trustee of their estate; and
(b)
the trustee writes off some or all of the debt as bad because it is not recoverable.
Deduction
(2)
The following persons, in the following order, are allowed a deduction for the amount of the debt written off:
(a)
first, the trustee, to the extent of assessable income derived as trustee income in the income year; and
(b)
second, any beneficiary who has a vested interest in the capital of the estate, to the extent of assessable income derived in the income year by or in trust for the beneficiary, and to the extent to which the amount is chargeable against the capital of the beneficiary; and
(c)
third, the trustee or a beneficiary denied a deduction for the balance in the income year; each is allowed a deduction, as described in paragraph (a) or (b), in the next tax year, and so on.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, assessable income, deduction, general limitation, general permission, income year, supplement, trustee, trustee income
Compare: 2004 No 35 s DB 24
Research and development
DB 33 Scientific research
Deduction: scientific research
(1)
A person is allowed a deduction for expenditure they incur in connection with scientific research that they carry on for the purpose of deriving their assessable income.
Exclusion
(2)
Subsection (1) does not apply to expenditure that the person incurs on an asset that—
(a)
is not created from the scientific research; and
(b)
is an asset for which they have an amount of depreciation loss for which—
(i)
they are allowed a deduction; or
(ii)
they would have been allowed a deduction but for the Commissioner’s considering that incomplete and unsatisfactory accounts were kept by or for them.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, assessable income, capital limitation, Commissioner, deduction, depreciation loss, general limitation, general permission, supplement
Compare: 2004 No 35 s DB 25
DB 34 Research or development
Deduction
(1)
A person is allowed a deduction for expenditure they incur on research or development. This subsection applies only to a person described in any of subsections (2) to (5) and does not apply to the expenditure described in subsection (6).
Person recognising expenditure as expense
(2)
Subsection (1) applies to a person who recognises the expenditure as an expense for financial reporting purposes—
(a)
under paragraph 5.1 or 5.2 of the old reporting standard or because paragraph 5.4 of that standard applies; or
(b)
under paragraph 68(a) of the new reporting standard applying, for the purposes of that paragraph, paragraphs 54 to 67 of that standard.
Expenditure on derecognised non-depreciable assets
(3)
Subsection (1) applies to a person who—
(a)
incurs expenditure, on the development of an intangible asset that is not depreciable intangible property,—
(i)
on or after 7 November 2013; and
(ii)
before the intangible asset is derecognised or written off by the person as described in paragraph (b); and
(b)
derecognises or writes off the intangible asset for financial reporting purposes under—
(i)
paragraph 112(b) of the new reporting standard; or
(ii)
paragraph 5.14 of the old reporting standard.
Person recognising expenditure otherwise
(4)
Subsection (1) also applies to a person who—
(a)
recognises the expenditure as an expense for financial reporting purposes because it is an amount written off as an immaterial amount for financial reporting purposes; and
(b)
would be required, if the expenditure were material, to recognise it for financial reporting purposes—
(i)
under paragraph 5.1 or 5.2 of the old reporting standard or because paragraph 5.4 of that standard applies; or
(ii)
under paragraph 68(a) of the new reporting standard applying, for the purposes of that paragraph, paragraphs 54 to 67 of that standard.
Person with minor expenditure
(5)
Subsection (1) also applies to a person who—
(a)
incurs expenditure of $10,000 or less, in total, on research and development in an income year; and
(b)
has written off the expenditure as an immaterial amount for financial reporting purposes; and
(c)
has recognised the expenditure as an expense for financial reporting purposes.
Exclusion
(6)
Subsection (1) does not apply to expenditure that the person incurs on property to which all the following apply:
(a)
the property is used in carrying out research or development; and
(b)
it is not created from the research or development; and
(c)
it is 1 of the following kinds:
(i)
property for which the person is allowed a deduction for an amount of depreciation loss; or
(ii)
property the cost of which is allowed as a deduction by way of amortisation under a provision of this Act outside subpart EE (Depreciation); or
(iii)
land; or
(iv)
intangible property, other than depreciable intangible property; or
(v)
property that its owner chooses, under section EE 8 (Election that property not be depreciable) to treat as not depreciable.
Choice for allocation of deduction
(7)
A person who is allowed a deduction under this section for expenditure that is not interest and is described in subsection (2), (4), or (5) may choose to allocate all or part of the deduction—
(a)
to an income year after the income year in which the person incurs the expenditure; and
(b)
in the way required by section EJ 23 (Allocation of deductions for research, development, and resulting market development).
Allocation of deduction for derecognised non-depreciable assets
(7B)
A person who is allowed a deduction as provided by subsection (3) must allocate the deduction to the income year in which the relevant intangible asset is derecognised or written off by the person for financial reporting purposes under—
(a)
paragraph 112(b) of the new reporting standard; or
(b)
paragraph 5.14 of the old reporting standard.
Section need not be applied
(8)
A person may return income and expenditure in their return of income on the basis that this section does not apply to expenditure incurred on research or development in the income year to which the return relates.
Relationship with section EA 2
(9)
If expenditure to which this section applies is incurred in devising an invention that is patented, the expenditure is not treated as part of the cost of revenue account property for the purposes of section EA 2 (Other revenue account property).
Link with subpart DA
(10)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, depreciable intangible property, depreciation loss, development, general limitation, general permission, income, income year, new reporting standard, old reporting standard, research, return of income, revenue account property
Compare: 2004 No 35 s DB 26
Section DB 34(2): substituted (with effect on 1 April 2008), on 7 December 2009, by section 11(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 34(2): amended, on 1 April 2008, by section 338(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 34(3) heading: replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 96(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 34(3): replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 96(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 34(4)(a): amended, on 1 April 2008, by section 338(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 34(4)(b): substituted (with effect on 1 April 2008), on 7 December 2009, by section 11(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 34(4)(b): substituted, on 1 April 2008, by section 338(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 34(5)(b): substituted, on 1 April 2008, by section 338(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 34(7): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 96(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 34(7B) heading: inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 96(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 34(7B): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 96(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 34 list of defined terms new reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 34 list of defined terms old reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 34 list of defined terms reporting standard: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DB 35 Some definitions
Definitions
(1)
In this section, and in section DB 34,—
development is defined in paragraph 8 of the new reporting standard
new reporting standard means the New Zealand Equivalent to International Accounting Standard 38, in effect under the Financial Reporting Act 2013, and as amended from time to time or an equivalent standard issued in its place
old reporting standard means Financial Reporting Standard No 13 1995 (Accounting for Research and Development Activities) being the standard approved under the Financial Reporting Act 1993, or an equivalent standard issued in its place, that applies in the tax year in which the expenditure is incurred
research is defined in paragraph 8 of the new reporting standard.
Meaning of research or development: modification by Order in Council
(2)
The Governor-General may make an Order in Council specifying—
(a)
a kind of expenditure that is not expenditure on research or development for the purposes of section DB 34:
(b)
an activity that is neither research nor development for the purposes of section DB 34:
(c)
the date from which the expenditure or the activity is excluded from being research or development.
Secondary legislation
(3)
An Order in Council under subsection (2) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: development, income year, new reporting standard, old reporting standard, research
Compare: 2004 No 35 s DB 27
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section DB 35(1): substituted, on 1 April 2008, by section 339 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 35(1) development: amended (with effect on 1 April 2015), on 24 February 2016, by section 97(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 35(1) new reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 12 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 35(1) new reporting standard: amended, on 1 April 2014, by section 126 of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section DB 35(1) old reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 12 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 35(1) reporting standard: repealed (with effect on 1 April 2008), on 7 December 2009, by section 12 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 35(1) research: amended (with effect on 1 April 2015), on 24 February 2016, by section 97(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 35(3) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section DB 35(3): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section DB 35 list of defined terms new reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 35 list of defined terms old reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 35 list of defined terms reporting standard: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DB 36 Patent expenses
Deduction
(1)
A person is allowed a deduction for expenditure that they incur in connection with the grant, maintenance, or extension of a patent if they—
(a)
acquired the patent before 23 September 1997; and
(b)
use the patent in deriving income in the income year in which they incur the expenditure.
Link with subpart DA
(2)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, income, income year
Compare: 2004 No 35 s DB 28
DB 37 Expenses in application for patent or design registration
Deduction
(1)
A person who incurs expenditure for the purpose of applying for the grant of a patent or of a design registration and does not obtain the grant because the application is not lodged or is withdrawn, or because the grant is refused, is allowed a deduction for the expenditure—
(a)
that the person incurs in relation to the application or intended application; and
(b)
that would have been part of the cost of fixed life intangible property, or otherwise a deduction, if the application or intended application had been granted; and
(c)
for which the person is not allowed a deduction under another provision.
Timing of deduction
(2)
The deduction is allocated to the income year in which the person decides not to lodge the application, withdraws the application, or is refused the grant.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission and other general limitations still apply.
Defined in this Act: capital limitation, deduction, design registration, fixed life intangible property, general limitation, general permission, income year
Compare: 2004 No 35 s DB 28B
Section DB 37 heading: replaced (with effect on 1 April 2015), on 24 February 2016, by section 98(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 37(1): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 47(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 37(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 98(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 37(2): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 47(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DB 37 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 98(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DB 38 Patent rights: devising patented inventions
When this section applies
(1)
This section applies when a person incurs expenditure in devising an invention for which a patent has been granted. The section applies whether the person devised the invention alone or in conjunction with another person.
Deduction: expenditure before 1 April 1993
(2)
When the person uses the patent in deriving income in an income year, they are allowed a deduction for expenditure incurred before 1 April 1993, but not if a deduction has been allowed for the expenditure under any other provision of this Act or an earlier Act.
Deduction: devising invention
(3)
If the person disposes of all the patent rights relating to the invention, they are allowed a deduction for the expenditure that they have incurred, whenever it is incurred, in connection with devising the invention to the extent to which a deduction has not already been allowed under subsection (2).
Deduction: devising invention: proportion of expenditure
(4)
If the person disposes of some of the patent rights relating to the invention, they are allowed a deduction for part of the expenditure described in subsection (3). The part is calculated by dividing the amount derived from the disposal by the market value of the whole of the patent rights on the date of the disposal.
Link with subpart DA
(5)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, income, income year, patent right
Compare: 2004 No 35 s DB 29
Section DB 38(3): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 38(4): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DB 39 Patent rights acquired before 1 April 1993
When this section applies
(1)
This section applies when a person disposes of patent rights that they acquired before 1 April 1993.
Deduction
(2)
The person is allowed a deduction on the disposal of the patent rights.
Amount of deduction
(3)
The amount is calculated using the formula—
(unexpired term of the patent rights at the date of disposal
÷ unexpired term of the patent rights at the date of acquisition) × cost
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, general limitation, general permission, patent right
Compare: 2004 No 35 s DB 30
Section DB 39(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 39(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 39(3) formula: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DB 40 Patent applications or patent rights acquired on or after 1 April 1993
When this section applies
(1)
This section applies when a person disposes of a patent application with a complete specification or patent rights that they acquired on or after 1 April 1993.
Deduction
(2)
The person is allowed a deduction on the disposal of the patent application with a complete specification or patent rights.
Amount of deduction
(3)
The amount is calculated using the formula—
total cost − total amounts of depreciation loss.
Definition of items in formula
(4)
In the formula,—
(a)
total cost is the total cost to the person of the patent application with a complete specification or of the patent rights, excluding any expenditure for which the person has been allowed a deduction under section DZ 15 (Patent applications before 1 April 2005):
(b)
total amounts of depreciation loss is the total of the amounts of depreciation loss, for which the person is allowed a deduction, for the patent application with a complete specification or for the patent rights and the patent application relating to the patent rights.
Link with subpart DA
(5)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, depreciation loss, general limitation, general permission, patent right
Compare: 2004 No 35 s DB 31
Section DB 40(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 40(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DB 40BA Expenses in application for plant variety rights
Deduction
(1)
A person who incurs expenditure for the purpose of applying for the grant of plant variety rights and does not obtain the grant because the application is not lodged or is withdrawn, or because the grant is refused, is allowed a deduction for the expenditure—
(a)
that the person incurs in relation to the application or intended application; and
(b)
that would have been part of the cost of fixed life intangible property, or otherwise a deduction, if the application or intended application had been granted; and
(c)
for which the person is not allowed a deduction under another provision.
Timing of deduction
(2)
The deduction is allocated to the income year in which the person decides not to lodge the application, withdraws the application, or is refused the grant of plant variety rights.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, fixed life intangible property, general limitation, general permission, income year, plant variety rights
Section DB 40BA: inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 48 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Unsuccessful software development
Heading: inserted (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 21(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DB 40B Expenditure in unsuccessful development of software
When this section applies
(1)
This section applies when a person incurs expenditure in the development of software for use in the person’s business if—
(a)
the development of the software is abandoned when the copyright in the software is not depreciable property of the person; and
(b)
the copyright in the software would have been depreciable property of the person if the development had been completed.
Deduction
(2)
The person is allowed a deduction for expenditure incurred in the development of the software to the extent to which no deduction has been allowed for the expenditure under another provision of this Act or under another Act.
Timing of deduction
(3)
The deduction is allocated to the income year in which the development of the software is abandoned.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, income year
Section DB 40B: inserted (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 21(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DB 40B(1)(a): amended (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 24 February 2016, by section 99(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DB 40B(1)(b): amended (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 24 February 2016, by section 99(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Corporate gifting
Heading: replaced, on 30 March 2022, by section 67 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DB 41 Charitable or other public benefit gifts by company
Who this section applies to[Repealed]
(1)
[Repealed]Deduction
(2)
A company is allowed a deduction for a charitable or other public benefit gift that it makes to a donee organisation.
No deduction
(2B)
Despite subsection (2), a company is not allowed a deduction for the amount of a charitable or other public benefit gift it makes, to the extent to which the amount is, for the company, an asset ignored for the purposes of section HR 12 (Non-exempt charities: treatment of tax-exempt accumulations) and described in section HR 12(3)(a).
Amount of deduction
(3)
The deduction for the total of all gifts made in an income year is limited to the amount that would be the company’s net income in the corresponding tax year in the absence of this section.
Exclusion
(3B)
This section does not apply to a local authority.
Link with subpart DA
(4)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, charitable or other public benefit gift, deduction, donee organisation, general limitation, general permission, income year, local authority, net income, supplement, tax year
Compare: 2004 No 35 s DB 32
Section DB 41(1) heading: repealed, on 1 April 2008, pursuant to section 340(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 41(1): repealed, on 1 April 2008, by section 340(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 41(2): amended, on 6 January 2010, by section 74(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 41(2): amended, on 1 April 2008, by section 340(2)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 41(2): amended, on 1 April 2008, by section 340(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 41(2B) heading: inserted (with effect on 14 April 2014), on 18 March 2019, by section 151 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DB 41(2B): inserted (with effect on 14 April 2014), on 18 March 2019, by section 151 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DB 41(3): amended, on 1 April 2008, by section 340(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 41(3B) heading: inserted, on 1 April 2022, by section 68(1) (and see section 68(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 41(3B): inserted, on 1 April 2022, by section 68(1) (and see section 68(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 41 list of defined terms close company: repealed, on 6 January 2010, by section 74(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 41 list of defined terms company: repealed, on 6 January 2010, by section 74(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 41 list of defined terms local authority: inserted, on 1 April 2022, by section 68(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DB 41 list of defined terms recognised exchange: repealed, on 6 January 2010, by section 74(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 41 list of defined terms share: repealed, on 6 January 2010, by section 74(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 41 list of defined terms donee organisation: inserted, on 6 January 2010, by section 74(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Theft and bribery
DB 42 Property misappropriated by employees or service providers
When this section applies
(1)
This section applies when—
(a)
a person carries on a business; and
(b)
an employee of the business, or a person who provides services to the business, misappropriates property; and
(c)
no other provision of this Act allows the person who carries on the business a deduction for the loss resulting from the misappropriation.
Exclusions
(2)
This section does not apply when a person who misappropriates property is associated with the person who carries on the business.
Deduction
(3)
The person is allowed a deduction for the loss that they incur in the course of the business as a result of the misappropriation of the property.
Timing of deduction
(4)
The deduction is allocated to the income year in which the loss is ascertained, or in 1 or more earlier years if, in the circumstances, the Commissioner considers it would be fair.
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: associated person, business, capital limitation, Commissioner, company, deduction, employee, general limitation, general permission, income year, relative, supplement, trustee
Compare: 2004 No 35 s DB 33
Section DB 42(2): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 75(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 43 Making good loss from misappropriation by partners
When this section applies
(1)
This section applies when a person carrying on a business in partnership pays an amount to make good a loss that arises from a partner, other than the person or the person’s spouse, civil union partner, or de facto partner, misappropriating property that—
(a)
belongs to another person who is neither a partner in the partnership nor the spouse, civil union partner, or de facto partner of a partner; and
(b)
is received in the course of the business either by the partnership or 1 or more of its partners.
Deduction
(2)
The person is allowed a deduction for the amount if the person is under a legal liability to make good the loss.
Timing of deduction
(3)
The deduction is allocated to the income year in which the amount is paid.
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, general limitation, general permission, income year, pay, supplement
Compare: 2004 No 35 s DB 34
DB 44 Restitution of stolen property
Deduction
(1)
A person who derives income under section CB 32 (Property obtained by theft) is allowed a deduction for the amount of restitution that they make to a person who is beneficially entitled to property to which section CB 32 applies.
Timing of deduction
(2)
The deduction is allocated to the income year in which the person makes restitution.
Meaning of restitution
(3)
In this section, restitution includes restitution made to a person claiming through the person beneficially entitled to the property.
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation and the private limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, income, income year, private limitation, property, restitution, supplement
Compare: 2004 No 35 s DB 35
DB 45 Bribes
When this section applies
(1)
No deduction
(2)
Person A is denied a deduction for the amount of the bribe.
Exclusions
(3)
This section does not apply in the circumstances specified in section 105C(3) of the Crimes Act 1961.
Definition
(4)
In this section, bribe is defined in section 99 of the Crimes Act 1961.
Link with subpart DA
(5)
This section overrides the general permission.
Defined in this Act: bribe, deduction, general permission, New Zealand
Compare: 2004 No 35 s DB 36
Section DB 45: replaced, on 7 November 2015, by section 4 of the Income Tax Amendment Act 2015 (2015 No 104).
Pollution control
DB 46 Avoiding, remedying, or mitigating effects of discharge of contaminant or making of noise
When this section applies
(1)
This section applies when a person—
(a)
carries on a business in New Zealand; and
(b)
the person incurs, in the business or in ending the operations of the business, expenditure that is—
(i)
of a kind listed in schedule 19, in either part A or B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant or making of noise) and not in schedule 19, part C; and
(ii)
not incurred in relation to revenue account property other than land that is subject to section CB 8 (Disposal: land used for landfill, if notice of election); and
(c)
no other provision allows a deduction for the expenditure.
Amount and timing of deduction
(2)
The person is allowed for an income year a deduction for the expenditure of,—
(a)
if paragraphs (b) and (c) do not apply, an amount that is calculated using the formula—
rate × value:
(b)
if the operations of the business for which the expenditure was incurred come to an end in the income year, the diminished value or adjusted tax value of the expenditure for the income year:
(c)
if an improvement on which the expenditure was incurred is destroyed, or is rendered useless for the purposes for which the expenditure was incurred, and paragraph (b) does not apply, the diminished value or adjusted tax value of the expenditure for the income year.
Definition of items in formula
(3)
The items in the formula in subsection (2)(a) are defined in subsections (4) and (6).
Rate
(4)
Rate is—
(a)
100%, if the expenditure is of a kind listed in schedule 19, part A, item 1, or part B and neither paragraph (b) nor (c) applies:
(b)
the appropriate rate under subsection (5) if—
(i)
the expenditure is of a kind listed in schedule 19, part A, items 2 to 5; and
(ii)
paragraph (c) does not apply:
(c)
the rate for the kind of expenditure, the income year, the valuation method adopted under subsection (6), and the person, determined by the Commissioner under section 91AAN of the Tax Administration Act 1994, if such a rate is determined.
Banded straight-line rate or corresponding diminishing value rate
(5)
The rate for expenditure if the requirements of subsection (4)(b) are met is—
(a)
the straight-line rate set out in schedule 12, column 2 (Old banded rates of depreciation) that is nearest to the rate calculated for the expenditure using the formula in subsection (7), if the person chooses to use the straight-line method:
(b)
the diminishing value rate set out in schedule 12, column 1 that corresponds to the straight-line rate under paragraph (a), if the person chooses to use the diminishing value method.
Value
(6)
Value is—
(a)
the adjusted tax value of the expenditure, if the person chooses to use the straight-line method:
(b)
the diminished value of the expenditure for the income year, if the person chooses to use the diminishing value method.
Formula for rate for expenditure with assumed life
(7)
The formula for the straight-line rate for a kind of expenditure to which subsection (4)(b) applies is—
100% ÷ assumed life.
Definition of item in formula
(8)
In the formula in subsection (7), assumed life for expenditure and an income year is,—
(a)
for expenditure associated with a business activity that does not require a resource consent, 35:
(b)
for expenditure associated with a business activity that requires a resource consent, the lesser of 35 and the number of the years in the period of the resource consent that include or follow the time at which the expenditure is incurred.
Link with subpart DA
(9)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, New Zealand
Compare: 2004 No 35 s DB 37
Section DB 46 heading: amended (with effect on 1 April 2018), on 18 March 2019, by section 152(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DB 46(1)(b)(i): amended (with effect on 1 April 2018), on 18 March 2019, by section 152(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DB 46(1)(b)(i): amended (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 38(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Repayments
DB 47 Payments for remitted amounts
When this section applies
(1)
This section applies when—
(a)
a person is allowed a deduction in an income year of an amount that the person is liable to pay; and
(b)
the person’s liability for the amount is later remitted or cancelled, wholly or partly; and
(c)
the remission or cancellation is not a dividend; and
(d)
the person is not required to calculate a base price adjustment by section EW 29 (When calculation of base price adjustment required); and
(e)
the amount to which the remission or cancellation applies is assessable income of the person under section CG 2 (Remitted amounts); and
(f)
the person makes a payment for the amount to which the remission or cancellation applies.
Amount, and timing, of deduction
(2)
The person is allowed a deduction for the amount of the payment in the income year in which it is made.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, assessable income, deduction, dividend, general limitation, general permission, income year, pay, supplement
Compare: 2004 No 35 s DB 38
DB 48 Restrictive covenant breached
When this section applies
(1)
This section applies when an employee (person A) makes a payment to another person (person B) in the following circumstances:
(a)
person A derives assessable income under section CE 9 (Restrictive covenants); and
(b)
person A breaches a term of the undertaking they gave to person B; and
(c)
person A is, consequently, required to make the payment to person B.
Deduction
(2)
Person A is allowed a deduction for the payment.
Amount of deduction
(3)
The amount of the deduction is the lesser of the following:
(a)
the assessable income that person A derives under section CE 9; and
(b)
the payment that person A makes to person B, excluding interest, punitive damages, exemplary damages, and person B’s legal costs and other expenses.
Timing of deduction
(4)
The deduction is allocated to the income year in which person A makes the payment to person B.
Link with subpart DA
(5)
This section supplements the general permission and overrides the employment limitation. The other general limitations still apply.
Defined in this Act: amount, assessable income, deduction, employee, employment limitation, general limitation, general permission, income year, interest, pay, supplement
Compare: 2004 No 35 s DB 39
Matching rules: revenue account property, prepayments, and deferred payments
DB 49 Adjustment for opening values of trading stock, livestock, and excepted financial arrangements
When this section applies
(1)
This section applies when a person has some or all of the following at the start of an income year:
(a)
trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)):
(b)
livestock valued under subpart EC (Valuation of livestock):
(c)
excepted financial arrangements that are revenue account property valued under subpart ED (Valuation of excepted financial arrangements):
(d)
a share supplier’s share-lending right, if the original shares that relate to the right are excepted financial arrangements described in paragraph (c).
Deduction: opening value of trading stock
(2)
The person is allowed a deduction in the income year for the value that the trading stock had at the end of the previous income year, as calculated under section EB 3 (Valuation of trading stock).
Deduction: opening value of livestock
(3)
The person is allowed a deduction in the income year for the value that the livestock had at the end of the previous income year, as calculated under section EC 2 (Valuation of livestock).
Deduction: opening value of excepted financial arrangements
(4)
The person is allowed a deduction in the income year for the value that the excepted financial arrangements or share-lending right had at the end of the previous income year, as calculated under section ED 1 (Valuation of excepted financial arrangements).
Link with subpart DA
(5)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: deduction, excepted financial arrangement, general limitation, general permission, income year, original share, revenue account property, share-lending right, share supplier, supplement, trading stock
Compare: 2004 No 35 s DB 40
DB 50 Adjustment for prepayments
When this section applies
(1)
This section applies when a person has, under section EA 3 (Prepayments), an unexpired amount of expenditure at the end of an income year.
Deduction
(2)
The person is allowed a deduction for the unexpired amount for the following income year.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply, but not to the extent to which any relevant general limitation was overridden by a provision that initially allowed a deduction for the expenditure, whether in this Act or an earlier Act.
Defined in this Act: amount, deduction, general limitation, general permission, income year, supplement
Compare: 2004 No 35 s DB 41
DB 51 Adjustment for deferred payment of employment income
When this section applies
(1)
This section applies when a person has, under section EA 4 (Deferred payment of employment income), an unpaid amount of expenditure on employment income in an income year for which the person is to be allowed a deduction in the following income year.
Deduction
(2)
The person is allowed a deduction for the unpaid amount for the following income year.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply, but not to the extent to which any relevant general limitation was overridden by a provision that initially allowed a deduction for the expenditure, whether in this Act or an earlier Act.
Defined in this Act: amount, deduction, employment income, general limitation, general permission, income year, pay, supplement
Compare: 2004 No 35 s DB 42
Adjustments for leases that become finance leases
Heading: inserted, on 1 April 2008, by section 341 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DB 51B Adjustments for leases that become finance leases
When this section applies
(1)
This section applies when an adjustment made under section FA 11 (Adjustments for leases that become finance leases) is negative.
Deduction
(2)
The amount of the adjustment is a deduction of the lessor or the lessee, as applicable, in the income year in which the lease becomes a finance lease.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: deduction, finance lease, general limitation, general permission, income year, lease
Compare: 2004 No 35 s FC 8H(7)
Section DB 51B: inserted, on 1 April 2008, by section 341 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
IFRS leases
Heading: inserted (with effect on 1 January 2019), on 30 March 2021, by section 30(1) (and see section 30(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
DB 51C NZ IFRS 16 leases
When this section applies
(1)
This section applies when a person has, under section EJ 10B (IFRS leases), an amount of a deduction for their IFRS lease.
Amount and timing of deduction
(2)
The person is allowed a deduction of the amount of the deduction quantified and allocated under section EJ 10B.
Defined in this Act: amount, deduction, person
Section DB 51C: inserted (with effect on 1 January 2019), on 30 March 2021, by section 30(1) (and see section 30(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Change to accounting practice
DB 52 Adjustment for change to accounting practice
When this section applies
(1)
This section applies when a person has, under section EG 2(2) or (3) (Adjustment for changes to accounting practice), an amount owed by them or an amount owing to them as quantified in those subsections.
Amount, and timing, of deduction
(2)
The person is allowed a deduction of the amount as quantified and allocated under section EG 2.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission, supplement
Compare: 2004 No 35 s DB 43
Investment income
DB 53 Attributed PIE losses of certain investors
When this section applies
(1)
This section applies to an investor in a multi-rate PIE when—
(a)
an amount of attributed PIE loss is attributed under section HM 36 (Calculating amounts attributed to investors) to an investor for an attribution period in a tax year; and
(b)
either—
(i)
the investor is a zero-rated investor; or
(ii)
the PIE calculates its tax liability using the quarterly calculation option under section HM 43 and the amount is attributed to an exiting investor to whom section HM 61 applies.
Deduction
(2)
The investor is allowed a deduction for the amount allocated to the investor’s income year in which the PIE’s tax year ends.
When this section also applies
(2B)
This section also applies for the purposes of an adjustment under section HM 36B (Calculating PIE schedular adjustments for natural person investors) when a natural person who is resident in New Zealand—
(a)
is an investor in a multi-rate PIE; and
(b)
in relation to an amount attributed to them by the PIE, has a rate of tax applied that is not equal to their prescribed investor rate for the income year; and
(c)
has an amount of attributed PIE loss for the income year.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, attributed PIE loss, attribution period, deduction, exit period, general limitation, general permission, income tax liability, income year, investor, multi-rate PIE, natural person, PIE, prescribed investor rate, quarter, resident in New Zealand, tax year, zero-rated investor
Compare: 2007 No 97 s DB 53
Section DB 53: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 77(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 53(1)(b): replaced (with effect on 1 April 2020), on 31 March 2023, by section 37(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DB 53(2B) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 31(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section DB 53(2B): inserted (with effect on 1 April 2020), on 30 March 2021, by section 31(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section DB 53 list of defined terms natural person: inserted (with effect on 1 April 2020), on 30 March 2021, by section 31(3)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section DB 53 list of defined terms prescribed investor rate: inserted (with effect on 1 April 2020), on 30 March 2021, by section 31(3)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section DB 53 list of defined terms resident in New Zealand: inserted (with effect on 1 April 2020), on 30 March 2021, by section 31(3)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section DB 53 list of defined terms zero-rated investor: inserted (with effect on 1 April 2020), on 31 March 2023, by section 37(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DB 53 list of defined terms zero-rated portfolio investor: repealed (with effect on 1 April 2020), on 30 March 2021, by section 31(3)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
DB 54 No deductions for fees relating to interests in multi-rate PIEs
When this section applies
(1)
This section applies when an investor in an investor class of a multi-rate PIE incurs expenses in relation to their investor interest, and the entity includes the amount in the calculation of its tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in relation to the investor.
No deduction
(2)
The investor is denied a deduction for the amount.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: amount, deduction, general permission, investor, investor class, investor interest, multi-rate PIE
Compare: 2007 No 97 s DB 54
Section DB 54: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 78(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 54 heading: replaced, on 17 July 2013, by section 28 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DB 54B Expenditure incurred by foreign investment PIEs
When this section applies
(1)
This section applies when a foreign investment PIE incurs expenditure or loss in deriving income attributable to—
(a)
a notified foreign investor in the PIE:
(b)
a transitional resident who has chosen under section HM 55D(9) (Requirements for investors in foreign investment PIEs) to use the specified prescribed investor rate.
No deduction
(2)
The PIE is denied a deduction for the amount of the expenditure or loss.
Relationship with section DB 7
(3)
This section overrides section DB 7 (Interest: most companies need no nexus with income).
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: amount, deduction, foreign investment PIE, general permission, income, loss, notified foreign investor, prescribed investor rate, transitional resident
Section DB 54B: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 16(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DB 54B(1): replaced, on 2 November 2012, by section 22(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DB 54B list of defined terms prescribed investor rate: inserted, on 2 November 2012, by section 22(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DB 54B list of defined terms transitional resident: inserted, on 2 November 2012, by section 22(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DB 54C Certain expenditure incurred by foreign PIE equivalents
When this section applies
(1)
This section applies for an income year when a foreign PIE equivalent incurs expenditure or loss in deriving an amount to which section CX 55B (Proceeds from disposal of certain shares and financial arrangements) applies.
No deduction
(2)
The foreign PIE equivalent is denied a deduction for the amount of the expenditure or loss.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: amount, deduction, foreign PIE equivalent, general permission, income year
Section DB 54C: inserted, on 29 March 2018 (with effect on 1 April 2012 and applying for the 2012–13 and later income years), by section 48(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Exempt income[Repealed]
Heading: repealed (with effect on 30 June 2009 and applying for a person and income years beginning on or after 1 July 2009, except if the person meets the following requirements: applying for a person and the 2015–16 and later income years if the person takes a tax position, for an income year beginning on or after 1 July 2009, inconsistent with section 49(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014, and in a tax return filed before 22 November 2013), on 30 June 2014, pursuant to section 49(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 55 Expenditure incurred in deriving exempt dividend
[Repealed]DB 55: repealed (with effect on 30 June 2009 and applying for a person and income years beginning on or after 1 July 2009, except if the person meets the following requirements: applying for a person and the 2015–16 and later income years if the person takes a tax position, for an income year beginning on or after 1 July 2009, inconsistent with section 49(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014, and in a tax return filed before 22 November 2013), on 30 June 2014, by section 49(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 55(3): replaced (with effect on 1 April 2008 and applying for 2008–09 and later income years), on 30 June 2014, by section 49(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Use of motor vehicle under certain arrangements
DB 56 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 7
Deduction
(1)
A party to an agreement or arrangement referred to in section CX 7 (Employer or associated person treated as having right to use vehicle under arrangement) is allowed a deduction for expenditure or an amount of depreciation loss incurred in operating a motor vehicle during a period for which an employer or associated person is treated under that section as having a right to use the vehicle.
Link with subpart DA
(2)
This section overrides the private limitation and exempt income limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, arrangement, deduction, depreciation loss, exempt income limitation, general limitation, general permission, lease, motor vehicle
Compare: 2004 No 35 s DB 45
Payments to spouses, civil union partners, or de facto partners
DB 57 Payments to spouses, civil union partners, or de facto partners other than for services
No deduction without approval
(1)
A person is denied a deduction for a payment to their spouse, civil union partner, or de facto partner for something other than services, without the Commissioner’s approval.
Commissioner’s approval
(2)
The Commissioner may approve the deduction only if—
(a)
the Commissioner considers that the payment is genuine; and
(b)
the payment is incurred by the person exclusively in deriving their assessable income; and
(c)
the approval is granted before the deduction is claimed.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: assessable income, Commissioner, deduction, general permission, pay
Compare: 2004 No 35 s GD 4
Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements
Heading: inserted, on 1 July 2018, by section 10(1) (and see section 10(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
DB 57B Matching of deductions and income from multi-jurisdictional arrangements
Deduction denied
(1)
An amount is not a deduction of a person if the deduction is denied under subpart FH (Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements).
Deduction
(2)
An amount treated as a deduction of a person under subpart FH is a deduction of the person.
Link with subpart DA
(3)
Subsection (1) overrides, and subsection (2) supplements, the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission
Section DB 57B: inserted, on 1 July 2018, by section 10(1) (and see section 10(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Avoidance and non-market transactions
DB 58 Adjustment for avoidance arrangements
Deduction denied
(1)
An amount is not a deduction of a person if the deduction is denied under—
(a)
section GA 1 (Commissioner’s power to adjust):
(b)
section GB 17 (Excessive amounts for film rights or production expenditure):
(c)
section GB 18 (Arrangements to acquire film rights or incur production expenditure):
(d)
section GB 23 (Excessive remuneration to relatives):
(e)
section GB 25 (Close company remuneration to shareholders, directors, or relatives).
Deduction
(2)
An amount treated as a deduction of a person under any of the following sections is a deduction of the person:
(a)
(b)
(c)
section GB 29 (Attribution rule: calculation):
(d)
section GB 46 (Deferral of surplus deductions from arrangements).
Link with subpart DA
(3)
Subsection (1) overrides, and subsection (2) supplements, the general permission. The general limitations still apply.
Defined in this Act: amount, arrangement, close company, Commissioner, deduction, depreciation loss, director, film production expenditure, film right, general limitation, general permission, relative, shareholder
Compare: 2004 No 35 ss GB 1(1)–(2C), GC 11A, GC 31, GD 3(1), (2), GD 5, GD 12, GD 12A
DB 59 Market value substituted
Transfer pricing arrangements
(1)
A person may be denied a deduction under section GC 7 (Excess amount payable by person).
Acquisition for below market value
(2)
A person may be treated as providing an amount—
(a)
for acquisition of trading stock, under section GC 1 (Disposals of trading stock at below market value):
(b)
for lease of a property, under section GC 5 (Leases for inadequate rent).
Link with subpart DA
(3)
Subsection (1) overrides, and subsection (2) supplements, the general permission. The general limitations still apply.
Defined in this Act: deduction, general limitations, general permission, lease, trading stock
Emissions units and liabilities under Climate Change Response Act 2002
Heading: substituted (with effect on 1 January 2009), on 6 October 2009, by section 80 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 60 Acquisition of emissions units
When this section applies
(1)
This section applies when an emissions unit is transferred to a person for a price of zero—
(a)
under section 64, or Part 4, subpart 2, of the Climate Change Response Act 2002:
(b)
under a permanent forestry scheme.
No deduction
(2)
The person is denied a deduction for an amount of expenditure or loss incurred as consideration for the emissions unit.
Link with subpart DA
(3)
Subsection (2) overrides the general permission.
Defined in this Act: amount, emissions unit, general permission, loss, permanent forestry scheme
Section DB 60: substituted (with effect on 1 January 2009), on 6 October 2009, by section 80 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 60(1): substituted (with effect on 1 January 2009), on 7 September 2010, by section 20 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DB 60(1)(b): replaced, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section DB 60 list of defined terms permanent forestry scheme: inserted, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
DB 60B Liabilities for emissions
When this section applies
(1)
This section applies when a person incurs a liability—
(a)
under the Climate Change Response Act 2002 for emissions relating to post-1989 forest land or pre-1990 forest land:
(b)
to transfer emissions units to the Crown under a permanent forestry scheme.
No deduction
(2)
The person is denied a deduction for the liability.
Link with subpart DA
(3)
Subsection (2) overrides the general permission.
Defined in this Act: amount, deduction, emissions unit, general permission, permanent forestry scheme, post-1989 forest land, pre-1990 forest land
Section DB 60B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 81(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 60B(1): substituted (with effect on 1 January 2009), on 7 September 2010, by section 21(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DB 60B(1)(b): replaced, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section DB 60B list of defined terms emissions unit: inserted (with effect on 1 January 2009), on 7 September 2010, by section 21(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DB 60B list of defined terms permanent forestry scheme: inserted, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
DB 61 Surrender of certain emissions units for post-1989 forest land emissions
When this section applies
(1)
This section applies when a person surrenders a pre-1990 forest land emissions unit or fishing quota emissions unit to meet a liability under the Climate Change Response Act 2002 to surrender units in relation to post-1989 forest land.
Treated as disposal and reacquisition
(2)
The person is treated as having disposed of the emissions unit to an unrelated person and as having then reacquired it, in each case immediately before the surrender and for an amount equal to the unit’s market value at the time.
Defined in this Act: amount, emissions unit, fishing quota emissions unit, pre-1990 forest land emissions unit, surrender
Section DB 61: substituted (with effect on 1 July 2010), on 7 September 2010, by section 22 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Legal expenses
Heading: added, on 1 April 2009, by section 4 of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
DB 62 Deduction for legal expenses
When this section applies
(1)
This section applies to a person when their total legal expenses for an income year is equal to or less than $10,000.
Deduction
(2)
The person is allowed a deduction for the legal expenses.
Definition
(3)
For the purposes of this section, legal expenses means fees for legal services (as defined in the Lawyers and Conveyancers Act 2006) provided by a person who holds a practising certificate issued by the New Zealand Law Society or an Australian equivalent.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, income year, legal expenses
Section DB 62: added, on 1 April 2009, by section 4 of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Miscellaneous company administration costs
Heading: inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 50(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 63 Expenses in paying dividends
Deduction
(1)
A company is allowed a deduction for expenditure incurred in—
(a)
authorising, allocating, or processing the payment of a dividend:
(b)
resolving a dispute concerning a matter referred to in paragraph (a).
Link with subpart DA
(2)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, company, deduction, dividend, general limitation, general permission
Section DB 63: inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 50(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 63B Periodic company registration fees
Deduction
(1)
A listed company is allowed a deduction for expenditure incurred as periodic fees of a recognised exchange for maintaining the registration of the company on the exchange.
Link with subpart DA
(2)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, company, deduction, general limitation, general permission, listed company, recognised exchange
Section DB 63B: inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 50(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DB 63C Meetings of shareholders
Deduction
(1)
A company is allowed a deduction for expenditure incurred in holding an annual meeting of the shareholders of the company to consider the affairs of the company.
No deduction
(2)
A company is denied a deduction for expenditure incurred in holding a special or extraordinary meeting of the shareholders of the company.
Link with subpart DA
(3)
Subsection (1) supplements the general permission and overrides the capital limitation. Subsection (2) overrides the general permission. The other general limitations still apply.
Defined in this Act: capital limitation, company, deduction, general limitation, general permission, shareholder
Section DB 63C: inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 50(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Capital contributions
Heading: added (with effect on 20 May 2010), on 28 May 2010 (applying for capital contributions derived after 20 May 2010), by section 76(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
DB 64 Capital contributions
When this section applies
(1)
This section applies if,—
(a)
a person has derived a capital contribution after 20 May 2010; and
(b)
in the absence of this section, the person would be allowed a deduction for the relevant capital contribution property, or for the relevant expenditure for the capital contribution property; and
(c)
the person has chosen to apply this section in a return of income for the income year in which the capital contribution is derived.
Deductions
(2)
For the purposes of quantifying the amount of depreciation loss under subpart EE (Depreciation) in relation to the capital contribution property or the amount of deduction under subpart DO (Farming and aquacultural business expenditure) in relation to expenditure for the capital contribution property,—
(a)
the capital contribution property’s adjusted tax value, base value, cost, or value, as applicable, is reduced by the amount of the capital contribution, under subpart EE:
(b)
the relevant expenditure for the capital contribution property is reduced by the amount of the capital contribution, under subpart DO.
Links with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: adjusted tax value, amount, capital contribution, capital contribution property, deduction, expenditure, general permission, income, income year, return of income
Section DB 64: inserted (with effect on 20 May 2010), on 28 May 2010 (applying for capital contributions derived after 20 May 2010), by section 76(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section DB 64(1)(b): replaced (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 64(2) heading: replaced (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 64(2): replaced (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 64 list of defined terms capital contribution property: inserted (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 64 list of defined terms expenditure: inserted (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DB 65 Allowance for certain commercial buildings
[Repealed]Section DB 65: repealed, on 1 April 2020, by section 4 of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Feasibility expenditure
Heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 32(1) (and see section 32(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
DB 66 Feasibility expenditure: spread deduction
When this section applies
(1)
This section applies for expenditure to the extent to which a person has—
(a)
incurred expenditure for an income year after the 2019–20 income year in relation to making progress towards completing, creating, or acquiring property that, if it were to be completed, created, or acquired, would be—
(i)
depreciable property for which the depreciation rate is more than 0%:
(ii)
revenue account property; and
(b)
abandoned further progress in relation to the property, with the result that it is not completed, created, or acquired; and
(c)
no deduction in relation to the expenditure under any other provision.
When this section does not apply
(2)
Despite subsection (1) this section does not apply to the extent to which expenditure is in relation to property on the following list:
(a)
land, unless it is fixed life intangible property:
(b)
an excepted financial arrangement:
(c)
intangible property or intellectual property, unless it is fixed life intangible property.
Deduction: spread forward
(3)
The person is allowed a deduction for the expenditure described in subsection (1), in equal proportions over a period of 5 income years starting in the income year in which they abandon further progress. However, a person is not allowed any remaining deduction portions for the income year in which they complete or create the relevant property, or acquire the relevant property or similar property, or for later years.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, depreciable property, excepted financial arrangement, financial arrangement, fixed life intangible property, general limitation, general permission, income year, intellectual property, land, person
Section DB 66: inserted (with effect on 1 April 2020), on 30 March 2021, by section 32(1) (and see section 32(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
DB 67 Feasibility expenditure: immediate deduction
When this section applies
(1)
This section applies for expenditure to the extent to which a person has—
(a)
incurred expenditure for an income year after the 2019–20 income year in relation to making progress towards completing, creating, or acquiring property that, if it were to be completed, created, or acquired, would be—
(i)
depreciable property for which the depreciation rate is more than 0%:
(ii)
revenue account property; and
(b)
no deduction for the expenditure under any other provision.
When this section does not apply
(2)
Despite subsection (1) this section does not apply to expenditure that is in relation to property on the following list:
(a)
land, but excluding fixed life intangible property:
(b)
an excepted financial arrangement:
(c)
intangible property or intellectual property, but excluding fixed life intangible property.
Deduction: immediate
(3)
The person is allowed a deduction for the expenditure described in subsection (1), if their total expenditure described in subsection (1) in relation to all property is $10,000 or less for the income year.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, depreciable property, excepted financial arrangement, financial arrangement, fixed life intangible property, general permission, general limitation, income year, intellectual property, land, person
Section DB 67: inserted (with effect on 1 April 2020), on 30 March 2021, by section 32(1) (and see section 32(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Utilities distribution assets
Heading: inserted (with effect on 1 April 2008), on 31 March 2023, by section 38(1) (and see section 38(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DB 68 Amounts paid for utilities distribution assets
When this section applies
(1)
This section applies when a person incurs expenditure in relation to either a utilities distribution asset or a utilities distribution network.
Determining whether expenditure of capital nature
(2)
For the purpose of determining whether the expenditure is capital in nature, the expenditure is treated as relating to a utilities distribution asset and is treated as not being incurred in relation to a utilities distribution network.
Defined in this Act: utilities distribution asset, utilities distribution network
Section DB 68: inserted (with effect on 1 April 2008), on 31 March 2023, by section 38(1) (and see section 38(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Subpart DC—Employee or contractor expenditure
Contents
DC 1 Lump sum payments on retirement
Deduction
(1)
A person who carries on a business is allowed a deduction for a lump sum paid as a bonus, gratuity, or retiring allowance to an employee on retirement.
Inclusions
(2)
For the purposes of subsection (1), a lump sum paid on retirement includes a lump sum paid to—
(a)
an employee when they end their employment or service through redundancy, loss of office, or similar circumstances:
(b)
a former employee when they are unable to be reemployed in seasonal work in circumstances that would be considered the loss of employment or service through redundancy if they resulted in ending the seasonal work.
Exclusion
(3)
This section does not apply to the extent to which the person has accepted a liability, as described in section DC 10(1)(c), to pay an amount of employment income.
Timing of deduction
(4)
The deduction is allocated to the income year in which the lump sum is paid.
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, employee, employment income, general limitation, general permission, income year, pay, supplement
Compare: 2004 No 35 s DC 1
DC 2 Pension payments to former employees
When subsection (2) applies
(1)
Subsection (2) applies when—
(a)
a person, other than a close company, carries on a business; and
(b)
a former employee has retired from their employment in the business or their employment has ended through redundancy or similar circumstances; and
(c)
they are paid a pension in consideration of their past services in the business; and
(d)
they or their spouse, civil union partner, or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship.
Deduction: not close company
(2)
The person is allowed a deduction for a reasonable amount paid as the pension to the former employee or their surviving spouse, civil union partner, or de facto partner.
When subsection (4) applies
(3)
Subsection (4) applies when—
(a)
a close company carries on a business; and
(b)
a former employee of the company is or has been a shareholder in it or has a relative who is or has been a shareholder in it; and
(c)
the former employee’s employment in the company was genuine; and
(d)
they have retired from the employment or their employment has ended through redundancy or similar circumstances; and
(e)
they are paid a pension in consideration of their past services in the business; and
(f)
they or their spouse, civil union partner, or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship.
Deduction: close company
(4)
The close company is allowed a deduction for the amount paid as the pension to the former employee or their surviving spouse, civil union partner, or de facto partner.
Amount of deduction under subsection (4)
(5)
The amount of the deduction allowed under subsection (4) is the amount that the company would have paid if the former employee or their relative were not, or had not been, a shareholder in the company.
Timing of deductions
(6)
A deduction under this section is allocated to the income year in which the amount is paid.
Relationship with section FB 11
(7)
Section FB 11 (Pension payments to former employees) expands on this section.
Link with subpart DA
(8)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, business, capital limitation, close company, deduction, employee, general limitation, general permission, income year, pay, relative, shareholder, supplement
Compare: 2004 No 35 s DC 2
DC 3 Pension payments to former partners
When this section applies
(1)
This section applies when—
(a)
a person is a partner in a partnership; or
(b)
a person who was a partner in a partnership is in business on their own account.
Exclusion
(2)
This section does not apply to a partnership or a business that is engaged wholly or mainly in investing money or in holding, or dealing in, shares, securities, investments, or estates or interests in land.
Deduction
(3)
The person is allowed a deduction for their share of an amount, to the extent to which the amount is reasonable, paid as a pension to a former partner, or to the spouse, civil union partner, or de facto partner of a deceased former partner, if—
(a)
the partnership in which the former partner was a partner (the old partnership) carried on the same business as that now carried on either by the partnership that is paying the pension or by the person in business who is paying the pension; and
(b)
the former partner retired from the old partnership or their employment ended through retirement; and
(c)
the former partner or their spouse, civil union partner, or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship; and
(d)
the pension is paid for the former partner’s services in the old partnership.
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, estate, general limitation, general permission, interest, land, pay, share, supplement
Compare: 2004 No 35 s DC 3
DC 3B Payments to working owners
Deduction
(1)
A person who has an effective look-through interest for a look-through company (an owner) is allowed a deduction for their share of a payment made under a contract of employment to a working owner.
Amount of deduction
(2)
The amount of the deduction is limited to the amount of the payment authorised by the contract of employment and any bonus, whether or not the payment of a bonus is authorised by the contract.
Meaning of contract of employment
(3)
In this section, contract of employment, for a working owner, means an agreement that—
(a)
specifies the terms and conditions of the services to be performed by the working owner; and
(b)
specifies the amount payable to the working owner for the performance of the services; and
(c)
is in writing.
Link with subpart DA
(4)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, contract of employment, deduction, effective look-through interest, general limitation, general permission, look-through company, pay, supplement, working owner
Section DC 3B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 40(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DC 4 Payments to working partners
Deduction
(1)
A person who is a partner in a partnership is allowed a deduction for their share of a payment made under a contract of service to a partner who personally and actively performs duties that—
(a)
are required to be performed in carrying on the business of the partnership; and
(b)
are performed by the partner during the currency of the contract of service.
Exclusion
(2)
This section does not apply to a partnership that is engaged wholly or mainly in investing money or in holding, or dealing in, shares, securities, investments, or estates or interests in land.
Amount of deduction
(3)
The amount of the deduction is limited to the amount of the payment authorised by the contract of service and any bonus, whether or not the payment of a bonus is authorised by the contract.
Relationship with section GB 23
(4)
This section is overridden by section GB 23 (Excessive remuneration to relatives).
Meaning of contract of service
(5)
In this section, contract of service, for a partner and a partnership, means an agreement that—
(a)
specifies the terms and conditions of the services to be performed by the partner; and
(b)
specifies the amount payable to the partner for the performance of the services; and
(c)
is entered into by all the partners in the partnership; and
(d)
is in writing.
Link with subpart DA
(6)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, business, contract of service, deduction, estate, general limitation, general permission, interest, land, pay, share, supplement
Compare: 2004 No 35 s DC 4
DC 5 Payments to spouses, civil union partners, or de facto partners: services
No deduction without approval
(1)
A person is denied a deduction for a payment to their spouse, civil union partner, or de facto partner for services without the Commissioner’s approval.
When Commissioner can give consent
(2)
The Commissioner may approve the deduction only if—
(a)
the Commissioner considers that the payment is for services rendered; and
(b)
the services are not domestic services or otherwise services connected with the home; and
(c)
the payment is incurred by the person exclusively in deriving their assessable income; and
(d)
the approval is granted before the deduction is claimed.
Relationship with section GB 23
(3)
This section is overridden by section GB 23 (Excessive remuneration to relatives).
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: assessable income, Commissioner, deduction, general permission, pay
Compare: 2004 No 35 s GD 4
DC 6 Contributions to employees’ benefit funds
Deduction
(1)
An employer is allowed a deduction for an amount that they pay to, or set aside as, a fund to provide individual personal benefits to their employees if—
(a)
the fund is not a superannuation scheme; and
(b)
the employees’ rights to receive benefits from the fund are fully secured.
Link with subpart DA
(2)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, employee, employer, general limitation, general permission, pay, superannuation scheme, supplement
Compare: 2004 No 35 s DC 5
DC 7 Contributions to employees’ superannuation schemes
Deduction
(1)
An employer is allowed a deduction for a superannuation contribution to an employees’ superannuation scheme.
Exclusion[Repealed]
(1B)
[Repealed]Timing of deduction
(2)
The deduction is allocated to the income year in which the employer makes the contribution.
Relationship with section EJ 21
(3)
Subsection (2) is overridden by section EJ 21 (Contributions to employees’ superannuation schemes).
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, employee, employer, general limitation, general permission, income year, superannuation contribution, superannuation scheme, tax credit
Compare: 2004 No 35 s DC 6
Section DC 7(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 82(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DC 7(1B) heading: repealed, on 1 April 2009, pursuant to section 52 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Section DC 7(1B): repealed, on 1 April 2009, by section 52 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Section DC 7 list of defined terms superannuation contribution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 82(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DC 7 list of defined terms tax credit: inserted, on 1 April 2008, by section 124(2) of the Taxation (KiwiSaver) Act 2007 (2007 No 110).
DC 8 Attribution of personal services
When this section applies
(1)
This section applies when, under sections GB 27 to GB 29 (which relate to the attribution rule for income from personal services), an amount of income of a person (the associated entity) is attributed to another person (the working person).
Deduction
(2)
The associated entity is allowed a deduction for the amount attributed.
Timing of deduction
(3)
The deduction is allocated to the income year in which the amount is attributed to the working person.
Link with subpart DA
(4)
This section supplements the general permission and overrides all the general limitations.
Defined in this Act: amount, deduction, general limitation, general permission, income year, supplement
Compare: 2004 No 35 s DC 7
DC 9 Restrictive covenants or exit inducements
Deduction
(1)
A person is allowed a deduction for expenditure that they incur that is income of another person under section CE 9 (Restrictive covenants) or CE 10 (Exit inducements).
Exclusion
(2)
This section does not apply if—
(a)
the other person performs services for the person; and
(b)
expenditure that the person would have incurred for the services, if the other person had not derived an amount that is income under section CE 9 or CE 10, would have been of a capital nature.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, general limitation, general permission, income
Compare: 2004 No 35 s DC 8
DC 10 Disposal of business: transferred employment income obligations
When this section applies
(1)
This section applies when—
(a)
a person (the seller) disposes of a business, or a part of a business, to another person (the buyer); and
(b)
an employee of the seller working in the business, or the part of the business, becomes an employee of the buyer under the disposal arrangements; and
(c)
the seller and the buyer agree in writing, under the disposal arrangements, that the buyer assumes the obligation to pay an amount of employment income to the employee.
Deduction: parties not associated
(2)
If the seller and the buyer are not associated persons at the time of the disposal,—
(a)
the seller is allowed a deduction, in the income year of the disposal, for the provision made by the seller for any part of the amount that remains contingent on the employee continuing in employment or any similar factor; and
(b)
the seller is treated under section EA 4(4) (Deferred payment of employment income) as having paid the amount of the provision at the time of the disposal.
Deduction: parties associated
(3)
If the seller and the buyer are associated persons at the time of the disposal,—
(a)
the buyer is allowed a deduction for the provision made by the seller for the amount of employment income if the seller would have been allowed a deduction for the amount if the business, or the part of the business, had not been disposed of; and
(b)
subsection (2) does not apply, and section EA 4(5) will mean that the seller cannot get a deduction for the amount.
Deduction: excess
(4)
The buyer is allowed a deduction for any part of the amount of employment income that the buyer pays that is more than the provision made by the seller for the amount.
Link with subpart DA
(5)
The link between this section and subpart DA (General rules) is as follows:
(a)
subsection (2)(a) supplements the general permission; the general limitations still apply:
(b)
subsections (3)(a) and (4) override the capital limitation; the general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, arrangement, associated person, business, capital limitation, deduction, employee, employment income, general limitation, general permission, income year, pay, supplement, time of the disposal
Compare: 2004 No 35 s DC 9
Section DC 10 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(1)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(1)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(1)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(3): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10(3)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10 list of defined terms time of the disposal: inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DC 10 list of defined terms time of the sale: repealed (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DC 11 Transfers of employment income obligations to associates
When this section applies
(1)
This section applies when—
(a)
an employee of a person (person A) becomes an employee of another person (person B); and
(b)
person A and person B are associated persons at the time; and
(c)
person B assumes person A’s obligation to pay an amount of employment income to the employee; and
(d)
the employee’s becoming an employee of person B does not result from the disposal by person A of a business, or a part of a business, to person B.
Deduction
(2)
Person B is allowed a deduction for the amount of employment income if person A would have been allowed a deduction for the amount if the transfer had not occurred.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, associated person, business, capital limitation, deduction, employee, employment income, general limitation, general permission, pay
Compare: 2004 No 35 s DC 10
Section DC 11(1)(d): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DC 12 Loans to employees under share purchase schemes
[Repealed]Section DC 12: repealed, on 29 March 2018, by section 49 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DC 13 Criteria for approval of share purchase schemes: before period of restriction ends
[Repealed]Section DC 13: repealed, on 29 March 2018, by section 49 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DC 14 Criteria for approval of share purchase schemes: when period of restriction ends
[Repealed]Section DC 14: repealed, on 29 March 2018, by section 49 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DC 15 Some definitions
[Repealed]Section DC 15: repealed, on 29 March 2018, by section 49 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Subpart DD—Entertainment expenditure
Contents
DD 1 Entertainment expenditure generally
When this subpart applies
(1)
This subpart applies when, in deriving income, a person incurs expenditure on entertainment that provides both a private and a business benefit.
No deduction (with exception)
(2)
The person is denied a deduction for expenditure that they incur on the forms of entertainment set out in section DD 2, except for 50% of the amount that they would have been allowed in the absence of this subsection.
Meaning of limitation rule
(3)
Limitation rule means the rule described in subsection (2).
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: amount, business, deduction, general permission, income, limitation rule
Compare: 2004 No 35 s DD 1
DD 2 Limitation rule
What rule applies to
(1)
The expenditure to which the limitation rule applies is expenditure on the forms of entertainment described in subsections (2) to (6).
Corporate boxes
(2)
The limitation rule—
(a)
applies to deductions for expenditure on corporate boxes, corporate marquees or tents, or other exclusive areas, whether temporary or permanent, at—
(i)
cultural, sporting, or other recreational events:
(ii)
activities taking place off the person’s business premises; and
(b)
applies to the cost of tickets or other rights of entry to the areas; and
(c)
applies to the cost of food and drink incidental to this form of entertainment.
Holiday accommodation
(3)
The limitation rule—
(a)
applies to deductions for expenditure on accommodation in a holiday home, time-share apartment, or similar leisure venue; and
(b)
does not apply to accommodation that is merely incidental to business activities or employment duties; and
(c)
applies to the cost of food and drink incidental to this form of entertainment.
Pleasure craft
(4)
The limitation rule—
(a)
applies to deductions for expenditure on yachts or other pleasure craft; and
(b)
applies to the cost of food and drink incidental to this form of entertainment.
Entertainment off premises
(5)
The limitation rule applies to deductions for expenditure on food and drink that a person provides off their business premises.
Entertainment on premises
(6)
The limitation rule applies to deductions for expenditure on food and drink that a person provides, other than light refreshments such as a morning tea and whether or not guests are present,—
(a)
on their business premises at a celebration meal, party, reception, or other similar social function:
(b)
in an area of the premises that at the time is reserved for senior employees to use and is not open to all the person’s employees working in the premises.
Meaning of expenditure
(7)
Expenditure includes,—
(a)
in subsections (2) to (4),—
(i)
an amount of depreciation loss; and
(ii)
expenditure or loss on running costs and maintenance and similar matters; and
(iii)
a deduction for a lease premium under section DZ 9 (Premium paid on land leased before 1 April 1993); and
(b)
in subsections (2) to (6), any incidental expenditure on matters such as hireage of crockery, glassware, or utensils, waiting staff, and music or other entertainment provided in association with the specified kind of entertainment.
Defined in this Act: amount, business, business premises, deduction, depreciation loss, expenditure, limitation rule, pay
Compare: 2004 No 35 s DD 2
DD 3 When limitation rule does not apply
The limitation rule is either restricted in its application or does not apply to deductions for the expenditure described in sections DD 4 to DD 8.
Defined in this Act: deduction, limitation rule
Compare: 2004 No 35 s DD 3
DD 4 Employment-related activities
Business travel expenditure
(1)
The limitation rule does not apply to a deduction for expenditure on food or drink consumed by a person while travelling in the course of business or for their employment duties. However, the limitation rule applies if—
(a)
the travel is mainly for the purpose of enjoying entertainment; or
(b)
the food or drink is consumed at a meal or function involving an existing or potential business contact as a guest; or
(c)
the food or drink is consumed at a celebration meal, party, reception, or other similar social function.
Conference expenditure
(2)
The limitation rule does not apply to a deduction for expenditure on light refreshments at a conference or educational course or similar event, nor to food or drink consumed at such an event lasting for at least 4 consecutive hours, excluding meal times. However, the limitation rule applies if the event is mainly for the purpose of entertainment.
Relocation expenses, employees’ meals, and sustenance allowances
(3)
The limitation rule does not apply to a deduction for expenditure on—
(a)
(b)
a light meal consumed as part of the employee’s employment duties in an area of the person’s business premises that at the time is reserved for senior employees and their guests to use and is not open to all the person’s employees working in the premises.
Defined in this Act: amount, business, business contacts, business premises, deduction, employee, exempt income, limitation rule
Compare: 2004 No 35 s DD 4
Section DD 4(3) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 84(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DD 4(3)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 84(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DD 4(3)(a): amended, on 1 April 2015, by section 51 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DD 4 list of defined terms amount: inserted (with effect on 1 April 2008), on 6 October 2009, by section 84(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DD 5 Promoting businesses, goods, or services
Sponsored promotions
(1)
The limitation rule does not apply to a deduction for expenditure on entertainment if—
(a)
the entertainment is sponsored mainly to advertise or promote a person’s business, goods, or services to the public; and
(b)
none of the following has a greater opportunity to enjoy the entertainment than the public generally:
(i)
existing business contacts of the person or the person whose business, goods, or services are being advertised or promoted:
(ii)
employees of the person or the person whose business, goods, or services are being advertised or promoted:
(iii)
anyone associated with the person or the person whose business, goods, or services are being advertised or promoted.
Incidental costs of promotion
(2)
The limitation rule does not apply to a deduction for expenditure on entertainment that is merely an incidental part of—
(a)
a trade display mainly held to advertise or promote a business, goods, or services:
(b)
a function open to the public and mainly held to advertise or promote a business, goods, or services.
Samples
(3)
The limitation rule does not apply to a deduction for expenditure on samples that a person provides for promotion or advertising purposes to anyone who is not an employee of or associated with the person.
Entertainment for review
(4)
The limitation rule does not apply to a deduction for expenditure on entertainment that a person provides to a person who is reviewing the entertainment for a book, magazine, paper, or other medium of communication.
Defined in this Act: associated person, business, business contacts, deduction, employee, limitation rule
Compare: 2004 No 35 s DD 5
DD 6 Entertainment as business or for charitable purpose
Entertainment as business
(1)
The limitation rule does not apply to a deduction for expenditure on entertainment that a person provides for market value or in an arm’s length transaction in the ordinary course of their business, if that business is to provide 1 or more of the forms of entertainment referred to in section DD 2.
Entertainment for charitable purposes
(2)
The limitation rule does not apply to a deduction for expenditure on entertainment that a person provides to members of the public for charitable purposes.
Defined in this Act: business, charitable purpose, deduction, limitation rule
Compare: 2004 No 35 s DD 6
DD 7 Entertainment outside New Zealand
The limitation rule does not apply to a deduction for expenditure on entertainment that is enjoyed or consumed outside New Zealand.
Defined in this Act: deduction, limitation rule, New Zealand
Compare: 2004 No 35 s DD 7
DD 8 Entertainment that is income or fringe benefit
The limitation rule does not apply to a deduction for expenditure on entertainment that is—
(a)
income of the person who consumes it; or
(b)
a fringe benefit to which fringe benefit tax applies.
Defined in this Act: deduction, fringe benefit, fringe benefit tax, income, limitation rule
Compare: 2004 No 35 s DD 8
DD 9 Relationship with fringe benefit tax rules
Sections DD 2 to DD 8 override the fringe benefit tax (FBT) rules. However, the FBT rules, as applied by section CX 29 (Entertainment), override sections DD 2 to DD 8 if an employee of the person providing the benefit—
(a)
may choose when to receive or use the benefit:
(b)
does not receive or use the benefit in the course of their employment duties.
Defined in this Act: employee, FBT rules
Compare: 2004 No 35 s DD 9
DD 10 Interpretation: reimbursement and apportionment
(a)
a person is treated as having incurred expenditure on entertainment described in section DD 2 if they pay an allowance for, or reimburse an employee’s expenditure on, the entertainment, and the allowance or reimbursement is exempt income under sections CW 17, CW 17B, CW 17C, and CW 17CB (which relate to expenditure and reimbursement of employees):
(b)
if a person incurs expenditure that relates only partly to the entertainment, the expenditure must be apportioned appropriately.
Defined in this Act: employee, exempt income, pay
Compare: 2004 No 35 s DD 10
Section DD 10(a): amended, on 1 April 2015, by section 52 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DD 10(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 85 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DD 11 Some definitions
In this subpart,—
business includes any recurring income-earning activity
business contacts—
(a)
includes, for a person,—
(i)
their clients, customers, shareholders, other financiers, and suppliers:
(ii)
the clients, customers, shareholders, other financiers, and suppliers of an associated person:
(b)
if the person is in partnership, does not include other partners in the partnership.
business premises [Repealed]
Defined in this Act: associated person, business, business contacts, business premises, shareholder
Compare: 2004 No 35 s DD 11
Section DD 11 business premises: repealed (with effect on 27 March 2021), on 31 March 2023, by section 39 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Subpart DE—Motor vehicle expenditure
Contents
Introductory provisions
DE 1 What this subpart does
Apportions motor vehicle expenditure
(1)
This subpart sets out the rules for determining the proportion of business use of a motor vehicle to its total use when a person uses a motor vehicle partly for business purposes and partly for other purposes.
Exclusions
(2)
This subpart does not apply—
(a)
to a company, unless the company is a close company to which section CX 17(4B)(b) and (c) (Benefits provided to employees who are shareholders or investors) applies:
(b)
to a person whose only income is income from employment:
(c)
to a motor vehicle that is used only—
(i)
for the purpose of deriving income; or
(ii)
for a purpose that constitutes a fringe benefit.
Application of subpart to close companies
(3)
When this subpart applies to a close company to which section CX 17(4B)(b) and (c) (Benefits provided to employees who are shareholders or investors) applies, business use of a motor vehicle by a shareholder-employee of the close company is treated as being business use by the close company.
Defined in this Act: business use, close company, company, fringe benefit, income, income from employment, motor vehicle
Compare: 2004 No 35 s DE 1
Section DE 1(2)(a): replaced, on 1 April 2017 (applying for the 2017–18 and later income years), by section 72(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 1(3) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 72(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 1(3): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 72(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 1 list of defined terms close company: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 72(3) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
DE 2 Deductions for business use
Deduction
(1)
A person is allowed a deduction for—
(a)
expenditure that they incur for the business use of a motor vehicle:
(ab)
interest on amounts used to fund, directly or indirectly, expenditure the person incurs for the business use of a motor vehicle, if the person is a close company that has chosen to apply this subpart instead of the FBT rules, in accordance with section CX 17(4B)(c) (Benefits provided to employees who are shareholders or investors):
(b)
an amount of depreciation loss for the business use of a motor vehicle.
Costs method or kilometre rate method
(1B)
A person can choose under section DE 2B to calculate the total amount of the deduction described in subsection (1)—
(a)
under subsections (2) and (4) (the costs method) by adding together—
(i)
a deduction amount for expenditure, calculated under subsection (2); and
(ii)
a deduction amount for depreciation loss, calculated as described in subsection (4); or
(b)
by using the kilometre rate method described in section DE 12.
Amount, and timing, of deduction: expenditure
(2)
The amount of the deduction allowed in an income year for the expenditure for the business use of the vehicle is calculated using the formula—
expenditure × business proportion.
Definition of item in formula
(3)
In the formula in subsection (2), business proportion is the proportion of business use of the motor vehicle for the income year, expressed as a decimal, calculated under sections DE 3 to DE 11.
Amount, and timing, of deduction: depreciation loss
(4)
The amount of the deduction allowed in an income year for the amount of depreciation loss for the business use of the vehicle is calculated—
(a)
using the formula in subsection (5), except in a case to which paragraph (b) or (c) applies; or
(b)
using the formula in subsection (8) if that subsection applies to the amount of depreciation loss; or
(c)
using the formula in subsection (11) if that subsection applies to the amount of depreciation loss.
Calculation of deduction: depreciation loss generally
(5)
The formula referred to in subsection (4)(a) is—
standard calculation × business proportion.
Definition of items in formula
(6)
In the formula in subsection (5),—
(a)
standard calculation is the amount resulting from a calculation made for the motor vehicle under section EE 16 (Amount resulting from standard calculation):
(b)
business proportion is the proportion of business use of the motor vehicle for the income year (expressed as a decimal) calculated under sections DE 3 to DE 11.
When subsection (8) applies
(7)
Subsection (8) applies when—
(a)
the amount of depreciation loss results from a calculation made for the motor vehicle under section EE 48(2) (Effect of disposal or event); and
(b)
the person’s amount of depreciation loss for the motor vehicle was, at a time when the person owned it, calculated under subsection (5).
Calculation of deduction: depreciation loss on disposal
(8)
The formula referred to in subsection (4)(b) is—
disposal depreciation loss × all deductions ÷ (base value − adjusted tax value).
Definition of items in formula
(9)
In the formula in subsection (8),—
(a)
disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 48(2):
(b)
all deductions is all amounts of depreciation loss relating to the vehicle for which the person has been allowed a deduction in each of the income years in which the person has owned the vehicle:
(c)
base value has the applicable one of the meanings in sections EE 57 to EE 60 (which relate to base value):
(d)
adjusted tax value is the vehicle’s adjusted tax value on the date on which the disposal or event occurs.
When subsection (11) applies
(10)
Subsection (11) applies when—
(a)
the amount of depreciation loss results from a calculation made for the motor vehicle under section EE 48(2); and
(b)
the motor vehicle starts to have a business use in the same income year as that in which the amount of depreciation loss arose.
Calculation of deduction: depreciation loss on disposal after business use
(11)
The formula referred to in subsection (4)(c) is—
disposal depreciation loss × business proportion.
Definition of items in formula
(12)
In the formula in subsection (11),—
(a)
disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 48(2):
(b)
business proportion is the proportion of business use of the vehicle for the income year calculated under sections DE 3 to DE 11, expressed as a decimal.
Link with subpart DA
(13)
This section supplements the general permission and overrides the private limitation. The other general limitations still apply.
Defined in this Act: adjusted tax value, amount, business use, deduction, depreciation loss, general limitation, general permission, income year, motor vehicle, own, private limitation, supplement
Compare: 2004 No 35 s DE 2
Section DE 2(1)(ab): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 73(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 2(1B) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 73(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 2(1B): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 73(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 2(3): amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 73(3) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 2(6)(b): amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 73(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 2(12)(b): amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 73(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
DE 2B Election to use kilometre rate method or costs method
Election to use kilometre rate method
(1)
A person may, in their return of income for an income year, choose to apply the kilometre rate method described in section DE 12 to calculate a deduction for the business use of a motor vehicle and for the income year that includes the latest of—
(a)
1 April 2017, unless the person disposes of the motor vehicle in that income year:
(b)
the day on which they acquire the motor vehicle:
(c)
the day on which they first start using the motor vehicle for business purposes.
Election to use costs method
(2)
If a person does not make an election under subsection (1), they are treated as making an election in the return of income to use the costs method for the corresponding income year.
Election cannot be revoked
(3)
An election made under subsection (1) or (2) in relation to a particular motor vehicle cannot be revoked, and applies for all subsequent income years until the end of the income year that includes the day on which the person disposes of the motor vehicle.
Defined in this Act: business, business use, deduction, income year, motor vehicle, return of income
Section DE 2B: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 74 of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
DE 3 Methods for calculating proportion of business use
The 2 methods that may be used to calculate the proportion of business use of a motor vehicle are—
(a)
actual records, see section DE 5:
(b)
a logbook, see sections DE 6 to DE 11.
(c)
[Repealed]Defined in this Act: business use, motor vehicle
Compare: 2004 No 35 s DE 3
Section DE 3: amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 75(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 3(b): amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 75(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 3(c): repealed, on 1 April 2017 (applying for the 2017–18 and later income years), by section 75(3) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
DE 4 Default method for calculating proportion of business use
When this section applies
(1)
This section applies when—
(a)
a person has not maintained actual records to show the proportion of business use of a motor vehicle; and
(b)
a period is not a term to which a proportion of business use of a motor vehicle established by a logbook applies; and
(c)
the person has not elected to use the kilometre rate method for the motor vehicle.
Amount of deduction
(2)
The deduction under section DE 2 for expenditure or loss incurred is limited to the lesser of—
(a)
the proportion of actual business use of the vehicle; and
(b)
25% of the total use of the vehicle.
Defined in this Act: amount, business use, deduction, motor vehicle
Compare: 2004 No 35 s DE 4
Section DE 4(1)(a): amended, on 26 June 2019, by section 59(1) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section DE 4(1)(b): amended, on 26 June 2019, by section 59(2) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section DE 4(1)(c): replaced, on 1 April 2017 (applying for the 2017–18 and later income years), by section 76(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Actual records
DE 5 Actual records
To determine the proportion of business use of a motor vehicle, a person may use actual records showing the reasons for and the distance of journeys by a motor vehicle for business purposes. However, when the period covered falls within a logbook term, actual records may be used only if the person and the Commissioner agree.
Defined in this Act: business use, Commissioner, logbook term, motor vehicle
Compare: 2004 No 35 s DE 5
Logbook
DE 6 Using logbook for test period
A person may keep a logbook for a test period for the purpose of establishing the proportion of the business use of a motor vehicle for an income year, or part of an income year, that falls within a logbook term. If a person uses a logbook as a method of establishing the proportion of business use, they must also record the total distance travelled in each income year, or part of an income year, that falls within a logbook term.
Defined in this Act: business use, income year, logbook term, motor vehicle
Compare: 2004 No 35 s DE 6
DE 7 Logbook requirements
Test period
(1)
When a logbook is used to establish the proportion of business use of a motor vehicle, a person must select a start date, and keep the logbook for at least 90 consecutive days at a time that represents, or is likely to represent, the average proportion of travel by the vehicle for business purposes during the logbook term.
Record of reasons for, and distance of, journeys
(2)
The logbook must record—
(a)
the start and end of the 90 day test period; and
(b)
the vehicle’s odometer readings at the start and end of the test period; and
(c)
the distance of each business journey; and
(d)
the date of each business journey; and
(e)
the reason for each business journey; and
(f)
any other detail that the Commissioner may require.
Defined in this Act: business, business use, Commissioner, logbook term, motor vehicle
Compare: 2004 No 35 s DE 7
DE 8 Logbook term
Meaning of logbook term
(1)
A logbook term is a period to which the proportion of business use of a motor vehicle established by the logbook applies. The term lasts up to 3 years and starts and ends as described in subsections (2) and (3).
Start of term
(2)
A logbook term starts on the date that is the latest of the following days:
(a)
the first day of the income year in which a person starts to keep a logbook:
(b)
the day that a person acquires the motor vehicle, unless the vehicle is a replacement vehicle, which is dealt with in section DE 11:
(c)
the day immediately after the last day of the previous logbook term:
(d)
a day that a person specifies.
End of term
(3)
The logbook term ends on the date that is the earliest of the following days:
(a)
the day that a person disposes of the motor vehicle without replacing it:
(b)
the day that is 3 years after the first day of the income year in which the logbook term started:
(c)
a day that the Commissioner specifies under section DE 9:
(d)
a day that a person specifies.
Defined in this Act: business use, Commissioner, income year, logbook term, motor vehicle, year
Compare: 2004 No 35 s DE 8
DE 9 Inadequate logbook
Non-representative logbook proportion
(1)
If the Commissioner considers that the proportion of business use recorded in a logbook does not, or does no longer, represent the average use of a motor vehicle for business purposes during an income year that falls within a logbook term, the Commissioner may,—
(a)
within the logbook term, direct a person to keep a further logbook and specify another 90 day period in the logbook term for keeping the logbook; or
(b)
treat a person as not having kept a logbook that applies to the logbook term.
Further logbook
(2)
If the Commissioner directs a person to keep a further logbook, and the proportion of business use calculated under that logbook is less by at least 20% than the proportion under the first logbook, the Commissioner may find that the first logbook—
(a)
represented the average use of the motor vehicle for business purposes for only part of the logbook term; or
(b)
did not represent that use at all.
Partly representative logbook
(3)
If subsection (2)(a) applies, the Commissioner may determine a date on which the application of the first logbook ended, and the further logbook applies to a new logbook term that starts on the day after that date.
Non-representative logbook
(4)
If subsection (2)(b) applies, the Commissioner may direct that the further logbook applies for the logbook term to which the first logbook applied.
Defined in this Act: business use, Commissioner, income year, logbook term, motor vehicle
Compare: 2004 No 35 s DE 9
DE 10 Variance during logbook term
If, in any month during a logbook term, the proportion of business use in that month is less by at least 20 percentage points than the proportion established by the logbook, and the proportion of business use recorded in the logbook no longer represents the average use of the motor vehicle for business purposes, the logbook term must end on the last day of that month.
Defined in this Act: business use, logbook term, motor vehicle
Compare: 2004 No 35 s DE 10
Section DE 10: amended (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 41(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DE 11 Replacement vehicles
For the purpose of establishing the proportion of business use of a motor vehicle, a replacement vehicle is treated in the same way as the vehicle it replaces if—
(a)
the logbook is likely to be representative of the average travel for business purposes for the remainder of the logbook term; and
(b)
from the date of replacement, a person keeps a record of the total distance travelled by the replacement vehicle for each income year, or part of an income year, of the remaining logbook term.
Defined in this Act: business use, income year, logbook term, motor vehicle
Compare: 2004 No 35 s DE 11
Kilometre rates
Heading: replaced, on 1 April 2017 (applying for the 2017–18 and later income years), by section 77(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
DE 12 Kilometre rate method
When this section applies
(1)
This section applies for the purposes of calculating a deduction for the business use of a motor vehicle under section DE 2(1) if a person made an election under section DE 2B to apply this section.
Amount of deduction
(2)
The amount of the deduction allowed for the business use of the vehicle in an income year is the sum of the amounts calculated under the following formula for each applicable kilometre rate for the vehicle for the income year:
kilometre rate × kilometres travelled × business proportion.
Definition of items in formula
(3)
In the formula,—
(a)
kilometre rate is the applicable kilometre rate that is published by the Commissioner:
(b)
kilometres travelled is the total number of kilometres the vehicle has travelled, for both business purposes and other purposes, to which the applicable kilometre rate applies:
(c)
business proportion is the proportion of business use of the vehicle for the income year, calculated using a method described in sections DE 5 to DE 11, and expressed as a decimal.
Setting kilometre rates
(4)
For the purposes of this section, the Commissioner must from time to time set kilometre rates.
Secondary legislation
(5)
An instrument that sets kilometre rates under subsection (4) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: amount, business, business use, Commissioner, deduction, income year, motor vehicle
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | The maker must publish it | LA19 ss 73, 74(1)(a), Sch 1 cl 14 | ||
| Presentation | It is not required to be presented to the House of Representatives because a transitional exemption applies under Schedule 1 of the Legislation Act 2019 | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section DE 12: replaced, on 1 April 2017 (applying for the 2017–18 and later income years), by section 77(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DE 12(4): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section DE 12(5) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section DE 12(5): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Subpart DF—Government grants, funding, and compensation
Subpart DF heading: amended (with effect on 1 October 2009), on 6 October 2009, by section 86 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Contents
DF 1 Government grants to businesses
When this section applies
(1)
This section applies when—
(a)
a local authority, a public authority, or a public purpose Crown-controlled company makes a payment to a person for a business that the person carries on; and
(b)
the payment—
(i)
is in the nature of a grant or subsidy to the person; or
(ii)
is a grant-related suspensory loan to the person; and
(c)
the payment is not in the nature of an advance or loan other than a grant-related suspensory loan; and
(cb)
the payment is not an amount of a loan under the small business cashflow scheme under section 7AA of the Tax Administration Act 1994; and
(cc)
the payment is not an amount of a loan made under the research and development loan scheme; and
(d)
the person does not make an election that section CX 47(4) (Government grants to businesses) apply to the payment.
When this section does not apply
(1BA)
This section does not apply to the extent to which a payment described in subsection (1) is—
(a)
the payment of an R&D loss tax credit and the person’s expenditure is attributable to that payment:
(b)
an RDTI transition support payment and the person’s expenditure is attributable to that payment.
When subsection (2) applies
(1B)
Subsection (2) applies when, in the absence of this section, the person would be allowed a deduction for expenditure by the person to which the payment by the local authority, public authority, or public purpose Crown-controlled company corresponds.
No deduction (with exception)
(2)
The person is denied, to the extent of the amount of the payment, the deduction that they would have been allowed in the absence of this section.
When subsection (4) applies
(3)
Subsection (4) applies when—
(a)
expenditure by the person in the acquisition, construction, installation, or extension of an item of depreciable property is expenditure to which the payment by the local authority, public authority, or public purpose Crown-controlled company corresponds; and
(b)
in the absence of this section, the person would be allowed a deduction for an amount of depreciation loss for the item of depreciable property.
Amount of depreciation loss
(4)
For the purpose of quantifying the amount of depreciation loss, the amount of the expenditure is reduced by the amount of the payment.
Amendment of assessment
(5)
Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.
Exclusion[Repealed]
(6)
[Repealed]Link with subpart DA
(7)
This section overrides the general permission.
Defined in this Act: amount, assessment, business, Commissioner, deduction, depreciable property, depreciation loss, general permission, grant-related suspensory loan, local authority, pay, public authority, public purpose Crown-controlled company, R&D loss tax credit, research and development loan scheme, small business cashflow scheme, time bar
Compare: 2004 No 35 s DF 1
Section DF 1(1) heading: substituted (with effect on 1 October 2010), on 21 December 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DF 1(1): substituted (with effect on 1 October 2010), on 21 December 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DF 1(1)(a): amended (with effect on 18 March 2019), on 31 March 2023, by section 40(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DF 1(1)(cb): inserted, on 30 April 2020, by section 5(1) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
Section DF 1(1)(cc): inserted (with effect on 1 July 2020), on 6 August 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act (No 2) 2020 (2020 No 58).
Section DF 1(1BA) heading: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on 24 February 2016, by section 100(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DF 1(1BA): replaced (with effect on 1 April 2019), on 30 March 2022, by section 69(1) (and see section 69(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DF 1(1B) heading: inserted (with effect on 1 October 2010), on 21 December 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DF 1(1B): inserted (with effect on 1 October 2010), on 21 December 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DF 1(1B): amended (with effect on 18 March 2019), on 31 March 2023, by section 40(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DF 1(3): substituted (with effect on 1 October 2010), on 21 December 2010, by section 42(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DF 1(3)(a): amended (with effect on 18 March 2019), on 31 March 2023, by section 40(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DF 1(6) heading: repealed (with effect on 1 October 2009), on 6 October 2009, pursuant to section 87(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DF 1(6): repealed (with effect on 1 October 2009), on 6 October 2009, by section 87(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DF 1 list of defined terms large budget screen production grant: repealed (with effect on 1 October 2009), on 6 October 2009, by section 87(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DF 1 list of defined terms public purpose Crown-controlled company: inserted (with effect on 18 March 2019), on 31 March 2023, by section 40(4) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DF 1 list of defined terms R&D loss tax credit: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on 24 February 2016, by section 100(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DF 1 list of defined terms research and development loan scheme: inserted (with effect on 1 July 2020), on 6 August 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act (No 2) 2020 (2020 No 58).
Section DF 1 list of defined terms small business cashflow scheme: inserted, on 30 April 2020, by section 5(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
DF 2 Repayment of grant-related suspensory loans
Deduction
(1)
A person is allowed a deduction for the amount of a repayment that they are required to make of some or all of a grant-related suspensory loan to the extent to which the amount relates to a payment to which section DF 1(2) applies.
Timing of deduction
(2)
The deduction is allocated to the income year in which repayment is first required.
Amount of depreciation loss
(3)
If a person is required to repay some or all of a grant-related suspensory loan, then, to the extent to which section DF 1(3) and (4) apply to the loan,—
(a)
the person is allowed a deduction for an amount of depreciation loss for the item; and
(b)
the amount of depreciation loss is the total of the amounts of depreciation loss for the item for which the person would have been allowed a deduction if section DF 1(3) and (4) had not applied.
Quantifying amount of depreciation loss
(4)
For the purpose of quantifying the amount of depreciation loss for the item in the income year and in later income years, the following matters must be taken into account:
(a)
the amount of the deduction under subsection (3); and
(b)
the total of the amounts of depreciation loss for the item for which the person has been allowed a deduction; and
(c)
the person’s expenditure on acquiring, constructing, installing, or extending the item.
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation for the amount described in subsection (1). The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, depreciation loss, general limitation, general permission, grant-related suspensory loan, income year, pay, supplement
Compare: 2004 No 35 s DF 2
DF 3 Identifying expenditure for purposes of sections DF 1 and DF 2
For the purposes of sections DF 1 and DF 2, a statement by a person making a grant-related suspensory loan as to the expenditure that relates to the loan or to the repayment of the loan provides conclusive evidence on the questions.
Defined in this Act: grant-related suspensory loan, pay
Compare: 2004 No 35 s DF 3
DF 4 Payments for social rehabilitation
When this section applies
(1)
This section applies when—
(a)
a person is paid a personal service rehabilitation payment under the Accident Compensation Act 2001 either—
(i)
for an income year; or
(ii)
as a reimbursement payment, in a later income year; and
(b)
the amount is assessable income of the person.
Deduction
(2)
The person is allowed a deduction for an amount calculated using the formula—
amount paid ÷ (1 − tax rate).
Definition of items in formula
(3)
In the formula,—
(a)
amount paid is the amount paid by the person—
(i)
for a key aspect of social rehabilitation provided to them for the income year or for an earlier income year; and
(ii)
to the extent to which the amount is less than the amount of personal service rehabilitation payment paid to them, after taking into account any amount of tax withheld:
(b)
tax rate is the rate of tax applying to the personal service rehabilitation payment under section RD 10B (Amounts of tax for schedular payments).
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation and private limitation for the amount described in subsection (2). The other general limitations still apply.
Defined in this Act: amount, amount of tax, assessable income, capital limitation, general limitation, general permission, income year, pay, personal service rehabilitation payment, private limitation, reimbursement payment, tax
Compare: 2004 No 35 s DF 4
Section DF 4: substituted, on 1 July 2008, by section 343 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DF 4(1): replaced (with effect on 1 April 2018), on 18 March 2019, by section 153(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DF 4(3) heading: amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DF 4(3)(a): replaced (with effect on 1 April 2018), on 18 March 2019, by section 153(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DF 4(3)(b): replaced, on 1 April 2017, by section 78 of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section DF 4 list of defined terms reimbursement payment: inserted (with effect on 1 April 2018), on 18 March 2019, by section 153(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
DF 5 Government funding additional to government screen production payments
When this section applies
(1)
This section applies when a public authority makes a payment (the funding payment) to a person for expenditure incurred in a project if—
(a)
the funding payment is not in the nature of a grant or subsidy; and
(b)
the funding payment is not a grant-related suspensory loan; and
(c)
the person receives a government screen production payment for the project in addition to the funding payment; and
(d)
the person would be allowed a deduction for the expenditure in the absence of this section; and
(e)
the payment is excluded income under section CX 48C (Government funding additional to government screen production payments).
No deduction for expenditure
(2)
The person is denied, to the extent of the amount of the funding payment, the deduction for the expenditure that would be allowed in the absence of this section.
Deduction for payments to public authority
(3)
The person is allowed a deduction for the amount of a payment (the return payment) made to the public authority to the extent to which the return payment is required by the arrangement under which the funding payment is made.
Links with subpart DA
(4)
In this section—
(a)
subsection (2) overrides the general permission; and
(b)
subsection (3) supplements the general permission and overrides the capital limitation; the other general limitations still apply.
Defined in this Act: capital limitation, deduction, excluded income, general limitation, general permission, government screen production payment, grant-related suspensory loan, pay, public authority
Section DF 5: added (with effect on 1 October 2009), on 6 October 2009, by section 89 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart DG—Expenditure related to use of certain assets
Subpart DG: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Contents
Introductory provisions
Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 1 What this subpart does
This subpart sets out the rules for the deductibility and apportionment of expenditure incurred for an income year in relation to an asset when the asset is used partly for income-earning purposes and partly for private purposes, and for a time during the income year, the asset is not in use.
Defined in this Act: asset, deduction, income, income year
Section DG 1: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 2 Application of this subpart
Asset by asset
(1)
The rules in this subpart apply on an asset by asset basis.
Relationship with sections DB 5, DB 7, and DB 8
(2)
The rules in this subpart override sections DB 5, DB 7, and DB 8 (which relate to deductions for financing expenditure) in relation to expenditure that this subpart applies to.
Relationship with subpart DD
(3)
Subpart DD (Entertainment expenditure) does not apply to expenditure incurred in relation to the private use of an asset to which this subpart applies.
Relationship with subpart DH
(3B)
A person is allowed a deduction for interest incurred for disallowed residential property to the extent to which the deduction is allowed under this subpart, and the deduction is not denied under subpart DH (Interest incurred in relation to certain land).
Relationship with FBT rules and dividend rules
(4)
No liability to pay fringe benefit tax arises from the private use of an asset to which this subpart applies. In circumstances where section CX 17 (Benefits provided to employees who are shareholders or investors) applies to a company to which this subpart also applies, the company must choose to treat a non-cash benefit referred to in that section as a dividend.
Application to groups of and interests in companies
(5)
For the purposes of this subpart,—
(a)
a group of companies is treated as a wholly-owned group of companies:
(b)
a voting interest in a company includes a market value interest when a market value circumstance exists for the company.
Rules for identifying voting and market value interests
(6)
In this subpart,—
(a)
for the purposes of determining the extent to which a company (company A) has a voting interest or market value interest in another company (company B), the look-through rule in section YC 4 (Look-through rule for corporate shareholders) does not apply to treat company A’s voting interest or market value interest as held by company A’s shareholders or anyone else; and
(b)
for the purposes of determining the extent to which company A has a voting interest or market value interest of more than 10% in an associated company, the look-through rule in section YC 4 does not apply to treat a voting interest or a market value interest of company A in the associated company as held by their respective shareholders or anyone else; and
(c)
a zero voting interest is not a voting interest, and a zero market value interest is not a market value interest.
Defined in this Act: asset, associated, company, deduction, dividend, fringe benefit tax, group of companies, market value circumstance, market value interest, private use, voting interest, wholly-owned group of companies
Section DG 2: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 2(3B) heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 70 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 2(3B): inserted (with effect on 27 March 2021), on 30 March 2022, by section 70 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DG 3 Meaning of asset for this subpart
Meaning of asset
(1)
For the purposes of this subpart, an asset, for an income year, means an item of property described in subsection (2) held by a person described in subsection (3) to the extent to which the item—
(a)
is used by the person in the income year partly to derive income and partly for private use; and
(b)
is not in use—
(i)
for at least 62 days in the income year; or
(ii)
when the asset is typically used only on working days, for at least 62 working days in the income year.
What items of property?
(2)
Subsection (1) applies to an asset that, in the complete form in which the person uses it for income-earning purposes,—
(a)
is 1 of the following:
(i)
land, including improvements to land:
(ii)
a ship, boat, or craft used in navigation on or under water, whether or not it has a means of propulsion:
(iii)
an aircraft; and
(b)
for an item referred to in paragraph (a)(ii) and (iii), has—
(i)
a cost to the person of $50,000 or more; or
(ii)
a market value on the date of acquisition of the asset of $50,000 or more, if the asset was not acquired at market value; and
(c)
includes any related items, things, or accessories pertaining to the asset.
Which persons?
(3)
A person excludes a company other than a close company.
Exclusions
(4)
Despite subsection (2), an asset is excluded from the operation of the rules in this subpart if—
(a)
the use of the asset meets the following criteria:
(i)
the private use of the asset is minor; and
(ii)
the main use of the asset is use in a business that is not a rental or charter business; and
(iii)
for a company or a trustee of a trust, the use of the asset places an obligation on the company or the trustee, as applicable, to pay fringe benefit tax or income tax:
(b)
the asset is a residential property and its only income-earning use is as a long-term rental property:
(c)
[Repealed]Meaning of market value
(5)
For the purposes of this subpart, other than subsection (2)(b)(ii), market value means the price at which the asset is provided for use at a particular time or for a particular season—
(a)
in the open market; and
(b)
freely offered; and
(c)
made on ordinary terms; and
(d)
to a member of the public at arm’s length.
Partnerships and look-through companies
(6)
For the purposes of this section, if the asset is held through a partnership or a look-through company, the value of the interests in the asset held by all the partners in the partnership or all the shareholders in the look-through company, as applicable, is aggregated.
What constitutes use
(7)
For the purposes of this subpart, the use of an asset is the active use of the asset for its intended purpose.
Example
Graeme owns a yacht that he used with his family for a 4-week holiday. He also rented the yacht at market rates to other people who were not associates on 4 occasions, totalling 3 weeks. The cost of the yacht (including some capital improvements and items such as lifejackets and a dinghy) is $85,000. The rules in this subpart apply to Graeme.
Defined in this Act: amount, asset, business, close company, company, deduction, fringe benefit tax, income, income tax, income year, land, look-through company, market value, partnership, private use, shareholder, tax, trustee, working day
Section DG 3: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 3(3): amended, on 29 March 2018, by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DG 3(4)(c): repealed (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 27 February 2014, by section 35(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DG 4 Meaning of private use for this subpart
What is private use?
(1)
For the purposes of this subpart, private use of an asset—
(a)
means the use of the asset by a person described in subsection (2), whether or not—
(i)
the use is exclusive:
(ii)
an amount of income is derived in relation to its use:
(b)
includes the use of an asset when income derived in relation to the use of the asset is an amount that is less than 80% of the market value amount:
(c)
excludes the use of the asset referred to in subsections (3) to (5).
Use by natural persons
(2)
The person referred to in subsection (1)(a) is a natural person who—
(a)
owns, leases, licenses, or otherwise has the asset:
(b)
is associated with a person who owns, leases, licenses, or otherwise has the asset.
Ordinary business use
(3)
The use of an asset is not private use if—
(a)
the asset is used to derive income for a particular period; and
(b)
during the period, use of the asset by the person is limited to:
(i)
use in the ordinary course of business:
(ii)
deriving the person’s employment income.
Repairs
(4)
The use of an asset is not private use if—
(a)
the asset is used to derive income for a particular period; and
(b)
damage is caused to the asset during the period; and
(c)
the damage is not the result of ordinary wear and tear; and
(d)
the person uses the asset after the end of the period to repair the damage; and
(e)
the use of the asset referred to in paragraph (d) is necessary in order for the person to carry out the repairs.
Relocation expenses
(5)
The use of an asset is not private use if—
(a)
the asset is used to derive income for a particular period in an income year; and
(b)
the person uses the asset before the start of the period, or after the end of the period, or both, to relocate the asset; and
(c)
the use referred to in paragraph (b) and the relocation of the asset are necessary for the income-earning purposes; and
(d)
the income the person derives for the income year from the use of the asset includes an amount payable for the cost of relocation.
Exempt income
(6)
Subsections (3) to (5) do not apply if the person derives an amount of exempt income in relation to the use of the asset. For the treatment of certain amounts of income derived from the use of assets as described in this section, see section CW 8B (Certain amounts derived from use of assets).
Example
Mary owns a launch. During the course of an income year, she takes her family out on the launch, she lets her brother use the launch (paying the market rate of $200 per day) and she lets her friend use the launch (paying fuel costs only at the rate of $50 per day). All these uses are instances of private use. When Mary rents out the launch to non-associates at market rates, takes the launch to another port for rental to non-associates at $250 per day and then back again to the home port, or takes the launch to a boatyard for repair after damage was caused by a non-associate during a rental period, none of these instances is private use.
Defined in this Act: amount, asset, associated person, business, exempt income, income, lease, market value, pay, private use
Section DG 4: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 4(2): replaced (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 101(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 4(3): replaced (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 101(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DG 5 Meaning and treatment of interest expenditure for this subpart
Interest expenditure
(1)
In this subpart, interest expenditure, for a person to whom this subpart applies, means expenditure on interest, and includes an amount of interest on the sum of the outstanding balances of financial arrangements entered into by the person, if the financial arrangement—
(a)
provides funds to the person; and
(b)
gives rise to an amount for which the person would have a deduction.
Apportionment
(2)
For the purposes of this subpart,—
(a)
if the person is not a company, an amount of interest expenditure incurred in relation to an asset is included in the item expenditure in section DG 9(3)(a):
(b)
if the person is a company other than a qualifying company, an amount of interest expenditure incurred in relation to an asset is apportioned under section DG 11:
(c)
if the person is a qualifying company, they are treated for the purposes of this subpart as a person that is not a company:
(d)
despite paragraphs (a) and (b), a person must apportion an amount of interest expenditure for the income year using the formula in section DG 9(2) and treat the amount of the interest expenditure as the item expenditure in section DG 9(3)(a) to the extent to which—
(i)
the interest expenditure is for disallowed residential property that is an asset; or
(ii)
the interest expenditure is for acquiring an ownership interest in, or to become a beneficiary of, an interposed residential property holder and the interposed residential property holder has an asset at any time during the income year.
Exchange rate fluctuations
(3)
Interest expenditure does not include a deduction for an amount that arises only from movement in currency exchange rates.
Defined in this Act: amount, asset, beneficiary, company, deduction, disallowed residential property, financial arrangement, interest, interest expenditure, interposed residential property holder, qualifying company
Section DG 5: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 5(2)(d): inserted (with effect on 27 March 2021), on 31 March 2023, by section 41(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DG 5 list of defined terms beneficiary: inserted (with effect on 27 March 2021), on 31 March 2023, by section 41(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DG 5 list of defined terms disallowed residential property: inserted (with effect on 27 March 2021), on 31 March 2023, by section 41(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DG 5 list of defined terms interposed residential property holder: inserted (with effect on 27 March 2021), on 31 March 2023, by section 41(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DG 6 Associated persons: company rule modified
Despite section YB 3(1) (Company and person other than company), for the purposes of this subpart, a company and a person other than a company are associated persons if—
(a)
[Repealed](b)
the person’s share in the company gives them a right to use the asset.
Defined in this Act: asset, associated person, company, share
Section DG 6: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 6: amended (with effect on 1 April 2013), on 30 June 2014, by section 53(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 6(a): repealed (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 30 June 2014, by section 53(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 6 list of defined terms voting interest: repealed (with effect on 1 April 2013), on 30 June 2014, by section 53(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
When assets held simply
Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 7 Expenditure related to income-earning use
Expenditure on certain business and regulatory requirements
(1)
A person is allowed a deduction for expenditure or loss, including an amount of depreciation loss, to the extent to which the amount incurred—
(a)
relates solely to the use of an asset for deriving income of the person, other than exempt income; and
(b)
is expenditure—
(i)
from which the person would not reasonably expect to receive a personal benefit, or for a company, an associate of the person:
(ii)
that the person must reasonably incur to meet a regulatory requirement so that they may use the asset for deriving income and that would not have been incurred but for the requirement.
Expenditure that must be apportioned
(2)
Despite subsection (1) and for the avoidance of doubt, all expenditure on repairs and maintenance incurred in relation to an asset must be treated as expenditure that is limited under section DG 8. However, this subsection does not apply to the cost of repairing damage described in section DG 4(4).
Example
John operates a charter boat which he also uses privately. He incurs expenses including costs in meeting Maritime New Zealand survey requirements, advertising costs, and general maintenance costs. The advertising costs are fully deductible because they deliver no personal benefit. The survey costs are fully deductible if they are incurred only for charter purposes. The maintenance costs are not deductible under this provision because they deliver a personal benefit as well as an income-earning benefit. A portion of these maintenance costs may be allowed as a deduction under section DG 8.
Defined in this Act: amount, asset, associated person, company, deduction, depreciation loss, exempt income, income
Section DG 7: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 8 Expenditure limitation rule
Limited deduction
(1)
A person is allowed a deduction for expenditure or loss, including an amount of depreciation loss, that they incur in relation to the income-earning use of an asset to the extent of the amount calculated using the formula in section DG 9(2).
Depreciation recovery and loss on disposal
(2)
In the treatment of assets generally,—
(a)
if some or all of the expenditure on an asset is apportioned for tax purposes on the basis of space, floor area, or on another similar basis, that method of apportionment overrides the rules in this subpart to the extent of the amount of the deduction:
(b)
depreciation recovery income on disposal is dealt with in section EE 49 (Amount of depreciation recovery income when item partly used for business):
(c)
depreciation loss on disposal is dealt with in sections EE 44 to EE 48, and EE 50(6) and (7) (which relate to amounts of depreciation loss).
Relationship with other sections
(3)
This section—
(a)
supplements the general permission and overrides the capital limitation and the private limitation, but the other limitations still apply:
(b)
overrides section EE 50(2) (Amount of depreciation loss when item partly used to produce income).
Defined in this Act: amount, asset, capital limitation, deduction, depreciation loss, depreciation recovery income, general permission, private limitation
Section DG 8: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 9 Apportionment formula
What this section does
(1)
This section provides the formula for use where it is referred to in section DG 8 to calculate the way in which an amount of expenditure or loss that a person incurs in relation to an asset is apportioned between its income-earning use and its private or other use.
Formula
(2)
The apportionment formula is—
expenditure × income-earning days ÷ (income-earning days + counted days).
Definition of items in formula
(3)
In the formula,—
(a)
expenditure is the total expenditure or loss that is incurred by the person for an income year in relation to the asset, other than expenditure that is related solely to—
(i)
the income-earning use of the asset as described in section DG 7:
(ii)
the private use of the asset:
(iii)
a use of the asset for which the expenditure is of a capital nature:
(b)
income-earning days is the total number of days in the income year for which the person derives income from the use of the asset, other than exempt income, including any days on which—
(i)
the use made of the asset is use described in section DG 4(3) to (5):
(ii)
the asset has become unavailable for use because another person who had earlier reserved the asset for their own use, subsequently did not take advantage of that reservation:
(iii)
a fringe benefit tax liability arises:
(c)
counted days is the total number of days in the income year on which the asset is in use, and the day is not an income-earning day as described in paragraph (b).
Other units of measurement
(4)
A unit of measurement of time other than days, whether relating to hours, or nights, or anything else, is to be used in the formula and in subsection (3)(b) and (c), if it achieves a more appropriate apportionment. For this purpose, the same unit must be used in relation to both items in subsection (3)(b) and (c).
Example
Jim rents out his aeroplane at market value for 100 hours in an income year, and uses it for his personal enjoyment for 50 hours. Jim incurs expenditure of $10,000 for general repairs and maintenance of the plane. He may deduct two-thirds of the expenditure (section DG 9(2)). The formula is $10,000 × (100/(100 + 50)) = $6,666.67.
Defined in this Act: amount, asset, deduction, exempt income, fringe benefit tax, income, income year, market value, private use
Section DG 9: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 9(1): amended (with effect on 27 March 2021), on 30 March 2022, by section 71 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 9(1): amended (with effect on 1 April 2013), on 24 February 2016, by section 102(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 9(3)(a): replaced (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 30 June 2014, by section 54(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 9(3)(a)(iii): replaced (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 102(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 9(3)(b): amended (with effect on 1 April 2013 and applying for 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 30 June 2014, by section 54(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
When assets held in corporate structures
Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 10 Interest expenditure rules
Groups of companies
(1)
Sections DG 11 to DG 14 provide for the apportionment of interest expenditure incurred by a company that has an asset to which this subpart applies, and by other companies that are in the same group of companies as the company, and by shareholders. Companies must provide information disclosure statements under section 30D of the Tax Administration Act 1994 to enable the calculations to be made.
Relationship with subpart DH
(1B)
Despite this section and sections DG 11, DG 12, and DG 13, for the purposes of applying those sections,—
(a)
interest incurred in relation to disallowed residential property or to acquire an ownership interest in, or become a beneficiary of, an interposed residential property holder is ignored; and
(b)
the debt to which the interest described in paragraph (a) relates is ignored; and
(c)
a close company must, for an asset that is disallowed residential property, exclude from the asset value determined for the asset the lesser of—
(i)
the asset value that would be determined for the asset if this paragraph did not apply to the asset:
(ii)
the amount of the company’s debt under which the company incurs interest in relation to the asset.
Exclusions: group companies
(2)
A company (company A) that is treated as part of a wholly-owned group under this subpart, but is not part of a wholly-owned group for the other purposes of this Act, is excluded from the interest expenditure rules in sections DG 11 to DG 14 for an income year if—
(a)
no private use of an asset of a company in the group has been made in the income year by a shareholder of company A:
(b)
no tax losses have been made available under subpart IC (Grouping tax losses) between company A and other companies in the group.
Exclusion: corporate shareholders
(3)
Section DG 13 does not apply to a corporate shareholder if—
(a)
the shareholder has a direct or indirect interest of less than 50% in the company that has the asset; and
(b)
the shareholder has not enjoyed any private use of the asset.
Exclusion: non-corporate shareholders
(4)
Section DG 14 does not apply to a shareholder if—
(a)
the shareholder has a direct or indirect interest of less than 50% in the company that has the asset; and
(b)
the shareholder has not enjoyed any private use of the asset.
Treatment of qualifying companies
(5)
The interest expenditure rules apply to a qualifying company in the following way:
(a)
the company is treated as if section DG 11(3) applied to it in order to calculate the amount of the company’s net asset balance; and
(b)
sections DG 12 to DG 14 then apply to determine the amount of the deduction to which the company, another company, or a shareholder is entitled.
Associated persons
(6)
For the purposes of subsections (2), (3), and (4), a reference to a shareholder includes a person associated with the shareholder, unless the associated person is also a shareholder.
Defined in this Act: amount, asset, associated person, beneficiary, company, deduction, disallowed residential property, group of companies, income year, interest expenditure, interposed residential property holder, net asset balance, private use, qualifying company, shareholder, tax loss, wholly-owned group
Section DG 10: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 10(1B) heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 72(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 10(1B): inserted (with effect on 27 March 2021), on 30 March 2022, by section 72(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 10 list of defined terms beneficiary: inserted (with effect on 27 March 2021), on 30 March 2022, by section 72(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 10 list of defined terms disallowed residential property: inserted (with effect on 27 March 2021), on 30 March 2022, by section 72(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 10 list of defined terms interposed residential property holder: inserted (with effect on 27 March 2021), on 30 March 2022, by section 72(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DG 11 Interest expenditure: close companies
What this section does
(1)
This section quantifies the amount of a deduction that a close company is allowed for an income year when—
(a)
the company has an asset to which this subpart applies; and
(b)
the company incurs interest expenditure for the income year.
Determining values and deductions
(2)
The company must first determine the amount of its debt value and its asset value for the income year, and then apply either subsection (3) or subsections (4) to (6).
Debt value less than asset value
(3)
If the debt value for the income year is equal to or less than the asset value for the income year, the company is allowed a deduction for interest expenditure incurred for the income year of an amount calculated using the formula in subsection (3B).
Formula
(3B)
The formula is—
interest expenditure × (income-earning days + capital-use days)
÷ (income-earning days + counted days).
Definition of items in formula
(3C)
In the formula in subsection (3B),—
(a)
interest expenditure is the amount of interest expenditure incurred by the company for the income year:
(b)
income-earning days is the number of days in the income year for which the company derives income from the use of the asset, other than exempt income, including days on which—
(i)
the use of the asset is described in section DG 4(3) to (5):
(ii)
the asset has become unavailable for use because another person who had earlier reserved the asset for their own use, subsequently did not take advantage of that reservation:
(iii)
a fringe benefit tax liability arises:
(c)
capital-use days is the number of days in the income year on which the asset is used in such a way that the expenditure relating to the use is of a capital nature:
(d)
counted days is the number of days in the income year on which the asset is in use, each of which is not an income-earning day as described in paragraph (b).
Debt value more than asset value
(4)
If the debt value for the income year is more than the asset value for the income year, the company must calculate a reduced amount of interest expenditure for the income year using the formula—
interest expenditure × company’s asset value ÷ company’s debt value.
Definition of items in formula
(5)
In the formula in subsection (4),—
(a)
interest expenditure is the total amount of interest expenditure incurred by the company for the income year:
(b)
company’s asset value is the amount of the company’s asset value for the income year:
(c)
company’s debt value is the amount of the company’s debt value for the income year.
Apportionment of reduced amounts
(6)
The company is allowed a deduction for the income year of a portion of the reduced amount described in subsection (4),—
(a)
of an amount calculated using the formula in subsection (3B); and
(b)
treating the reduced amount as if it were the item interest expenditure in the formula.
Deductions for interest expenditure in excess of reduced amounts
(6B)
The company is allowed a deduction for the amount of interest expenditure calculated under subsection (6C) to the extent to which the amount would be a deduction under Part D (Deductions) in the absence of this subpart.
Formula
(6C)
The formula is—
interest expenditure − reduced amount.
Definition of items in formula
(6D)
In the formula in subsection (6C),—
(a)
interest expenditure is the amount of interest expenditure incurred by the company for the income year:
(b)
reduced amount is the reduced amount of interest expenditure calculated using the formula in subsection (4).
Net asset balance
(7)
When subsection (3) applies for an income year, the amount that remains outstanding after subtracting the debt value for the income year from the asset value for the income year (the net asset balance), must be used under sections DG 12 to DG 14, as applicable.
Meaning of asset value
(8)
For the purposes of this subpart, asset value means the value of the asset at the end of an income year, using—
(a)
for land, including an improvement to land, the amount given under subsection (8B):
(b)
for other property, its adjusted tax value.
Asset value for land, including improvements to land
(8B)
For the purposes of subsection (8)(a), the asset value is the following amount, as applicable:
(a)
the amount given by the later of either—
(i)
its most recent capital value or annual value as set by the relevant local authority; or
(ii)
its cost on acquisition or, if the transaction involves an associated person, its market value:
(b)
if the land or improvement to land is a leasehold estate in land, the market value of the leasehold estate which the person may establish by a valuation that is or has been made by a registered valuer no more than 3 years before the end of the income year:
(c)
if different activities are carried out on the land on a single record of title within the meaning of the Land Transfer Act 2017, the value applying under paragraph (a) or (b), as applicable, adjusted as follows:
(i)
by multiplying the value by the percentage that the area of land that is the portion of the land used in relation to the asset to which this subpart applies bears to the total land area described in the record of title:
(ii)
by a valuation that is or has been made by a registered valuer no more than 3 years before the end of the income year, of the portion of land used in relation to the asset to which this subpart applies.
Meaning of debt value
(9)
For the purposes of this subpart, debt value—
(a)
means the average outstanding amount that gives rise to the interest payable by the company, measured by reference to the amounts outstanding at the start of and at the end of an income year; and
(b)
for a person who has, in the income year, more than 1 asset to which this subpart applies, is reduced in subsection (5)(c), sections DG 12(6)(c) and DG 13(8)(c), by an amount previously taken into account under this subpart for the income year.
Example
Holiday Home Ltd holds a holiday home with a rateable value of $200,000. The company has debt of $40,000, with associated interest expenditure of $4,000. Since the debt value is less than the asset value, all the interest expenditure must be apportioned (section DG 11(3)–(3C)).
Boat Ltd has a charter boat whose adjusted tax value is $60,000. The company has debt of $100,000, with associated interest expenditure of $10,000. Since the debt value is more than the asset value, the company must apportion the interest expenditure of $6,000 (section DG 11(4)–(6)). The formula is $10,000 × ($60,000/$100,000) = $6,000.
The remaining interest expenditure of $4,000 is not subject to apportionment under subpart DG and is allowed as a deduction under section DB 7 (section DG 11(6B)–(6D)). The formula is $10,000−$6,000 = $4,000.
Defined in this Act: adjusted tax value, amount, asset, asset value, associated person, close company, cost, debt value, deduction, income, income year, interest, interest expenditure, land, market value, net asset balance, pay
Section DG 11: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 11(1)(b): replaced (with effect on 27 March 2021), on 31 March 2023, by section 42(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DG 11(3): replaced (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(3B) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(3B): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(3C) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(3C): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(5): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6)(a): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6)(b): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6B) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6B): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6C) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6C): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6D) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(6D): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11(8)(a): replaced (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 30 June 2014, by section 55(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 11(8B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 30 June 2014, by section 55(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 11(8B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 30 June 2014, by section 55(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 11(8B)(c): amended, on 12 November 2018, by section 250 of the Land Transfer Act 2017 (2017 No 30).
Section DG 11(8B)(c)(i): amended, on 12 November 2018, by section 250 of the Land Transfer Act 2017 (2017 No 30).
Section DG 11 example: replaced (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 103(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 11 list of defined terms beneficiary: repealed (with effect on 27 March 2021), on 31 March 2023, by section 42(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DG 11 list of defined terms disallowed residential property: repealed (with effect on 27 March 2021), on 31 March 2023, by section 42(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DG 11 list of defined terms interposed residential property holder: repealed (with effect on 27 March 2021), on 31 March 2023, by section 42(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DG 12 Interest expenditure: group companies
When this section applies
(1)
This section applies for an income year when—
(a)
a close company or a qualifying company (company A) has a net asset balance; and
(b)
company A is part of the same group of companies as another company (company B); and
(c)
company B has interest expenditure for which it is allowed a deduction.
How this section applies: looping rule
(2)
This section applies sequentially to every group company B until—
(a)
the net asset balance for the income year is reduced to zero, or is treated as reduced to zero; or
(b)
no other group companies exist to which this section applies.
Debt value less than net asset balance
(3)
If company B’s debt value for the income year is equal to or less than the net asset balance for the income year, company B is allowed a deduction of a portion of interest expenditure incurred for the income year,—
(a)
of an amount calculated by company A using the formula in section DG 11(3B); and
(b)
treating company B’s total interest expenditure for the income year as if it were the item interest expenditure in the formula.
Recalculation of net asset balance
(4)
In the application of subsection (3), the amount of the net asset balance must be recalculated on each application, being reduced by an amount equal to each counted group company’s debt value.
Debt value more than net asset balance
(5)
If company B’s debt value for the income year is more than the net asset balance for the income year, company B must calculate a reduced amount of interest expenditure for the income year using the formula—
interest expenditure × net asset balance ÷ company B’s debt value.
Definition of items in formula
(6)
In the formula in subsection (5),—
(a)
interest expenditure is the total amount of interest expenditure incurred by company B for the income year:
(b)
net asset balance is the amount of the net asset balance for the income year:
(c)
company B’s debt value is the amount of company B’s debt value for the income year.
Apportionment of reduced amounts
(7)
Company B is allowed a deduction for the income year of a portion of the reduced amount described in subsection (5),—
(a)
of an amount calculated by company A using the formula in section DG 11(3B); and
(b)
treating the reduced amount as if it were the item interest expenditure in the formula.
Deductions for interest expenditure in excess of reduced amounts
(7B)
Company B is allowed a deduction for the amount of interest expenditure calculated under subsection (7C) to the extent to which the amount would be a deduction under Part D (Deductions) in the absence of this subpart.
Formula
(7C)
The amount of interest expenditure is calculated using the formula—
interest expenditure − reduced amount.
Definition of items in formula
(7D)
In the formula in subsection (7C),—
(a)
interest expenditure is the amount of interest expenditure described in subsection (6)(a):
(b)
reduced amount is the reduced amount of interest expenditure calculated using the formula in subsection (5).
Net asset balance zero
(8)
Once a calculation is made under subsection (5), company B’s net asset balance is treated as zero.
Net asset balance
(9)
If a net asset balance remains outstanding after the application of this section for an income year, the amount must be used under sections DG 13 and DG 14, as applicable.
Example
Holiday Home Ltd has an asset balance of $160,000 ($200,000 less $40,000) and is wholly owned by Parent Ltd. Parent has debt of $30,000, with associated interest expenditure of $3,000. Since Parent’s debt value is less than the asset balance, all of Parent’s interest expenditure must be apportioned (section DG 12(3)).
Defined in this Act: amount, asset value, close company, company, debt value, deduction, group of companies, income year, interest expenditure, net asset balance, qualifying company
Section DG 12: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 12(3)(a): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(3)(b): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(6): amended (with effect on 1 April 2013), on 24 February 2016, by section 104(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7)(a): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7)(b): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7B) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7B): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7C) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7C): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7D) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 12(7D): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 104(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DG 13 Interest expenditure: corporate shareholders
When this section applies
(1)
This section applies to a company that is not in the same group of companies as another company (company A), that is a close company or qualifying company, when—
(a)
a net asset balance remains outstanding for an income year after the application of—
(i)
first, section DG 12, if applicable; or
(ii)
secondly, section DG 11; and
(b)
the company is 1 or more of—
(i)
a company that is a shareholder in company A:
(ii)
a company that is a shareholder in a company that is part of the same group of companies as company A and has a voting interest in company A:
(iii)
a company that has a voting interest in a company referred to in subparagraph (i) or (ii).
How this section applies: looping rule
(2)
This section applies sequentially as follows:
(a)
first, to the companies referred to in subsection (1)(b)(i) and (ii); and
(b)
secondly, to the extent to which the debt value of the company for the income year remains less than the company’s share of the net asset balance, to the companies that are shareholders in a company referred to in paragraph (a); and
(c)
so on, until either—
(i)
the company’s share of the net asset balance for the income year is reduced to zero or is treated as reduced to zero; or
(ii)
no other corporate shareholders exist to which this section applies.
Limitation by share in asset balance
(3)
The deduction that the company is allowed for interest expenditure incurred for the income year is limited by its share of the net asset balance. The share of the asset balance is calculated using the formula—
net asset balance × company’s interest.
Definition of items in formula
(4)
In the formula in subsection (3),—
(a)
net asset balance is the amount of the net asset balance after the application of section DG 11 or DG 12, as applicable, and as recalculated under subsection (6):
(b)
company’s interest is the relevant voting interest in company A, expressed as a percentage.
Debt value less than asset balance
(5)
If the debt value for the company for the income year is equal to or less than its share of the net asset balance for the income year, the company is allowed a deduction of a portion of interest expenditure incurred for the income year,—
(a)
of an amount calculated by company A using the formula in section DG 11(3B); and
(b)
treating the total interest expenditure for the income year as if it were the item interest expenditure in the formula.
Recalculation of asset balance
(6)
In the application of subsection (5), the amount that is the company’s share of the net asset balance must be recalculated on each application, being reduced by an amount equal to each counted company’s debt value.
Debt value more than asset balance
(7)
If the debt value for the company for the income year is more than its share of the net asset balance, the company must calculate a reduced amount of interest expenditure incurred for the income year using the formula—
interest expenditure × company’s share of net asset balance
÷ company’s debt value.
Definition of items in formula
(8)
In the formula in subsection (7),—
(a)
interest expenditure is the total amount of interest expenditure incurred by the company for the income year:
(b)
company’s share of net asset balance is the amount calculated for the company under subsection (3):
(c)
company’s debt value is the amount of the debt value of the company for the income year.
Apportionment of reduced amounts
(9)
The company is allowed a deduction for the income year of a portion of the reduced amount described in subsection (7),—
(a)
of an amount calculated by company A using the formula in section DG 11(3B); and
(b)
treating the reduced amount as if it were the item interest expenditure in the formula.
Deductions for interest expenditure in excess of reduced amounts
(9B)
The company is allowed a deduction for the amount of interest expenditure calculated under subsection (9C) to the extent to which the amount would be a deduction under Part D (Deductions) in the absence of this subpart.
Formula
(9C)
The formula is—
interest expenditure − reduced amount.
Definition of items in formula
(9D)
In the formula in subsection (9C),—
(a)
interest expenditure is the amount of interest expenditure incurred by the company for the income year:
(b)
reduced amount is the reduced amount of interest calculated using the formula in subsection (7).
Net asset balance zero
(10)
Once a calculation is made under subsection (7), the amount that is the company’s share of the net asset balance is treated as zero.
Net asset balance
(11)
If a net asset balance remains outstanding after the application of this section for an income year, the amount must be used under section DG 14.
Example
Parent Ltd has 2 equal corporate shareholders, company Y, which has debt of $20,000 with associated interest expenditure of $2,000, and company Z, which has debt of $70,000 with associated interest expenditure of $7,000. Both companies’ share of the net asset balance is $65,000 ($130,000 × 50%). Since company Y’s debt value is less than its share of the net asset balance, all its interest expenditure must be apportioned (section DG 13(5)). Company Z’s debt value is greater than its share of the net asset balance, so it must apportion interest expenditure of $6,500 (section DG 13(7)–(9)). The formula is $7,000 × ($65,000/$70,000) = $6,500.
Defined in this Act: amount, company, debt value, deduction, group of companies, income year, interest expenditure, net asset balance, shareholder, voting interest
Section DG 13: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 13(1): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(1)(b): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(5)(a): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(5)(b): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9)(a): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9)(b): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9B) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9B): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9C) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9C): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9D) heading: inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 13(9D): inserted (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DG 14 Interest expenditure: non-corporate shareholders
When this section applies
(1)
This section applies for a person, for an income year and a company (company A) that is a close company or qualifying company, when—
(a)
a net asset balance remains outstanding for an income year after the application of—
(i)
first, section DG 13, if applicable:
(ii)
secondly, section DG 12, if applicable:
(iii)
thirdly, section DG 11, if neither applies; and
(b)
the person—
(i)
is not a company; and
(ii)
has a voting interest in company A; and
(iii)
has interest expenditure for which they are allowed a deduction.
Amount to be apportioned
(2)
For a natural person, the amount of interest expenditure that must be apportioned is only the amount of interest that the person incurs on money borrowed to acquire shares in company A or in a company referred to in section DG 13(1)(b).
Method of apportionment
(3)
The apportionment is made using the rules set out in section DG 13(2) to (10), treating the person as if they were the company.
Relationship with subpart DH
(4)
Despite subsections (1) and (2), the following are ignored for the purposes of applying this section:
(a)
interest, incurred by the person as shareholder in relation to shares of company A, for which a deduction is denied under section DH 8 (Deduction not allowed); and
(b)
the debt to which that interest relates multiplied by the quarterly interposed residential property percentage described in section DH 8(4)(b).
Example
Company Y has 2 shareholders: Thomas, who has borrowed $200,000 to acquire a 50% interest in the company, and Brent, who has borrowed $10,000 to buy his 50% interest. Each has a share of the remaining net asset balance of $22,500. The formula is ($65,000 − $20,000) × 50% = $22,500. Since Thomas’s debt value is greater than his share of the net asset balance, Thomas must apportion 11.25% of his total interest expenditure (sections DG 14 and DG 13(7)–(9)). The formula is 22,500/200,000. Since Brent’s debt value is less than his share of the net asset balance, all Brent’s interest expenditure must be apportioned (sections DG 14 and DG 13(5)).
Defined in this Act: amount, company, deduction, income year, interest, interest expenditure, net asset balance, share, voting interest
Section DG 14: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 14(1): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 106(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 14(1)(b): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 106(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 14(1)(b)(i): amended, on 29 March 2018, by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DG 14(4) heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 74 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 14(4): inserted (with effect on 27 March 2021), on 30 March 2022, by section 74 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DG 14 list of defined terms trustee: repealed, on 29 March 2018, by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Quarantined expenditure
Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 15 Quarantined expenditure rules
Sections DG 16 and DG 18 provide the rules that limit the amount of a person’s deduction under sections DG 7, DG 8, and DG 11 to DG 14 for an income year when the income derived from the use of the asset does not reach a specified threshold. The excess expenditure is quarantined and denied as a deduction for the income year. Sections DG 17 and DG 19 provide for the allocation of the quarantined amount to a later income year when the income derived is sufficient to offset the expenditure. Companies must provide information disclosure statements under section 30D of the Tax Administration Act 1994 to enable the calculations to be made.
Defined in this Act: amount, asset, company, deduction, income, income year
Section DG 15: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 16 Quarantined expenditure when asset activity negative
When this section applies
(1)
This section applies when—
(a)
a person incurs expenditure or loss for which they are allowed a deduction that is limited under section DG 7, DG 8, or DG 11, as applicable, for an income year; and
(b)
the amount of income derived for the income year from the use of an asset, other than an amount of exempt income, is less than 2% of—
(i)
for land, including an improvement to land, the amount given under subsection (1B):
(ii)
for other property to which this subpart applies, its adjusted tax value.
Amount for land, including improvements to land
(1B)
For the purposes of subsection (1)(b)(i), the amount is the following amount, as applicable:
(a)
the amount given by the later of either—
(i)
its most recent capital value or annual value as set by the relevant local authority; or
(ii)
its cost on acquisition or, if the transaction involves an associated person, its market value:
(b)
if the land or improvement to land is a leasehold estate in land, the market value of the leasehold estate which the person may establish by a valuation that is or has been made by a registered valuer no more than 3 years before the end of the income year:
(c)
if different activities are carried out on the land on a single record of title within the meaning of the Land Transfer Act 2017, the value applying under paragraph (a) or (b), as applicable, adjusted as follows:
(i)
by multiplying the value by the percentage that the area of land that is the portion of the land used in relation to the asset to which this subpart applies bears to the total land area described in the record of title:
(ii)
by a valuation that is or has been made by a registered valuer no more than 3 years before the end of the income year, of the portion of land used in relation to the asset to which this subpart applies.
Quarantined amount
(2)
The amount of the person’s excess expenditure for the income year is calculated using the formula—
expenditure − asset income.
Definition of items in formula
(3)
In the formula,—
(a)
expenditure is the total of the following amounts:
(i)
the total amount of deductions that the person is allowed for the income year under sections DG 7, DG 8, and DG 11, as applicable and after any necessary apportionment; and
(ii)
an amount of the person that was quarantined under this section for an earlier income year and is not yet allocated to an income year:
(b)
asset income is the total amount of income, other than an amount of exempt income, derived for the income year from the use of the asset.
No deduction for quarantined amount
(4)
The excess expenditure calculated under subsection (2) is quarantined and denied as a deduction for the income year.
Outstanding profit balance
(5)
If the amount of expenditure for the income year is less than the amount of income for the income year, the excess income is the outstanding profit balance for the income year to be used under section DG 18. If the amount of expenditure for the income year is equal to or more than the amount of income for the income year, the outstanding profit balance is treated as zero.
Zero result
(6)
For the purposes of the formula in subsection (2), if the amount of income for the income year is greater than the amount of expenditure for the income year, the result of the formula is treated as zero.
Example
David has a city apartment with a rateable value of $300,000. He rents out the apartment and also uses it privately. He receives market rate rental of $4,000 from non-associates, and $6,000 from associates. David’s total allowable expenditure, under sections DG 7, DG 8, and DG 11, is $15,000. The income from associates is exempt under section CW 8B, and is ignored. David therefore has asset income of $4,000 and deductions of $15,000, giving rise to an excess of expenditure over income of $11,000. Since David’s income from non-associates is less than 2% of the apartment’s rateable value, the excess expenditure of $11,000 is denied as a deduction. The amount denied may be allocated to a later income year under section DG 17.
Defined in this Act: adjusted tax value, amount, asset, associated person, cost, deduction, exempt income, income, income year, land, market value
Section DG 16: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 16(1)(a): amended (with effect on 1 April 2013 and applying, for the 2013–14 and later income years, for an item of property referred to in section DG 3(2)(a)(i); for the 2014–15 and later income years, for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 24 February 2016, by section 107(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DG 16(1)(b)(i): replaced (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 30 June 2014, by section 56(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 16(1B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), by section 56(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 16(1B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), by section 56(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 16(1B)(c): amended, on 12 November 2018, by section 250 of the Land Transfer Act 2017 (2017 No 30).
Section DG 16(1B)(c)(i): amended, on 12 November 2018, by section 250 of the Land Transfer Act 2017 (2017 No 30).
Section DG 16 example: amended (with effect on 1 April 2013), on 30 June 2014, by section 59 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DG 17 Allocation of amounts quarantined under section DG 16
When this section applies
(1)
This section applies for an income year (the current year) when—
(a)
a person has an amount of excess expenditure quarantined under section DG 16 in relation to an asset for an income year before the current year; and
(b)
the person’s income for the current year from the use of the asset is more than the amount of their deductions under sections DG 7, DG 8, and DG 11, as applicable.
Deduction and allocation
(2)
The amount of previously quarantined expenditure that the person is allowed as a deduction for the current year must not be more than the lesser of—
(a)
the amount referred to in subsection (1)(a):
(b)
the amount calculated using the formula—
asset income − expenditure.
Definition of items in formula
(3)
In the formula,—
(a)
asset income is the total amount of income, other than an amount of exempt income, derived for the current year from the use of the asset:
(b)
expenditure is the total amount of deductions that the person is allowed in relation to the asset for the current year under sections DG 7, DG 8, and DG 11, as applicable, and after any necessary apportionment.
Outstanding profit balance
(4)
If the lesser amount in subsection (2) is the quarantined amount referred to in subsection (2)(a), an outstanding profit balance arises of an amount that is the difference between the amount of income for the current year and the amount of expenditure for the current year, including the quarantined amount allocated to the current year. The outstanding profit balance is available for use under section DG 19.
Zero result
(5)
For the purposes of the formula in subsection (2), if the amount of expenditure for the current year is greater than the amount of income for the current year, the result of the formula is treated as zero.
Modification for certain assets
(6)
For the purposes of subsection (1)(a), a quarantined amount that is related to an asset may be used in relation to another asset of the person if—
(a)
the first asset is damaged, destroyed, or lost, and is no longer held by the person; and
(b)
a second asset is acquired to replace the first asset; and
(c)
the 2 assets are identical or substantially the same.
Example, continued from section DG 16
In the following income year, David derives $10,000 from renting his city apartment at market rates to a non-associate. David’s total allowable expenditure, under sections DG 7, DG 8, and DG 11, is $8,000. He also has expenditure of $11,000 quarantined from the previous income year. David is able to deduct $2,000 of that quarantined expenditure. The remaining $9,000 continues to be quarantined and may be allowed as a deduction for a later income year.
Defined in this Act: amount, asset, deduction, income, income year
Section DG 17: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 17(3)(a): amended, on 30 June 2014 (applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), by section 57(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DG 17 example: amended (with effect on 1 April 2013), on 30 June 2014, by section 59 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DG 18 Quarantined expenditure: group companies and shareholders
When this section applies
(1)
This section applies when—
(a)
a person incurs expenditure for an income year for which they are allowed a deduction that is limited under 1 or more of sections DG 12 to DG 14; and
(b)
the income year is an income year in which section DG 16(1)(b) applies.
How this section applies: first looping rule
(2)
The first application of this section is to every group company B in sequence until no other group companies exist to which this subsection applies.
How this section applies: second looping rule
(3)
The second application of this section is sequentially to—
(a)
first, 1 or more of the following persons, none of which is a company referred to in subsection (2):
(i)
a person who is a shareholder in company A:
(ii)
a person who is a shareholder in a company that is part of the same group of companies as company A and has a voting interest in company A; and
(b)
secondly, a person who is a shareholder in a company referred to in paragraph (a); and
(c)
so on, until no other persons exist to which this subsection applies.
Quarantined amount
(4)
The amount of the person’s excess expenditure for the income year is calculated using the formula—
expenditure − outstanding profit balance.
Definition of items in formula
(5)
In the formula,—
(a)
expenditure is the total of the following amounts:
(i)
the total amount of deductions that the person is allowed for the income year under sections DG 12 to DG 14, as applicable and after any necessary apportionment; and
(ii)
an amount of the person that was quarantined under this section for an earlier income year and is not yet allocated to an income year:
(b)
outstanding profit balance,—
(i)
for company B, is the amount of the outstanding profit balance referred to in section DG 16(5):
(ii)
for a shareholder, is the amount that is the person’s share of the outstanding profit balance referred to in section DG 16(5), calculated using the formula in section DG 13(3), treating the outstanding profit balance as if it were the net asset balance.
No deduction for quarantined amount
(6)
The excess expenditure calculated under subsection (4) is either quarantined or remains quarantined, as applicable, and is denied as a deduction for the income year.
Recalculation of outstanding profit balance
(7)
For the purposes of subsections (4) and (5)(b), the amount that is the outstanding profit balance must be recalculated on each application, being reduced by an amount equal to the amount of any deduction counted.
Zero result
(8)
For the purposes of the formula in subsection (4), if the amount of the outstanding profit balance for the income year is greater than the amount of expenditure for the income year, the result of the formula is treated as zero.
Example
Aircraft Ltd owns an aircraft to which the rules in this subpart apply; the income derived from the asset in the current year is less than 2% of the cost of the aircraft. The company has calculated an outstanding profit balance of $12,000 after the application of section DG 16. Aircraft is 100% owned by Parent Ltd, which has apportioned interest expenditure of $5,000 calculated under section DG 12. Parent has 2 equal shareholders, Alisa who has apportioned interest expenditure of $8,000, and Hamish who has apportioned interest expenditure of $1,000, both calculated under section DG 14. Parent must apply section DG 18 first, and is not required to quarantine any of its interest expenditure; the outstanding profit balance is reduced to $7,000 ($12,000 − $5,000). Alisa’s and Hamish’s share of the outstanding profit balance is $3,500 each ($7,000 × 50%). Alisa must quarantine $4,500 of interest expenditure ($8,000 − $3,500); Hamish is not required to quarantine any interest expenditure.
Defined in this Act: amount, asset, company, deduction, group of companies, income year, net asset balance, shareholder, voting interest
Section DG 18: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 18 example: amended (with effect on 1 April 2013), on 30 June 2014, by section 59 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DG 19 Allocation of amounts quarantined under section DG 18
When this section applies
(1)
This section applies for an income year (the current year) when—
(a)
a person has an amount of excess expenditure quarantined under section DG 18 for an income year before the current year; and
(b)
an outstanding profit balance referred to in section DG 17(4) is available for use for the current year.
How this section applies
(2)
This section applies sequentially in the order set out in section DG 18(2) and (3) until the outstanding profit balance is reduced to zero.
Deduction and allocation
(3)
The amount of previously quarantined expenditure that the person is allowed as a deduction for the current year must not be more than the lesser of—
(a)
the quarantined amount referred to in subsection (1)(a):
(b)
the amount calculated using the formula—
outstanding profit balance − expenditure.
Definition of items in formula
(4)
In the formula,—
(a)
outstanding profit balance,—
(i)
for company B, is the amount of the outstanding profit balance determined for the company for the current year under section DG 18(5), if applicable, or otherwise under section DG 17(4):
(ii)
for a shareholder, is the amount that is the person’s share of the outstanding profit balance for the current year under section DG 18(5), if applicable, or otherwise under section DG 17(4), calculated using the formula in section DG 13(3), treating the outstanding profit balance as if it were the net asset balance:
(b)
expenditure is the total amount of deductions that the person is allowed for the current year under sections DG 12 to DG 14, as applicable, and after any necessary apportionment.
Recalculation of outstanding profit balance
(5)
For the purposes of subsections (3) and (4)(a), the amount that is the outstanding profit balance must be recalculated on each application, being reduced by an amount equal to the amount of any deduction for quarantined expenditure counted.
Zero result
(6)
For the purposes of the formula in subsection (3), if the amount of expenditure for the current year is greater than the amount of the outstanding profit balance for the current year, the result of the formula is treated as zero.
Example, continued from section DG 18
In the following income year, Aircraft Ltd has calculated an outstanding profit balance of $16,000. Section DG 19 does not apply to Parent Ltd or Hamish because they have no previously quarantined interest expenditure. However, the section does apply to Alisa because she has $4,500 of quarantined interest expenditure from the previous year. Because Parent Ltd does not have any current year expenditure, Alisa’s share of the outstanding profit balance of Parent Ltd is $8,000 ($16,000 × 50%).
Alisa’s current year apportioned interest expenditure is $7,000, calculated under section DG 14. Alisa is allowed a deduction for all her current year expenditure and also a deduction for $1,000 of previously quarantined expenditure ($8,000 − $7,000). Her remaining quarantined expenditure is $3,500 ($4,500 − $1,000).
Defined in this Act: amount, company, deduction, income year, net asset balance, shareholder
Section DG 19: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DG 19 example: replaced (with effect on 1 April 2013), on 30 June 2014, by section 59 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Certain modifications to rules
Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 20 When income cannot be separately attributed
Exclusion from rules
(1)
Sections DG 16 and DG 18 do not apply to the use of an asset for an income year when—
(a)
the person derives an amount of income for the income year from the use of the asset in a business activity; and
(b)
because of the nature of the activity, an amount cannot be separately attributed to the use of the asset.
Re-inclusion
(2)
Subsection (1) does not apply if—
(a)
the person also uses the asset in deriving an amount of income that is separately attributable to the use of the asset; and
(b)
the use of the asset referred to in paragraph (a) is at least 80% of the total use of the asset both in the business activity referred to in subsection (1) and as described in paragraph (a).
Example
Paul uses a helicopter on his farm to check stock for 50 hours in an income year, rents it out for 50 hours, and also uses it privately. While the income from the rental is clear, the income Paul derives in relation to the use of the helicopter in farming operations is not. The use of the helicopter falls outside the rules under the exclusion in section DG 20(1), and does not meet the requirements for re-inclusion under section DG 20(2) as the use of the helicopter to earn rental income is only 50% of the total income-earning use of the helicopter. Any loss attributable to the helicopter is not quarantined.
Defined in this Act: amount, asset, business, income, income year
Section DG 20: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 21 Opting out of treatment under this subpart
Opt-out threshold
(1)
If the amount of income derived for an income year from the use of an asset is less than $4,000, the person who has the asset may choose to treat the income as exempt income under section CW 8B(2) (Certain amounts derived from use of assets). The threshold amount does not include an amount of income exempt under section CW 8B(3).
Quarantined expenditure
(2)
If, in relation to the use of an asset in an income year, the person has an amount of quarantined expenditure for the income year, they may choose to treat the amount of income derived that gives rise to the quarantined expenditure as exempt income under section CW 8B for the income year.
Consequences of opting out
(3)
When a person who has an asset chooses under subsection (1) or (2) to treat the income derived from the use of the asset as exempt income, any interest expenditure that must be apportioned under section DG 9 is treated as expenditure incurred in deriving exempt income.
No application to companies
(4)
This section does not apply when the person who has the asset is a company.
Example
Mike rents his bach out through the Internet to a non-associate. The gross amount he receives for an income year is $3,000. Mike can opt out of the rules in this subpart, which would mean that he would not be liable to tax on the amount, but would also not be entitled to claim any deductions in relation to the bach.
Defined in this Act: amount, asset, exempt income, income, income year, interest expenditure
Section DG 21: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 22 Application of rules to part years
When this section applies
(1)
This section applies when the total income-earning use, private use, and non-use of an asset of a person relates to only part of an income year.
Non-use period
(2)
For the purposes of section DG 3(1)(b), the number of days is calculated using the formula—
(days ÷ 365) × 62.
When assets acquired during year: debt value
(3)
For the purposes of section DG 11(9), if the company acquires the asset during the income year, the debt value is treated as the outstanding amount at the end of the income year.
When assets disposed of during year: debt value
(4)
For the purposes of section DG 11(9), if the company disposes of the asset during the income year, the debt value is treated as the outstanding amount at the start of the income year.
When assets both acquired and disposed of during year
(5)
For the purposes of section DG 11(9), if the company both acquires and disposes of the asset during the income year, the debt value is treated as the average of the outstanding amounts on the date on which the asset was acquired and the date of its disposal.
When assets acquired during year: interest expenditure
(6)
For the purposes of sections DG 11 to DG 14, when company A acquires or disposes of an asset during an income year, the amount of interest expenditure that must be apportioned is calculated on a pro rata basis.
Ring-fenced losses in part years
(7)
For the purposes of section DG 16(1)(b), the threshold is calculated using the formula—
(days ÷ 365) × 2%.
Definition of item in formulas
(8)
In the formulas in subsections (2) and (7), days is the number of days in the income year on which the person has the asset, and for the purposes of the calculation, section DG 9(4) similarly applies.
Defined in this Act: amount, asset, company, debt value, income year, interest expenditure, private use
Section DG 22: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart DH—Interest incurred in relation to certain land
Subpart DH: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Contents
DH 1 Interest related to certain land
The purpose of this subpart is to deny a person a deduction for certain interest incurred in relation to certain land, despite any other provision in this Part. The provisions of this subpart override the general permission. In this subpart—
(a)
sections DH 2, DH 3, and DH 4 provide rules for when this subpart does and does not apply:
(b)
section DH 5 provides definitions of key terms. Section DH 6 provides a definition of interposed residential property percentage. Section DH 7 provides a definition of grandparented residential interest:
(c)
section DH 8 denies deductions for certain interest incurred in relation to certain land:
(d)
section DH 12 provides valuation rules.
Defined in this Act: amount, deduction, general permission, interest, land
Section DH 1: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DH 2 When this subpart applies
This subpart applies to interest incurred on or after 1 October 2021.
Defined in this Act: interest
Section DH 2: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DH 3 When this subpart applies: companies
This subpart applies to a company, if—
(a)
the company is a close company, and it is not an exempt Māori company:
(b)
the company is not a close company, and—
(i)
it is a residential land company; and
(ii)
it is not a member of a wholly-owned group:
(c)
the company is not a close company, and it is a residential land wholly-owned group member.
Defined in this Act: company, close company, exempt Māori company, residential land company, residential land wholly-owned group member, wholly-owned group
Section DH 3: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DH 4 When this subpart does not apply: exemptions for new builds, development, social or emergency or transitional housing, and council housing
Exemption: new builds
(1)
This subpart does not apply to interest incurred by a person to the extent to which it is—
(a)
incurred in relation to new build land; and
(b)
incurred before the date that is 20 years after the earliest of the following dates for the new build land:
(i)
the date on which the code compliance certificate described in section DH 5(7) is issued:
(ii)
the date that, in the records of a local authority or building consent authority, the relevant conversion or remediation is recorded as having been “completed”
, in the cases provided in section DH 5(7)(d) and (e):
(iii)
the date that the relevant building work is entered into the records of a local authority or building consent authority as “substantially completed”
, in the case of a code compliance certificate described in section DH 5(7) being issued subject to a building consent waiver or modification under clause B2.3.1 of the Building Code under the Building Act 2004.
Exemption: business relating to land under section CB 7
(2)
This subpart does not apply to interest incurred by a person to the extent to which it is incurred in relation to a business described in section CB 7 (Disposal: land acquired for purposes of business relating to land).
Exemption: development, division, or building
(3)
This subpart does not apply to interest incurred by a person (person A) to the extent to which it is incurred in relation to land (the land) that is or was subject to person A’s undertaking or scheme involving development, division, or building for the purpose of creating new build land. However, the exemption in this subsection ceases for person A to the extent to which the land is new build land owned by person A.
Exemption: social, emergency, transitional, and support housing
(4)
This subpart does not apply to interest incurred by a person for land, to the extent to which the land is used by a registered community housing provider under the Public and Community Housing Management Act 1992, by a department listed in schedule 2, part 1 of the Public Service Act 2020, or by Kāinga Ora–Homes and Communities and its wholly-owned subsidiaries, solely for 1 or more of the following:
(a)
social housing, as defined in section 2 of the Public and Community Housing Management Act 1992:
(b)
temporary accommodation for people in need while they seek, or are assisted in finding, more permanent accommodation:
(c)
accommodation for people in need:
(d)
services connected with housing or accommodation described in paragraph (a), (b), or (c).
Exemption: council housing
(5)
This subpart does not apply to interest incurred by a person for land, to the extent to which the land is used by a council-controlled organisation, as defined in section 6 of the Local Government Act 2002, or a local authority, solely for 1 or more of the following:
(a)
housing for people assessed by a local authority as being eligible for accommodation at less than market rental:
(b)
services connected with housing described in paragraph (a).
Exemption: Kāinga Ora–Homes and Communities and wholly-owned subsidiaries
(6)
This subpart does not apply to Kāinga Ora–Homes and Communities and its wholly-owned subsidiaries.
Defined in this Act: code compliance certificate, dwelling, interest, land, local authority, new build land
Section DH 4: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DH 5 Key terms
Code compliance certificate
(1)
Code compliance certificate means a code compliance certificate issued under the Building Act 2004.
Disallowed residential property
(2)
Disallowed residential property—
(a)
means land in New Zealand to the extent to which—
(i)
it has a place configured as a residence or abode, whether or not it is used as a place of residence or abode, including any appurtenances belonging to or enjoyed with the place:
(ii)
the owner has an arrangement that relates to erecting a place there, configured as a residence or abode, whether or not that place is or is to be used as a place of residence or abode, including any appurtenances belonging to or enjoyed with the place:
(iii)
it is bare land that, under rules in the relevant operative district plan, may be used for erecting a place there, configured as a residence or abode, whether or not that place is or is to be used as a place of residence or abode, including any appurtenances belonging to or enjoyed with the place:
(b)
does not include land to the extent to which it is excepted residential land.
Excepted residential land
(3)
Excepted residential land means land to the extent to which it is described in schedule 15.
Exempt Māori company
(4)
Exempt Māori company means—
(a)
a company that is a Maori authority or eligible to be a Maori authority, if,—
(i)
in the case that the company is not a member of a wholly-owned group, it is not a residential land company:
(ii)
in the case that the company is a member of a wholly-owned group, it is not a residential land wholly-owned group member:
(b)
a company that is wholly-owned by a Maori authority or wholly-owned by a company or trust that is eligible to be a Maori authority, if—
(i)
the wholly-owned company is not a residential land wholly-owned group member:
(ii)
in the case that the company is wholly-owned by a trust, the wholly-owned company is not a residential land company.
Grandparented transitional loans
(5)
Grandparented transitional loan means loan amounts denominated in New Zealand dollars, ignoring re-drawings or additional borrowings under the same loan facility on or after 27 March 2021, to the extent to which the loan amounts are—
(a)
first drawn down upon before 27 March 2021 for disallowed residential property:
(b)
first drawn down upon on or after 27 March 2021 for acquiring disallowed residential property, if the person acquired an estate or interest in the property before 27 March 2021:
(c)
first drawn down upon on or after 27 March 2021 for acquiring disallowed residential property, if the acquisition of the property resulted from an offer that is—
(i)
made on or before 23 March 2021; and
(ii)
irrevocable before 27 March 2021:
(d)
in relation to disallowed residential property for which a previous owner (the original owner) had loan amounts described in paragraphs (a) to (c), if—
(i)
every transfer of the property since the original owner acquired it meets the requirements in section FB 3A, FC 9, FC 9B(a) to (e), or FO 17 (which relate to roll-over relief for the bright-line rule), treating the relevant requirements as applying to a transfer of the disallowed residential property on or after 27 March 2021 instead of a transfer of residential land on or after 1 April 2022; and
(ii)
the loan amounts are equal to or less than the amount of the original owner’s loan at the time the original owner transferred the property:
(e)
for re-financing, under a new loan facility,—
(i)
loan amounts described in paragraphs (a) to (d):
(ii)
loan amounts to which this paragraph, or paragraph (f), has previously applied:
(f)
for re-financing, under a new loan facility,—
(i)
loan amounts that would have been described in paragraphs (a) to (d) if it had been denominated in New Zealand dollars:
(ii)
loan amounts to which this paragraph, or paragraph (e), has previously applied.
Interposed residential property holder
(6)
Interposed residential property holder means—
(a)
a close company for which the relevant person has voting interests or market value interests and the close company has, at the end of a quarter in the income year, an interposed residential property percentage of more than 10%:
(b)
a company that is not a close company for which the relevant person has voting interests or market value interests, and the company has, at any time in the income year, an interposed residential property percentage of more than 50%:
(c)
the trustees of a trust of which the relevant person is a direct or indirect beneficiary, if the relevant trust has, at any time in the income year, an interposed residential property percentage of more than 10%.
New build land
(7)
New build land—
(a)
means land to the extent to which it has a place that is configured as a self-contained residence or abode, if a code compliance certificate has been issued on or after 27 March 2020 evidencing that the place was added to the land or converted into a residence or abode; and
(b)
includes, for land described in paragraph (a), land exclusively used by residents of the place and also a reasonable proportion of shared areas of land, appurtenant to the place; and
(c)
includes land for which there is an agreement that a place that is configured as a self-contained residence or abode will be added to the land and a code compliance certificate will be issued on or after 27 March 2020 evidencing that the place was added to the land; and
(d)
includes land that has a place that was a hotel or motel, to the extent to which, by a conversion, it becomes places that are configured as self-contained residences or abodes, and the conversion is recorded in the records of a local authority or building consent authority as having been “completed” on or after 27 March 2020; and
(e)
includes land to the extent to which it has a place that is configured as a self-contained residence or abode, if the place was removed from the earthquake prone buildings register on or after 27 March 2020, and—
(i)
a code compliance certificate has been issued on or after 27 March 2020 evidencing that building work to remediate the place is complete:
(ii)
the completion of the building work to remediate the place is recorded in the records of a local authority or building consent authority as having been “completed” on or after 27 March 2020 and as having been verified by a suitably qualified engineer; and
(f)
includes land to the extent to which it has a place that is configured as a self-contained residence or abode, if the place was not previously weather-tight and a code compliance certificate has been issued on or after 27 March 2020 evidencing that at least 75% of the place’s cladding has been replaced.
Residential land company
(8)
Residential land company means a company for which the ratio calculated using the following formula and expressed as a percentage is equal to or greater than 50% at any time during the relevant income year:
(disqualified property + indirect disqualified property) ÷ total assets.
Definition of items in formula
(9)
In the formula in subsection (8),—
(a)
disqualified property is the value of the company’s property that is disallowed residential property, but excluding property described in section DH 4(2) or (3):
(b)
indirect disqualified property is the value of shares that the company holds in other companies that are residential land companies:
(c)
total assets is the total value of the company’s assets.
Residential land wholly-owned group member
(10)
Residential land wholly-owned group member means a company that is a member of a wholly-owned group of companies and the ratio for the group, calculated using the following formula, expressed as a percentage, is equal to or greater than 50% at any time during the relevant income year:
(disqualified property + indirect disqualified property) ÷ total assets.
Definition of items in formula
(11)
In the formula in subsection (10),—
(a)
disqualified property is the value, on a consolidated basis, of the wholly-owned group’s property that is disallowed residential property, but excluding property described in section DH 4(2) or (3):
(b)
indirect disqualified property is the value of shares that the wholly-owned group holds in non-group companies that are residential land companies:
(c)
total assets is the total value, on a consolidated basis, of the wholly-owned group’s assets.
Defined in this Act: code compliance certificate, company, disallowed residential property, excepted residential land, exempt Māori company, grandparented transitional loan, income year, interposed residential property percentage, land, new build land, residential land company, residential land wholly-owned group member, trustee, wholly-owned group
Section DH 5: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DH 6 Interposed residential property percentage
Interposed residential property percentage
(1)
Interposed residential property percentage is the amount, for an interposed residential property holder (the person), calculated using the following formula, expressed as a percentage:
disqualified assets ÷ total assets.
Definition of items in formula
(2)
In the formula in subsection (1)—
(a)
disqualified assets is the value of the person’s property that is disallowed residential property, but excluding—
(i)
property described in section DH 4; and
(ii)
[Repealed](b)
total assets is the value of the person’s assets.
Special rule: interposed residential property holder
(3)
If the person is a company, the items disqualified assets and total assets in this section are calculated to also include assets held by lower tier companies to the company by applying section YC 4 (Look-through rule for corporate shareholders), treating the person as the ultimate shareholder, to attribute, in proportion to the relevant voting interests and market value interests under that section, those lower tier assets.
Further special rule
(4)
For the purposes of this section, section DH 8, and the definition of interposed residential property holder, a loan entered into by a shareholder of a close company before it became an LTC is not affected by the company becoming an LTC.
Defined in this Act: close company, disallowed residential property, interposed residential property holder, market value interest, interposed residential property percentage, look-through company, voting interest
Section DH 6: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DH 6(2)(a)(i): amended (with effect on 27 March 2021), on 31 March 2023, by section 43(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DH 6(2)(a)(ii): repealed (with effect on 27 March 2021), on 31 March 2023, by section 43(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DH 7 Grandparented residential interest
Grandparented residential interest
(1)
Grandparented residential interest means interest, for a person and a grandparented transitional loan, that is,—
(a)
interest for the loan’s principal to the extent to which the interest is incurred for disallowed residential property:
(b)
if the loan (the underlying loan) is for both disallowed residential property and property that is allowed property described in subsection (3)(b), and the portion incurred for disallowed residential property cannot reasonably be determined, the portion of underlying interest calculated by reference to a notional loan principal (the notional loan principal) that the person is treated as having used to acquire, on 26 March 2021, the disallowed residential property to which the underlying loan relates. The initial notional loan principal is calculated using the formula in subsection (2) and the treatment of repayments is provided in subsection (4).
Grandparented residential interest: loan portion when tracing cannot reasonably be determined: initial notional loan principal
(2)
For the purpose of subsection (1)(b), the notional loan principal is calculated using the following formula, treating a negative amount as zero:
outstanding borrowings − allowed property.
Definition of items in formula
(3)
In the formula in subsection (2),—
(a)
outstanding borrowings is the principal of the underlying loan, determined as at 26 March 2021, to the extent to which it is for both disallowed residential property and property that is allowed property described in paragraph (b):
(b)
allowed property is the total of—
(i)
the value of the person’s assets, determined as at 26 March 2021, that is not disallowed residential property, but ignoring assets that are not used in deriving assessable income; and
(ii)
to the extent to which the person’s assets are disallowed residential property described in section DH 4, the value of those assets, determined as at 26 March 2021.
Grandparented residential interest: repayments
(4)
A repayment of the underlying loan is applied against the notional loan principal to reduce it, to a minimum of zero, unless the source of the repayment is the disposal of allowed property described in subsection (3)(b). If the source of the repayment is the disposal of allowed property, then only the amount of the repayment that is in excess of the 26 March 2021 value of the allowed property is applied against the notional loan principal to reduce it, to a minimum of zero.
Defined in this Act: assessable income, disallowed residential property, grandparented transitional loan, interest, loan
Section DH 7: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DH 7(2) heading: amended (with effect on 27 March 2021), on 31 March 2023, by section 44 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DH 8 Deduction not allowed
Deduction denied
(1)
A person is denied a deduction for interest if and to the extent to which the interest is—
(a)
incurred for disallowed residential property, but excluding interest for a grandparented transitional loan:
(b)
grandparented residential interest:
(c)
incurred to acquire an ownership interest in, or become a beneficiary of, an interposed residential property holder:
(d)
incurred to refinance a loan, interest for which is described in paragraph (a) or (c).
Denial limited: grandparented residential interest
(2)
The amount of the deduction denied for grandparented residential interest is limited to the following percentages for the following periods:
| Period that grandparented residential interest is incurred | Percentage denied |
| 1 October 2021 to 31 March 2022 | 25% |
| 1 April 2022 to 31 March 2023 | 25% |
| 1 April 2023 to 31 March 2024 | 50% |
| 1 April 2024 to 31 March 2025 | 75% |
| On and after 1 April 2025 | 100% |
Denial limited using quarterly calculation periods: owners of interposed residential property holders
(3)
The amount of the deduction denied for interest (the interest) incurred as the owner or to become an owner of an interposed residential property holder that is a close company is limited, for an income year, to the amount calculated quarterly using the following formula and summed for the entire income year:
interposed interest × quarterly interposed residential property percentage.
Definition of items in formula
(4)
In the formula in subsection (3)—
(a)
interposed interest is the interest, to the extent to which it is incurred in the relevant quarterly calculation period:
(b)
quarterly interposed residential property percentage is the interposed residential property percentage for the interposed residential property holder, calculated, as described in section DH 6, at the end of the relevant quarterly calculation period.
Defined in this Act: close company, disallowed residential property, deduction, grandparented residential interest, grandparented transitional loan, income year, interest, interposed residential property holder, interposed residential property percentage
Section DH 8: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DH 9 Exception to limited denial of deductions: loans denominated in foreign currencies
[Repealed]Section DH 9: repealed (with effect on 27 March 2021), on 31 March 2023, by section 45 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DH 10 Limited denial of deductibility: simplified calculation of interest affected
Application of section
(1)
This section applies to a person who chooses to rely on the method of calculation it contains for calculating interest incurred under some loans and subject to limited denial of deductibility under this subpart.
Purpose of section
(2)
This section is intended to simplify the calculation, for a loan that may be drawn down in several tranches, of the amount of interest incurred in the period (the affected interest period) from 1 October 2021 to 31 March 2025 that is—
(a)
described in section DH 8(1); and
(b)
subject to limited denial of deductibility under section DH 8(2).
Interest affected by limited denial of deductibility
(3)
For a period in the affected interest period, the amount of interest incurred under the loan that is affected by limited denial of deductibility under section DH 8(2) is the total amount of interest that can be attributed for instants in the period to the amount of the loan that is the lesser, for the instant in the period, of—
(a)
the amount (the initial loan balance) given by subsection (4):
(b)
the amount (the affected loan balance) given by subsection (5).
Initial loan balance
(4)
The initial loan balance is the amount of the loan that is allocated to disallowed residential property for the date (the start date) that is—
(a)
the end of 26 March 2021, if paragraphs (b) and (c) don’t apply; or
(b)
the date on which the loan is drawn down, if the loan is a grandparented transitional loan under paragraph (b) or (c) of the definition of that term and is drawn down on or after 27 March 2021; or
(c)
the date on which the loan is drawn down if the acquisition of the property is described in section FC 9B(a) to (f).
Affected loan balance
(5)
The affected loan balance is the amount of the loan that is a grandparented transitional loan at an instant (the balance time) in the affected interest period, calculated using the following formula:
initial loan balance + (advances − repayments) − (unrelated advances − unrelated repayments).
Definition of items in formula
(6)
In the formula in subsection (5)—
(a)
initial loan balance is the amount given by subsection (4):
(b)
advances is the total amount of the loan applied in transactions that occur in the period between the start date and the balance time:
(c)
repayments is the total amount of the loan repaid in transactions that occur in the period between the start date and the balance time:
(d)
unrelated advances is the total amount of the loan that is not a grandparented transitional loan in the period between the start date and the balance time:
(e)
unrelated repayments is the total amount of the loan repayments applied under section DH 7(4), other than against the notional loan principal, in the period between the start date and the balance time.
Defined in this Act: disallowed residential property, interest, loan
Section DH 10: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DH 10(6)(e): amended (with effect on 27 March 2021), on 31 March 2023, by section 46 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DH 11 Denied amounts: treatment upon disposal of disallowed residential property
Disposal subject to section CB 6A or CZ 39: denied amount included as cost
(1)
An amount that relates to disallowed residential property and is denied under section DH 8 as a deduction that would have otherwise been allowed for a person is treated under section DB 23 (Cost of revenue account property) as a cost for the person of the disallowed residential property in the income year of the disposal of the disallowed residential property if the amount derived from the disposal is income under section CB 6A or CZ 39 (which relate to disposals of residential land within a given period from acquisition).
Disposal not subject to section CB 6A or CZ 39: denied amount allocated under section EL 4 or EL 7
(2)
An amount that relates to disallowed residential property and is denied under section DH 8 as a deduction that would have otherwise been allowed for a person is allowed under this section as a deduction in the income year of the disposal of the disallowed residential property, and is subject to allocation under subpart EL (Allocation of deductions for excess residential land expenditure), if the disallowed residential property is or was residential rental property for purposes of subpart EL and the amount derived from the disposal of the disallowed residential property—
(a)
is income under a section other than section CB 6A or CZ 39; and
(b)
is not income under section CB 6A or CZ 39.
Defined in this Act: deduction, disallowed residential property, income, income year
Section DH 11: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DH 12 Valuation
Land not used in undertaking creating new build land
(1)
For the purposes of this subpart, a person’s land, excluding land described in section DH 4(2) and (3), is—
(a)
valued at its most recent capital value or annual value set by a local authority; or
(b)
if the land was acquired after the most recent local authority valuation, it is valued at its acquisition cost or, in the case of an associated person acquisition, its market value.
Other property
(2)
For the purposes of this subpart, to the extent to which subsection (1) does not apply for a person’s property, the property is—
(a)
valued using its tax book value; or
(b)
if the person prepares financial accounts according to relevant accounting standards or legislative standards, valued using the financial accounts’ valuation.
Defined in this Act: associated person, land, local authority, market value
Section DH 12: inserted (with effect on 27 March 2021), on 30 March 2022, by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DH 12(2) heading: replaced (with effect on 27 March 2021), on 31 March 2023, by section 47 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Subpart DN—Attributed losses from foreign equity
Contents
Attributed controlled foreign company (CFC) loss
DN 1 Attributed controlled foreign company loss
Deduction
(1)
A person is allowed a deduction for an attributed controlled foreign company (CFC) loss, subject to the jurisdictional ring-fencing rule in section DN 4.
Link with subpart DA
(2)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: attributed CFC loss, capital limitation, deduction, general limitation, general permission, supplement
Compare: 2004 No 35 s DN 1
DN 2 When attributed CFC loss arises
General rule
(1)
A person has an attributed CFC loss from a foreign company in an income year if—
(a)
the foreign company is a CFC at any time during 1 of its accounting periods, under sections EX 1 to EX 7 (which relate to the definition of a controlled foreign company); and
(b)
the accounting period ends during the income year; and
(bb)
the person is not a portfolio investment entity; and
(c)
the person has an income interest in the foreign company for the accounting period, under sections EX 8 to EX 13 (which relate to calculating a person’s income interest); and
(d)
at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and
(e)
the person’s income interest is 10% or more for the accounting period, under sections EX 14 to EX 17 (which relate to the 10% threshold); and
(f)
the CFC has a net attributable CFC loss for the accounting period under section EX 20C (Net attributable CFC income or loss); and
(g)
[Repealed](h)
the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and
(i)
the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs).
Special rule: Attributable CFC amount from personal services
(2)
If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC loss from the CFC equal to the product of—
(a)
the person’s income interest in the CFC:
(b)
the amount by which the CFC’s expenditure incurred in deriving the income from personal services exceeds the income from personal services.
Defined in this Act: accounting period, attributable CFC amount, attributed CFC loss, CFC, foreign company, grey list, income interest, income year, net attributable CFC loss, New Zealand resident, non-attributing active CFC, non-attributing Australian CFC, portfolio investment entity, transitional resident
Compare: 2004 No 35 s DN 2
Section DN 2(1) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(1)(bb): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 12(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 2(1)(f): substituted (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(1)(g): repealed (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(1)(h): added (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(1)(i): added (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(2) heading: added (with effect on 30 June 2009), on 6 October 2009, by section 90(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(2): added (with effect on 30 June 2009), on 6 October 2009, by section 90(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of defined terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of defined terms branch equivalent loss: repealed (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of defined terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of defined terms non-attributing active CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of defined terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of defined terms portfolio investment entity: inserted (with effect on 1 July 2011), on 7 May 2012, by section 12(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
DN 3 Calculation of attributed CFC loss
The amount of an attributed CFC loss is calculated under sections EX 18 to EX 20 (which relate to the calculation of attributed CFC income or loss).
Defined in this Act: amount, attributed CFC loss
Compare: 2004 No 35 s DN 3
DN 4 Ring-fencing cap on deduction
Amount of deduction: CFC not elective attributing CFC
(1)
The deduction that a person is allowed in an income year for an attributed CFC loss from a CFC (the first CFC) that is not an elective attributing CFC for the person in the income year is no more than the total of—
(a)
total attributed CFC income of the person for the income year from other CFCs, each of which is resident in the same country as the first CFC for the relevant accounting period:
(b)
total FIF income of the person for the income year from FIFs,—
(i)
each of which is resident in the same country as the first CFC for the relevant accounting period; and
(ii)
for each of which the person uses the attributable FIF income method.
Amount of deduction: elective attributing CFC
(1B)
The deduction that a person is allowed in an income year for an attributed CFC loss from a CFC (the first CFC) that is an elective attributing CFC for the person in the income year is no more than the total of—
(a)
total attributed CFC income of the person for the income year from other CFCs, each of which—
(i)
is resident in the same country as the first CFC for the relevant accounting period; and
(ii)
is an elective attributing CFC for the person in the income year; and
(iii)
has the same election commencement year as the first CFC:
(b)
total FIF income of the person for the income year from FIFs, each of which—
(i)
is resident in the same country as the first CFC for the relevant accounting period; and
(ii)
is an elective attributing FIF for the person in the income year; and
(iii)
has the same election commencement year as the first CFC.
Income only once
(2)
When subsection (1) or (1B) is applied to an attributed CFC loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when—
(a)
subsection (1) or (1B) is applied to another attributed CFC loss; or
(b)
section DN 8 is applied to a FIF loss.
Relationship with subpart IQ
(3)
Any excess not able to be deducted because of subsection (1) or (1B) is an attributed CFC net loss able to be used under sections IQ 2, IQ 4, and IQ 9 (which relate to the use of attributed CFC net losses).
Defined in this Act: accounting period, amount, attributed CFC income, attributed CFC loss, attributed CFC net loss, attributable FIF income method, CFC, deduction, election commencement year, elective attributing CFC, elective attributing FIF, FIF, FIF income, FIF loss, income year
Compare: 2004 No 35 s DN 4
Section DN 4(1) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(1): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(1)(b)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 24(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(1B) heading: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(1B): inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(2): amended (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(3): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 13(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 4 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 13(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 4 list of defined terms election commencement year: inserted, on 2 November 2012, by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4 list of defined terms elective attributing CFC: inserted, on 2 November 2012, by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4 list of defined terms elective attributing FIF: inserted, on 2 November 2012, by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Foreign investment fund (FIF) loss
DN 5 Foreign investment fund loss
Deduction
(1)
A person is allowed a deduction for a FIF loss.
Ring-fencing rule for loss calculated under attributable FIF income method
(2)
The deduction for a FIF loss calculated under the attributable FIF income method is subject to the jurisdictional ring-fencing rule in section DN 8.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: attributable FIF income method, calculation method, capital limitation, deduction, FIF loss, general limitation, general permission, supplement
Compare: 2004 No 35 s DN 5
Section DN 5(2) heading: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 14(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 5(2): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 14(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 5 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 14(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 5 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 14(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
DN 6 When FIF loss arises
General rule
(1)
A person has a FIF loss in an income year if,—
(a)
at any time in the year, the person has—
(i)
rights in a foreign company, or a foreign superannuation scheme, or an entity listed in schedule 25, part A (Foreign investment funds); or
(ii)
rights under a life insurance policy issued by a non-resident; and
(b)
at that time, the rights are an attributing interest in a FIF under section EX 29 (Attributing interests in FIFs); and
(c)
at that time, the rights are not exempt from being an attributing interest in a FIF under any of—
(i)
the exemption for ASX-listed Australian companies in section EX 31 (Exemption for ASX-listed Australian companies):
(ii)
the exemption for Australian unit trusts with 25% turnover in section EX 32 (Exemption for Australian unit trusts with 25% turnover):
(iii)
the exemption for Australian regulated superannuation savings in section EX 33 (Exemption for Australian regulated superannuation savings):
(iv)
the CFC rules exemption in section EX 34 (CFC rules exemption):
(v)
the exemption in section EX 35 (Exemption for interest in FIF resident in Australia):
(vi)
the 10-year exemption for a venture capital company emigrating to a grey list country in section EX 36 (Venture capital company emigrating to grey list country: 10-year exemption):
(vii)
the 10-year exemption for a grey list company owning a New Zealand venture capital company in section EX 37 (Grey list company owning New Zealand venture capital company: 10-year exemption):
(viii)
the exemption for an employee share scheme of a grey list company in section EX 38 (Exemptions for employee share schemes):
(ix)
the terminating exemption for a grey list company with numerous New Zealand shareholders in section EX 39 (Terminating exemption for grey list company with numerous New Zealand shareholders):
(x)
the terminating exemption for a grey list company investing in Australasian equities in section EZ 32 (Terminating exemption for grey list FIF investing in Australasian listed equities):
(xi)
the foreign exchange control exemption in section EX 40 (Foreign exchange control exemption):
(xii)
the exemption for a non-resident or transitional resident, in section EX 41 (Income interest of non-resident or transitional resident):
(xiii)
[Repealed](xiv)
the annuity or pension exemption in section EX 43 (Non-resident’s pension or annuity exception):
(xv)
an exemption given by sections EX 50, EX 18A(2)(b)(i), and EX 21B (which relate to the attributable FIF income method and FIFs corresponding to non-attributing active CFCs); and
(d)
if the person is a natural person,—
(i)
the total cost, calculated under section EX 68 (Measurement of cost), of attributing interests in FIFs that the person holds at any time in the year when the person is a New Zealand resident is more than $50,000:
(ii)
the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:
(iii)
the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year when the person is a New Zealand resident; and
(e)
if the person is acting as trustee of a trust that meets the requirements of subsection (4),—
(i)
the total cost, calculated under section EX 68, of attributing interests in FIFs that the person holds at any time in the year is more than $50,000:
(ii)
the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:
(iii)
the person has, in a return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year; and
(f)
at any time in the year, the person is a New Zealand resident who is not a transitional resident and holds the attributing interest; and
(g)
under the relevant calculation method chosen by the person, a loss amount is calculated for the income year or relevant accounting period under sections EX 44 to EX 56 (which relate to the calculation of FIF income or loss), EX 60 or EX 61 (which relate to top-up FIF income).
Treatment of transaction under section EX 63, EX 65, or EX 67
(1B)
If a person is treated under section EX 63(5), EX 65 or EX 67 (which relate to changes in method or application of FIF rules) as disposing of or acquiring rights in an income year, the disposal or acquisition is ignored for the purposes of subsection (1)(d) and (e).
Look-through calculation methods
(2)
Despite subsection (1), if the calculation method is the attributable FIF income method,—
(a)
FIF loss arises in the income year only if the relevant accounting period of the FIF ends during the year; and
(b)
the tests in subsection (1)(a), (b), (c), and (f) are applied on the basis that references in subsection (1)(a), (b), (c), and (f) to any time in the income year are read as references to any time in the relevant accounting period.
FIF loss from CFC with FIF interest
(3)
FIF loss also includes an amount of additional FIF loss that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), regardless of whether the CFC is a non-attributing active CFC under section EX 21B (Non-attributing active CFCs) or a non-attributing Australian CFC under section EX 22 (Non-attributing Australian CFCs).
Requirements for trustees
(4)
Subsection (1)(e) applies to the trustee of a trust for an income year if—
(a)
the trust is of the estate of a deceased person and the income year begins on or before the day that is 5 years after the person’s death:
(b)
the settlor of the trust—
(i)
is a relative or legal guardian of a beneficiary of the trust, or a person associated with a relative or legal guardian of a beneficiary of the trust; and
(ii)
is required by a court order to pay damages or compensation to the beneficiary:
(c)
the settlor of the trust—
(i)
is the estate of a deceased person; and
(ii)
is required by a court order to settle on the trust the proceeds of damages or compensation for the beneficiaries of the trust:
(d)
the settlor of the trust is the Accident Compensation Corporation.
Defined in this Act: accounting period, amount, attributable FIF income method, attributing interest, calculation method, CFC, employee share scheme, FIF, FIF income, FIF loss, foreign company, foreign superannuation scheme, grey list, grey list company, income interest, income year, life insurance policy, loss, New Zealand resident, non-attributing Australian CFC, non-resident, relative, settlor, share, shareholder, transitional resident, trustee, unit trust
Compare: 2004 No 35 s DN 6
Section DN 6(1)(c)(iii): replaced (with effect on 1 April 2014), on 24 February 2016, by section 108(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DN 6(1)(c)(iv): amended, on 24 February 2016, by section 108(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DN 6(1)(c)(v): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(1)(c)(viii): amended (with effect on 29 September 2018), on 31 March 2023, by section 48(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DN 6(1)(c)(viii): amended, on 29 September 2018, by section 50 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DN 6(1)(c)(xiii): repealed, on 1 April 2014, by section 36 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DN 6(1)(c)(xiv): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(1)(c)(xv): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(1)(d): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(1)(d): amended, on 29 March 2018, by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DN 6(1)(e): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(1B) heading: inserted, on 1 April 2008, by section 344(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DN 6(1B): inserted, on 1 April 2008, by section 344(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DN 6(2): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(3) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 91(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 6(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 91(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 6(3): amended, on 24 February 2016, by section 108(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DN 6 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6 list of defined terms employee share scheme: inserted (with effect on 29 September 2018), on 31 March 2023, by section 48(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DN 6 list of defined terms FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6 list of defined terms loss: inserted (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6 list of defined terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 91(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 6 list of defined terms settlor: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DN 7 Calculation of FIF loss
The amount of a FIF loss is calculated, using the relevant calculation method, under sections EX 44 to EX 61 (which relate to the calculation of FIF income or loss).
Defined in this Act: amount, calculation method, FIF loss
Compare: 2004 No 35 s DN 7
DN 8 Ring-fencing cap on deduction: attributable FIF income method
Amount of deduction: FIF not elective attributing FIF
(1)
The deduction that a person is allowed in an income year for a FIF loss from a FIF (the first FIF) that is not an elective attributing FIF for the person in the income year is no more than the total of—
(a)
total attributed CFC income of the person for the income year from CFCs, each of which is resident in the same country as the first FIF for the relevant accounting period:
(b)
total FIF income of the person for the income year from other FIFs,—
(i)
each of which is resident in the same country as the first FIF for the relevant accounting period; and
(ii)
for each of which the person uses the attributable FIF income method.
Amount of deduction: elective attributing FIF
(1B)
The deduction that a person is allowed in an income year for a FIF loss from a FIF (the first FIF) that is an elective attributing FIF for the person in the income year is no more than the total of—
(a)
total attributed CFC income of the person for the income year from CFCs, each of which—
(i)
is resident in the same country as the first FIF for the relevant accounting period; and
(ii)
is an elective attributing CFC for the person in the income year; and
(iii)
has the same election commencement year as the first FIF:
(b)
total FIF income of the person for the income year from other FIFs, each of which—
(i)
is resident in the same country as the first FIF for the relevant accounting period; and
(ii)
is an elective attributing FIF for the person in the income year; and
(iii)
has the same election commencement year as the first FIF.
Income only once
(2)
When subsection (1) or (1B) is applied to a FIF loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when applying—
(a)
subsection (1) or (1B) to another FIF loss; or
(b)
section DN 4 to an attributed CFC loss.
Relationship with section IQ 3
(3)
Any excess not able to be deducted because of subsection (1) or (1B) is a FIF net loss able to be used under section IQ 3 (Ring-fencing cap on FIF net losses).
Defined in this Act: accounting period, amount, attributed CFC income, attributable FIF income method, attributed CFC loss, CFC, deduction, election commencement year, elective attributing CFC, elective attributing FIF, FIF, FIF income, FIF loss, FIF net loss, income year
Compare: 2004 No 35 s DN 9
Section DN 8(1) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(1): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(1)(b)(ii): amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 2 November 2012, by section 25(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(1B) heading: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(1B): inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(2): amended (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(3): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 16(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 8 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 16(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 8 list of defined terms election commencement year: inserted, on 2 November 2012, by section 25(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8 list of defined terms elective attributing CFC: inserted, on 2 November 2012, by section 25(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8 list of defined terms elective attributing FIF: inserted, on 2 November 2012, by section 25(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DN 9 Treatment of certain costs incurred in acquiring FIF interests
No deduction
(1)
A person is denied a deduction for an amount of expenditure that they incur in acquiring a FIF interest from which income under section CX 57B (Amounts derived during periods covered by calculation methods) is derived.
Link with subpart DA
(2)
This section overrides the general permission.
Defined in this Act: amount, deduction, FIF interest, general permission, income
Section DN 9: inserted, on 29 March 2018, by section 51 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Subpart DO—Farming and aquacultural business expenditure
Contents
Farming
DO 1 Enhancements to land
Deduction
(1)
A person is allowed a deduction for expenditure that they incur on the following in carrying on a farming or agricultural business on land in New Zealand:
(a)
the destruction of weeds or plants detrimental to the land:
(b)
the destruction of animal pests detrimental to the land:
(c)
the repair of flood or erosion damage to the land:
(d)
the destruction of scrub, stumps, or undergrowth on the land:
(e)
the clearing or removing from the land of scrub, stumps, or undergrowth:
(f)
the construction on the land of fences for farming or agricultural purposes, including buying wire or wire netting for the purpose of making new or existing fences rabbit-proof:
(g)
the regrassing and fertilising of all kinds of pasture, if the expenditure is not incurred in the course of a significant capital activity.
Link with subpart DA
(2)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: business, capital limitation, deduction, general limitation, general permission, New Zealand, significant capital activity
Compare: 2004 No 35 s DO 1
Section DO 1 heading: amended (with effect on 1 April 2011), on 17 July 2013, by section 31 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DO 2 Plantings for erosion, shelter, and water protection purposes
When this section applies
(1)
This section applies when a person carries on a farming or agricultural business on land in New Zealand, whether or not the business is the principal business carried on on the land.
Deduction
(2)
The person is allowed a deduction for expenditure that they incur in planting or maintaining trees or plants, whether or not on the land, for the purpose of—
(a)
preventing or combating erosion of the land:
(b)
providing shelter to the land:
(c)
preventing or mitigating detrimental effects on a watercourse or body of water from the discharge of farming or agricultural contaminants.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: business, capital limitation, deduction, general limitation, general permission, New Zealand
Compare: 2004 No 35 s DO 2
Section DO 2 heading: replaced (with effect on 1 April 2011), on 17 July 2013, by section 32(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 2(2): replaced (with effect on 1 April 2011 and applying to a person for expenditure incurred: (a) in the 2011–12 or a later income year; (b) in an income year corresponding to a tax year beginning on or after 1 April 2008 and before 1 April 2011 if the person includes the expenditure as a deduction in a tax return made on or before the due date for a tax return for the income year), on 17 July 2013, by section 32(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DO 3 Trees on farms
When this section applies
(1)
This section applies when—
(a)
a person carries on, on land in New Zealand, a farming or agricultural business that is the principal business carried on on the land; and
(b)
they plant or maintain trees on the land; and
(c)
the trees are not—
(i)
trees for which the person is allowed a deduction under section DO 2; or
(ii)
trees planted mainly to produce fruit; or
(iii)
trees planted under a forestry encouragement agreement under the Forestry Encouragement Act 1962.
Deduction
(2)
The person is allowed the following deductions:
(a)
in an income year in which the person incurs expenditure on planting trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur; and
(b)
in an income year in which the person incurs expenditure on maintaining trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: business, capital limitation, deduction, general limitation, general permission, income year, New Zealand
Compare: 2004 No 35 s DO 3
DO 4 Improvements to farm land
When this section applies
(1)
This section applies when—
(a)
a person carries on a farming or agricultural business on land in New Zealand; and
(b)
an improvement described in schedule 20, part A (Expenditure on farming, horticultural, aquacultural, and forestry improvements) has been made to the land; and
(c)
the expenditure on the improvement is not expenditure to which sections DO 5 to DO 7 apply.
Deduction: expenditure: owner of land
(2)
A person who owns the land is allowed a deduction for expenditure to which all the following apply:
(a)
it is incurred on making the improvement; and
(b)
it is incurred by the person or by another person; and
(c)
it is not incurred on anything described in any of sections DO 1 to DO 3; and
(d)
it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person disposes of the land, the income year being the income year of the person who owns the land; and
(e)
it is incurred in developing the land; and
(f)
it is of benefit to the business in the income year in which the person is allowed the deduction.
Deduction: expenditure: non-owner of land
(3)
A person who does not own the land is allowed a deduction for expenditure to which all the following apply:
(a)
it is incurred on making the improvement; and
(b)
it is incurred by the person; and
(c)
it is not incurred on anything described in any of sections DO 1 to DO 3; and
(d)
it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person ceases to carry on the business on the land; and
(e)
it is incurred in developing the land; and
(f)
it is of benefit to the business in the income year in which the person is allowed the deduction.
Amount, and timing, of deduction
(4)
The amount of the deduction is calculated using the formula—
schedule 20 percentage × diminished value.
Definition of items in formula
(5)
In the formula,—
(a)
schedule 20 percentage is the percentage set out opposite the description of the improvement in schedule 20, part A:
(b)
diminished value is the diminished value of the improvement.
Amount, and timing, for non-listed horticultural plants
(6)
When non-listed horticultural plants described in schedule 20, part A, clause 9 have ceased to exist, or to be used in deriving income, on or after 16 December 1991,—
(a)
subsection (4) does not apply; and
(b)
the amount of the deduction is the diminished value of the non-listed horticultural plants at the time they ceased to exist or to be used in deriving income; and
(c)
the deduction is allocated to the income year in which the non-listed horticultural plants ceased to exist or to be used in deriving income.
Link with subpart DA
(7)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Amendment of schedule 20 by Order in Council
(8)
The Governor-General may by Order in Council make regulations amending schedule 20 to vary the categories of improvements and percentages of diminished value of those improvements allowed as a deduction.
Secondary legislation
(9)
An Order in Council under subsection (8) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, New Zealand, non-listed horticultural plant, own
Compare: 2004 No 35 s DO 4
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
DO 5 Expenditure on land: planting of listed horticultural plants
When this section applies
(1)
This section applies when—
(a)
a person carries on a farming or agricultural business, including a horticultural business, on land in New Zealand; and
(b)
the land has been developed by the planting of listed horticultural plants on the land.
Deduction and timing
(2)
For an income year in which the planting benefits the business and for which subsection (3) does not apply, the person is allowed a deduction relating to expenditure incurred by the person, or by another person, in developing the land.
Income year in which no deduction
(3)
The person is denied a deduction under subsection (2) for an income year in which—
(a)
if the person owns the land, the person disposes of the land:
(b)
if the person does not own the land, the person ceases carrying on the business on the land.
Amount of deduction other than under subsections (6) and (7)
(4)
For expenditure to which subsections (6) and (7) do not apply for the income year, the amount of the deduction under subsection (2) is calculated using the formula—
rate × diminished value.
Definition of items in formula
(5)
In the formula,—
(a)
rate is the percentage rate determined for the kind of listed horticultural plant by the Commissioner under section 91AAB of the Tax Administration Act 1994:
(b)
diminished value is the diminished value of the expenditure.
Deduction: expenditure on replaced plant if no deduction under section DO 6
(6)
If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person has no deduction under section DO 6 for the income year for the expenditure incurred in replacing the listed horticultural plant,—
(a)
the person is allowed a deduction:
(b)
the amount of the deduction is the diminished value of the expenditure on the listed horticultural plant at the time that the listed horticultural plant ceases to exist or to be used in deriving assessable income:
(c)
the deduction is allocated to the income year in which the listed horticultural plant ceases to exist or to be used in deriving income.
Treatment of expenditure on replaced plant if deduction under section DO 6
(7)
If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person is allowed a deduction under section DO 6 for the income year for all or some of the expenditure incurred in replacing the listed horticultural plant,—
(a)
the person is not allowed a deduction under this section; and
(b)
the person may add the diminished value, immediately before the replacement, of the expenditure on the listed horticultural plant to the diminished values, at the end of the income year, of the expenditure on listed horticultural plants that are in the planting at the end of the income year; and
(c)
the person may choose the method of making the addition by applying the method in a return of income for the income year.
Link with subpart DA
(8)
This section overrides the general permission and the capital limitation. The other general limitations still apply.
Defined in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, return of income
Compare: 2004 No 35 s DO 4B
Section DO 5(4) formula: replaced (with effect on 1 April 2013 and applying for listed horticultural plants that are planted on land on or after the first day of the 2013–14 income year), on 30 June 2014, by section 60(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DO 6 Expenditure on land: horticultural replacement planting
When this section applies
(1)
This section applies to a person who carries on a horticultural business on land in New Zealand and who, in an income year (the current income year)—
(a)
plants, or causes to be planted, on the land a listed horticultural plant as a replacement plant:
(b)
regrafts, or causes to be regrafted, a listed horticultural plant on the land as a replacement plant.
Deduction
(2)
The person is allowed a deduction of an amount set out in 1 of subsections (3) and (5) if, in the current income year,—
(a)
the person incurs expenditure in replacing a listed horticultural plant; and
(b)
the replacement plant benefits the business; and
(c)
the person does not dispose of the land on which the listed horticultural plant is cultivated; and
(d)
the person chooses that this section apply to the expenditure by making a return of income for the current income year on that basis.
Amount of deduction if no deduction in 1 or both of 2 preceding income years
(3)
If the person is denied a deduction under this section for 1 or both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is calculated using the formula—
replacement expenditure × 7.5% ÷ fraction.
Definition of items in formula
(4)
In the formula in subsection (3),—
(a)
replacement expenditure is the amount of the expenditure incurred by the person in replacing the listed horticultural plant:
(b)
fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.
Amount of deduction if deduction in both of 2 preceding income years
(5)
If the person has been allowed a deduction under this section for a planting for both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is the lesser of—
(a)
the amount that is calculated using the formula in subsection (6):
(b)
the amount that is calculated using the formula in subsection (8).
Formula for first amount
(6)
The first amount is calculated using the formula—
replacement expenditure × 7.5% ÷ fraction.
Definition of items in formula
(7)
In the formula in subsection (6),—
(a)
replacement expenditure is the amount of the expenditure incurred by the person:
(b)
fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.
Formula for second amount
(8)
The second amount is calculated using the formula—
replacement expenditure × (15% − earlier fraction − later fraction)
÷ replaced area fraction.
Definition of items in formula
(9)
In the formula in subsection (8),—
(a)
replacement expenditure is the amount of the expenditure incurred by the person:
(b)
earlier fraction is the lesser of 7.5% and the replaced area fraction for the planting for the earlier of the 2 income years preceding the current income year:
(c)
later fraction is the lesser of 7.5% and the replaced area fraction for the planting for the later of the 2 income years preceding the current income year:
(d)
replaced area fraction is the replaced area fraction for the planting for the current income year.
Timing of deduction
(10)
The deduction is allocated to the current income year.
Link with subpart DA
(11)
This section overrides the general permission and the capital limitation. The other general limitations still apply.
Defined in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, replaced area fraction, replacement plant, return of income
Compare: 2004 No 35 s DO 4C
DO 7 Accounting for expenditure on listed horticultural plants under sections DO 5 and DO 6
Separate accounting for additional listed horticultural plants if deduction under section DO 6
(1)
A person to whom section DO 5 applies must, for an income year and for later income years for which subsection (2) does not apply, account separately under sections DO 5 and DO 6 for listed horticultural plants if—
(a)
the person has had a deduction under section DO 6 for 1 or both of the 2 income years preceding the income year; and
(b)
the person acquires the listed horticultural plants in the income year; and
(c)
the listed horticultural plants benefit the business of the person in the income year; and
(d)
the listed horticultural plants are not replacement plants.
Combined accounting for listed horticultural plants if no deduction under section DO 6
(2)
Despite subsection (1), a person may account under sections DO 5 and DO 6 for listed horticultural plants as 1 planting for an income year and later income years if the person has had no deduction under section DO 6 for both of the 2 income years preceding the income year.
Defined in this Act: deduction, income year, listed horticultural plant, planting, replacement plant
Compare: 2004 No 35 s DO 4D
DO 8 Meaning of planting and plot
In this section and sections DO 5 to DO 7,—
planting for a person and an income year means 1 or more listed horticultural plants—
(a)
that are involved in the business of the person during the income year; and
(b)
for which the person must account under sections DO 5 and DO 6, for the income year, separately from any other listed horticultural plants that are involved in the business of the person
plot means the land occupied by the listed horticultural plants in a planting.
Defined in this Act: income year, listed horticultural plant, planting
Compare: 2004 No 35 s DO 4E
DO 9 Meaning of replaced area fraction
Meaning
(1)
In section DO 6, replaced area fraction, for a planting and an income year, means the amount calculated using the formula—
(replacement area ÷ plot area) × 100%.
Definition of items in formula
(2)
In the formula in subsection (1),—
(a)
replacement area is the area, at the end of the income year, of the part of the plot on which listed horticultural plants in the planting are planted or regrafted during the income year as replacement plants:
(b)
plot area is the total area, at the end of the income year, of the plot.
Defined in this Act: income year, listed horticultural plant, planting, plot, replacement plant
Compare: 2004 No 35 s DO 4E
DO 10 Farming or horticulture expenditure of lessor or sublessor
When this section applies
(1)
This section applies when a person—
(a)
is the owner of an estate in fee simple or of a leasehold estate in land in New Zealand; and
(b)
grants a lease or a sublease of the land to a person who carries on a farming or agricultural business on the land; and
(c)
in the term of the lease or sublease,—
(i)
incurs expenditure relating to the land for which they are allowed a deduction under any of section DO 1, DO 2, DO 4, DO 5, or DO 6; or
(ii)
is allowed a deduction under section DO 4(2), DO 5(2), or DO 6 for expenditure incurred by another person relating to the land.
Relationship with sections DO 1, DO 2, DO 4, DO 5, and DO 6
(2)
Sections DO 1, DO 2, DO 4, DO 5, and DO 6, whichever is applicable to the person, applies as if the person were personally carrying on a farming or agricultural business on the land at the time they incur the expenditure or are allowed the deduction.
Defined in this Act: business, deduction, estate, lease, leasehold estate, New Zealand, own, term of the lease
Compare: 2004 No 35 s DO 5
DO 11 Improvement destroyed or made useless
When this section applies
(1)
This section applies when, in an income year of a person,—
(a)
the person owns land, or operates a business on land, to which an improvement described in schedule 20 (Expenditure on farming, horticultural, aquacultural, and forestry improvements) has been made for the purposes of the business; and
(b)
the improvement is destroyed or made useless for the purpose of deriving the person’s income; and
(c)
the person would be entitled for the income year to a deduction under section DO 4 or DO 5 for expenditure on the improvement if the improvement had not been destroyed or made useless; and
(d)
the uselessness occurs in an income year that corresponds to the 2005–06 tax year or a later tax year; and
(e)
the uselessness is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deduction: diminished value of expenditure
(2)
The person is allowed a deduction of the amount of the diminished value, for the income year, of the expenditure on the improvement plus a deduction for the amount of expenditure for removing the improvement from the land referred to in subsection (1)(a).
Link with subpart DA
(3)
This section overrides the general permission and the capital limitation. The other general limitations still apply.
Defined in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, tax year
Compare: 2004 No 35 s DO 5B
Section DO 11(1)(b): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 11(1)(c): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 11(1)(d): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 11(1)(e): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(4) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 11(2): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(5) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DO 11B Entering partners’ livestock deduction
[Repealed]Section DO 11B: repealed (with effect on 1 April 2009), on 6 October 2009, by section 92(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Aquaculture
DO 12 Improvements to aquacultural business
When this section applies
(1)
This section applies when—
(a)
a person carries on an aquacultural business in New Zealand; and
(b)
the aquacultural business is—
(i)
fish farming under a licence issued under the Freshwater Fish Farming Regulations 1983; or
(ii)
mussel farming; or
(iii)
rock oyster farming; or
(iv)
scallop farming; or
(v)
sea-cage salmon farming; and
(c)
an improvement described in any of schedule 20, parts B to F (Expenditure on farming, horticultural, aquacultural, and forestry improvements) is made for the purposes of the business.
Deduction: expenditure: owner of improvement
(2)
A person who owns the improvement is allowed a deduction for expenditure to which all the following apply:
(a)
it is incurred on making the improvement; and
(b)
it is incurred by the person or by another person; and
(c)
it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person ceases to carry on the business, the income year being the income year of the person who owns the improvement; and
(d)
it is incurred in developing the business; and
(e)
it is of benefit to the business in the income year in which the person is allowed the deduction.
Deduction: expenditure: non-owner of improvement
(3)
A person who does not own the improvement is allowed a deduction for expenditure to which all the following apply:
(a)
it is incurred on making the improvement; and
(b)
it is incurred by the person; and
(c)
it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person ceases to carry on the business; and
(d)
it is incurred in developing the business; and
(e)
it is of benefit to the business in the income year in which the person is allowed the deduction.
Amount, and timing, of deduction
(4)
The amount of the deduction is calculated using the formula—
schedule 20 percentage × diminished value.
Definition of items in formula
(5)
In the formula,—
(a)
schedule 20 percentage is the percentage set out opposite the description of the improvement in any of schedule 20, parts B to F:
(b)
diminished value is the diminished value of the improvement.
Link with subpart DA
(6)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, New Zealand
Compare: 2004 No 35 s DO 6
DO 13 Improvement destroyed or made useless
When this section applies
(1)
This section applies when, in an income year of a person,—
(a)
the person carries on an aquacultural business in New Zealand—
(i)
that meets the requirements of section DO 12(1)(b); and
(ii)
for the purposes of which an improvement described in schedule 20 (Expenditure on farming, horticultural, aquacultural, and forestry improvements) has been made; and
(b)
the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income; and
(c)
the person would be entitled for the income year to a deduction under section DO 12 for expenditure on the improvement if the improvement had not been destroyed or irreparably damaged and made useless; and
(d)
the damage occurs in an income year that corresponds to the 2005–06 tax year or a later tax year; and
(e)
the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deduction: diminished value of expenditure
(2)
The person is allowed a deduction of the amount of the diminished value, for the income year, of the expenditure on the improvement.
Link with subpart DA
(3)
This section overrides the general permission and the capital limitation. The other general limitations still apply.
Defined in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, tax year
Compare: 2004 No 35 s DO 7
Subpart DP—Forestry expenditure
Contents
DP 1 Expenditure of forestry business
Deduction
(1)
A person carrying on a forestry business on land in New Zealand is allowed a deduction for expenditure that they incur on—
(a)
administrative overheads, rates, rent, insurance premiums, or other expenses of the same kinds:
(b)
interest on money borrowed for the purposes of the business and employed as capital in the business:
(c)
planting or maintaining trees on the land:
(d)
applying fertiliser after the planting of the trees:
(e)
disease control, pest control, or weed control (excluding releasing):
(f)
repair or maintenance of plant, machinery, or equipment used by the person mainly in—
(i)
planting or maintaining trees on the land; or
(ii)
preparing or otherwise developing the land for the person’s forestry operations:
(g)
repair or maintenance of land improvements, other than trees, effected on the land and used by the person mainly in the business:
(h)
the construction to or on the land of access tracks that are—
(i)
constructed for a specific operational purpose; and
(ii)
used for no longer than 12 months after construction:
(i)
the cost of standing timber that is lost or destroyed.
Timing of deduction
(2)
Although timber is revenue account property, a deduction for expenditure described in subsection (1) is not allocated under section EA 2(2) (Other revenue account property) but under section BD 4(2) (Allocation of deductions to particular income years).
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: business, capital limitation, deduction, forestry business, general limitation, general permission, interest, New Zealand, revenue account property, standing timber, timber
Compare: 2004 No 35 s DP 1
Section DP 1 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 2 Plant or machinery
When this section applies: first case
(1)
This section applies when—
(a)
a person incurs expenditure on acquiring, on or after 1 April 1975, plant or machinery; and
(b)
the person first uses the plant or machinery on or after 1 April 1975; and
(c)
the person uses the plant or machinery mainly in developing land in New Zealand for use in a forestry business to be carried on by them on the land.
When this section applies: second case
(2)
This section also applies when—
(a)
a person carrying on a forestry business on land in New Zealand incurs expenditure on acquiring, on or after 1 April 1975, plant or machinery; and
(b)
the person first uses the plant or machinery on or after 1 April 1975; and
(c)
the person uses the plant or machinery mainly in planting or maintaining trees on the land.
Deduction
(3)
The person is allowed a deduction for an amount of depreciation loss for the plant or machinery.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: acquire, amount, business, capital limitation, deduction, depreciation loss, forestry business, general limitation, general permission, New Zealand
Compare: 2004 No 35 s DP 2
Section DP 2 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 3 Improvements to forestry land
When this section applies
(1)
This section applies when—
(a)
a person carries on a forestry business on land in New Zealand; and
(b)
an improvement described in schedule 20, part G (Expenditure on farming, horticultural, aquacultural, and forestry improvements) has been made to the land.
Deduction: expenditure: owner of land
(2)
A person who owns the land is allowed a deduction for expenditure to which all the following apply:
(a)
it is incurred on making the improvement; and
(b)
it is incurred by the person or by another person; and
(c)
it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person disposes of the land, the income year being the income year of the person who owns the land; and
(d)
it is incurred in developing the land; and
(e)
it is of benefit to the business in the income year in which the person is allowed the deduction.
Deduction: expenditure: non-owner of land
(3)
A person who does not own the land is allowed a deduction for expenditure to which all the following apply:
(a)
it is incurred on making the improvement; and
(b)
it is incurred by the person; and
(c)
it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person ceases to carry on the business on the land; and
(d)
it is incurred in developing the land; and
(e)
it is of benefit to the business in the income year in which the person is allowed the deduction.
Amount, and timing, of deduction
(4)
The amount of the deduction is calculated using the formula—
schedule 20 percentage × diminished value.
Definition of items in formula
(5)
In the formula,—
(a)
schedule 20 percentage is the percentage set out opposite the description of the improvement in schedule 20, part G:
(b)
diminished value is the diminished value of the improvement.
Link with subpart DA
(6)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, diminished value, forestry business, general limitation, general permission, income year, New Zealand, own
Compare: 2004 No 35 s DP 3
Section DP 3 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 4 Improvement destroyed or made useless
When this section applies
(1)
This section applies when, in an income year of a person,—
(a)
the person operates a forestry business on land, to which there has been made an improvement; and
(b)
the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income—
(i)
in an income year that corresponds to the 2005–06 tax year or a later tax year; and
(ii)
other than as a result of the action or failure to act of the person, an agent of the person, or an associated person; and
(c)
the person would be entitled for the income year to a deduction under section DP 3 for expenditure on the improvement if the improvement had not been destroyed or made useless.
Deduction: diminished value of expenditure
(2)
The person is allowed a deduction of the amount of the diminished value, for the income year, of the expenditure on the improvement.
Link with subpart DA
(3)
This section overrides the general permission and the capital limitation. The other general limitations still apply.
Defined in this Act: business, capital limitation, deduction, diminished value, forestry business, general limitation, general permission, income, income year, tax year
Compare: 2004 No 35 s DP 3B
Section DP 4 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 5 Forestry encouragement agreement: deductions
When this section applies
(1)
This section applies when a person makes a forestry encouragement agreement under the Forestry Encouragement Act 1962.
Deduction: forestry expenditure under agreement
(2)
The person is allowed a deduction for expenditure that they incur if all the following apply to the expenditure:
(a)
it is expenditure incurred in planting or maintaining trees under the agreement; and
(b)
it is not expenditure for which an advance has been or is to be made under the agreement; and
(c)
it is not expenditure represented in a payment made to the person under the Forestry Encouragement Grants Regulations 1983 and incurred in—
(i)
planting or maintaining trees; or
(ii)
meeting administrative overheads, rates, rent, insurance premiums, or other expenses of the same kinds; or
(iii)
paying interest on money borrowed for the purpose of developing the trees and employed as capital in developing the trees.
Deduction: advance
(3)
The person is allowed a deduction for expenditure that they incur in—
(a)
making a payment of interest for an advance made under the agreement:
(b)
making a payment reducing the principal of an advance made under the agreement.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, interest, pay
Compare: 2004 No 35 s DP 4
DP 6 Forestry encouragement agreement: no deduction
No deduction
(1)
A person who has made a forestry encouragement agreement under the Forestry Encouragement Act 1962 is denied a deduction for an amount equal to the amount from which they are relieved in the following circumstances:
(a)
an advance is made to the person under the agreement; and
(b)
the advance is exempt income of the person under section CW 2 (Forestry encouragement agreements); and
(c)
the person is later relieved from some or all of their liability to repay the principal.
Link with subpart DA
(2)
This section overrides the general permission.
Defined in this Act: amount, deduction, exempt income, general permission, pay
Compare: 2004 No 35 s DP 5
DP 7 Land contouring: no deduction
No deduction
(1)
A person who derives income under section CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber) is denied a deduction for expenditure that they incur on land contouring in the course of deriving the income.
Link with subpart DA
(2)
This section overrides the general permission.
Defined in this Act: deduction, general permission, income
Compare: 2004 No 35 s DP 6
DP 8 Forestry business on land acquired from the Crown, Maori owners, or holding company: no deduction
No deduction: forestry company
(1)
A forestry company is denied a deduction for interest to which both the following apply:
(a)
it is paid by the company under a qualifying debenture issued by the company; and
(b)
it is exempt income of the person deriving it, under section CW 3 (Forestry companies and Maori investment companies).
No deduction: Maori investment company
(2)
A Maori investment company is denied a deduction for interest to which both the following apply:
(a)
it is paid by the company under a qualifying debenture issued by the company; and
(b)
it is exempt income of the person deriving it, under section CW 3.
Relationship with section FA 2B
(3)
Section FA 2B (Stapled debt securities) does not apply to a qualifying debenture.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: business, deduction, exempt income, forestry business, forestry company, general permission, holding company, interest, Maori investment company, Maori owners, pay, qualifying debenture
Compare: 2004 No 35 s DP 7
Section DP 8 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DP 8(3) heading: replaced, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 61(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DP 8(3): replaced, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 61(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DP 8 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DP 8 list of defined terms substituting debenture: repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 61(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DP 9 Cost of acquiring timber: forestry business on land acquired from the Crown, Maori owners, or holding company
When this section applies
(1)
This section applies when a forestry company acquires land with standing timber on it from a seller who is the Crown, the Maori owners, or a holding company of the forestry company.
Sellers of Maori land
(2)
For the purposes of subsection (1),—
(a)
land disposed of to the forestry company by the Maori Trustee or by a trustee for a Maori owner is treated as if it had been disposed of by the beneficial owners:
(b)
land disposed of to the forestry company by a Maori incorporation is treated as if it had been disposed of by the members of the incorporation.
Cost of acquiring timber
(3)
The cost to the forestry company of acquiring the timber is the lesser of—
(a)
the cost of the timber to the seller at the date of the disposal; and
(b)
the amount described in section CB 25(3) (Disposal of land with standing timber).
Defined in this Act: business, forestry business, forestry company, holding company, Maori incorporation, Maori owners, standing timber, trustee
Compare: 2004 No 35 s DP 8
Section DP 9 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DP 9(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DP 9(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DP 9(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DP 9(3)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DP 9 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 9B Treaty of Waitangi claim settlements: rights to take timber
When this section applies
(1)
This section applies when a person’s right to take timber (the old right) has been extinguished, and new rights (the new rights) to take timber are granted to the person in place of the old right, if section CW 1B (Treaty of Waitangi claim settlements: rights to take timber) applied to exempt income for the extinguishing of the old right.
Cost of acquiring new rights
(2)
The person who is granted the new rights is treated, for each new right, as having acquired the new right for a cost equal to the expenditure they incurred in relation to the old right, but only to the extent that the expenditure relates to the land covered by the new right and has not been deducted previously.
Defined in this Act: exempt income, land, person, right to take timber
Section DP 9B: inserted (with effect on 1 April 2008), on 29 August 2011, by section 17 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DP 10 Cost of acquiring timber or right to take timber: other cases
Acquiring land with standing timber
(1)
For a person acquiring land with standing timber on it in a disposal to which section CB 25 (Disposal of land with standing timber) applies, the cost of acquiring the timber is the amount that is, under section CB 25, income of the person disposing of the land.
Recharacterisation or avoidance
(2)
For a person acquiring timber or a right to take timber in a disposal or distribution to which section EB 24, FB 6, FB 7, GC 1, or GC 2 (which relate to the disposal of trading stock) applies, the cost of acquiring the timber or the cost of acquiring a right to take timber is the amount treated as—
(a)
the price paid or realised under section EB 24 (Apportionment on disposal of business assets that include trading stock); or
(b)
the consideration under sections FB 6 and FB 7 (which relate to the disposal of timber under a relationship agreement); or
(c)
the price realised under section GC 1 (Disposals of trading stock at below market value); or
(d)
the price realised under section GC 2 (Disposals of timber rights or standing timber).
Transfers between associated persons
(3)
Subsections (4) and (5) apply if—
(a)
a person (the transferor) disposes of timber, a right to take timber, or standing timber, to an associated person (the transferee); and
(b)
as a result, the transferor has an amount of income under section CB 24 or CB 25 (which relate to income from timber).
Limit on deduction for transferor
(4)
The deduction that the transferor is allowed for the cost of the timber, right to take timber, or standing timber must not be more than the amount of the income.
Transferee’s deduction
(5)
The deduction that the transferee is allowed for the cost of acquiring the timber is calculated on the basis that the transferee acquired the timber for the total of—
(a)
the cost to the transferee of acquiring the timber; and
(b)
the amount, if any, for which the transferor is denied a deduction under subsection (4).
Defined in this Act: amount, associated person, dispose, income, pay, right to take timber, standing timber, timber
Compare: 2004 No 35 ss DP 9, GD 15
Section DP 10(5): amended (with effect on 1 April 2008), on 7 December 2009, by section 14(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 11 Cost of timber
When this section applies
(1)
This section applies when a person—
(a)
derives an amount on the disposal of timber and the amount is income of the person under section CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber); and
(b)
has incurred expenditure in relation to the timber that is a cost of timber.
Deduction
(2)
The person is allowed a deduction for the amount that is a cost of timber.
Timing of deduction
(3)
The deduction is allocated—
(a)
for timber harvested from the land before the time of disposal, to the income year in which the timber first becomes trading stock of the person; or
(b)
otherwise, by section EA 2 (Other revenue account property).
Meaning of timber
(4)
In this section, timber includes—
(a)
the creation or grant of a right to take timber:
(b)
the grant of a licence or an easement in relation to timber:
(c)
the creation of a forestry right as defined in section 2 of the Forestry Rights Registration Act 1983, other than a right in favour of the proprietor in relation to establishing, maintaining, and harvesting timber.
Exception
(4B)
Subsection (2) does not apply if the amount of income of the person under section CB 24 would be exempt income under section CW 1B (Treaty of Waitangi claim settlements: rights to take timber) but for section CW 1B(3).
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, cost of timber, deduction, dispose, exempt income, general permission, income, income year, timber, trading stock
Section DP 11: substituted (with effect on 1 April 2008), on 7 December 2009, by section 15(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DP 11(4B) heading: inserted (with effect on 1 April 2008), on 27 February 2014, by section 37 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DP 11(4B): inserted (with effect on 1 April 2008), on 29 August 2011, by section 18(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DP 11 list of defined terms exempt income: inserted (with effect on 1 April 2008), on 29 August 2011, by section 18(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DP 11 list of defined terms income: inserted (with effect on 1 April 2008), on 29 August 2011, by section 18(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Subpart DQ—Income equalisation schemes and environmental restoration accounts schemes
Contents
DQ 1 Main income equalisation scheme
Deduction
(1)
A person who has made a deposit for a tax year is allowed a deduction of the amount quantified in section EH 7(2) (Deduction of deposit).
Timing of deduction
(2)
The deduction is allocated to the income year corresponding to the tax year described in section EH 7(3).
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, deposit, general limitation, general permission, income year, main income equalisation scheme, person, supplement, tax year
Compare: 2004 No 35 s DQ 1
DQ 2 Adverse event income equalisation scheme
[Repealed]Section DQ 2: repealed, on 18 March 2019, by section 154(1) (and see section 154(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
DQ 3 Thinning operations income equalisation scheme
Deduction
(1)
A person who has made a deposit for a tax year is allowed a deduction of the amount quantified in section EH 67(2) (Deduction of deposit).
Timing of deduction
(2)
The deduction is allocated to the income year corresponding to the tax year described in section EH 67(3).
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, deposit, general limitation, general permission, income year, person, supplement, tax year, thinning operations income equalisation scheme
Compare: 2004 No 35 s DQ 3
DQ 4 Environmental restoration accounts scheme
Deduction for payment
(1)
A person is allowed a deduction of the amount set out in section EK 7 (Deduction for payment) if the person has made a payment for an income year to the Commissioner under section EK 2 (Persons who may make payment to environmental restoration account) and the amount is not refunded under section EK 9 (Refund of payment if excess, lacking details).
Timing of deduction
(2)
The deduction under subsection (1) is allocated to the income year referred to in section EK 7.
Deduction for transfer
(3)
A person is allowed a deduction for an income year of the amount set out in section EK 8 (Deduction for transfer) if in an income year the person receives—
(a)
a transfer under section EK 15 (Transfer on application) that is treated under section EK 15(3) as being a payment by the person:
(b)
a transfer under section EK 16(3)(b) (Transfer on death, bankruptcy, or liquidation):
(c)
a transfer under section EK 19 (Environmental restoration account of amalgamating company).
Timing of deduction
(4)
A deduction under subsection (3) is allocated to the income year referred to in section EK 8.
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: apply, capital limitation, deduction, general limitation, general permission, income year, pay, supplement
Compare: 2004 No 35 s DQ 4
Section DQ 4(3)(a): amended, on 2 June 2016, by section 12(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section DQ 4 list of defined terms apply: inserted, on 2 June 2016, by section 12(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Subpart DR—Life insurance business expenditure
Contents
DR 1 Policyholder base allowable deduction of life insurer
Deduction
(1)
If, but for this section, a life insurer has an amount of policyholder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a deduction under this Part, the amount is a deduction of the life insurer for the income year.
No cross-deducting: section EY 2
(2)
A policyholder base allowable deduction is not allowed against shareholder base income. Section EY 2 (Policyholder base) deals with allowing policyholder base allowable deductions against policyholder base income, and deals with deductions that relate to the life insurer’s schedular income derived by their life fund PIE that is a multi-rate PIE.
Link with subpart DA
(3)
Subsections (1) and (2) override the general permission.
Defined in this Act: amount, deduction, general permission, income year, life fund PIE, life insurer, multi-rate PIE, policyholder base allowable deduction, policyholder base income, shareholder base income
Section DR 1: substituted, on 1 July 2010, by section 94(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DR 2 Shareholder base allowable deduction of life insurer
Deduction
(1)
If, but for this section, a life insurer has an amount of shareholder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a deduction under this Part, the amount is a deduction of the life insurer for the income year.
No cross-deducting
(2)
A shareholder base allowable deduction is not allowed against policyholder base income.
Link with subpart DA
(3)
Subsections (1) and (2) override the general permission.
Defined in this Act: amount, deduction, general permission, income year, life insurer, policyholder base income, shareholder base allowable deduction
Section DR 2: substituted, on 1 July 2010, by section 94(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DR 3 Life reinsurance premiums to reinsurer outside New Zealand
No deduction for premiums under certain policies
(1)
A life insurer is denied a deduction for life reinsurance premiums they incur if the relevant life reinsurance policy,—
(a)
was not offered in New Zealand; and
(b)
was not entered into in New Zealand.
No deduction for premiums to certain life reinsurers
(2)
A life insurer is denied a deduction for a life reinsurance premium incurred under a life reinsurance policy with a life reinsurer who is resident in a country or territory outside New Zealand if the life reinsurance premium is excluded from taxation by New Zealand under a double tax agreement between New Zealand and the country or territory.
Defined in this Act: deduction, double tax agreement, life insurer, life reinsurance, life reinsurance policy, life reinsurer, New Zealand
Section DR 3: substituted, on 1 July 2010, by section 94(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DR 3 heading: replaced, on 1 July 2018, by section 11(1) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3(1) heading: replaced, on 1 July 2018, by section 11(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3(1)(a): amended, on 27 February 2014, by section 38 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DR 3(2) heading: inserted, on 1 July 2018, by section 11(3) (and see section 11(5) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3(2): inserted, on 1 July 2018, by section 11(3) (and see section 11(5) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3 list of defined terms amount: repealed, on 1 July 2018, by section 11(4)(a) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3 list of defined terms double tax agreement: inserted, on 1 July 2018, by section 11(4)(b) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3 list of defined terms general permission: repealed, on 1 July 2018, by section 11(4)(a) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3 list of defined terms income year: repealed, on 1 July 2018, by section 11(4)(a) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section DR 3 list of defined terms life reinsurer: inserted, on 1 July 2018, by section 11(4)(b) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
DR 4 Life insurers’ claims
No deduction on account of claims
(1)
For a life insurer’s life insurance policies, the life insurer is denied a deduction relating to the life insurer’s outstanding claims or for a claim’s expenditure or loss for an income year, except as provided by—
(a)
section EY 24 (Outstanding claims reserving amount: non-participation policies not annuities):
(b)
subsection (2).
Deduction for payments of current claims
Link with subpart DA
(2)
The life insurer is allowed a deduction as provided by section EY 20 (Shareholder base allowable deductions: non-participation policies) for the amount of expenditure or loss relating to the life risk component of a claim paid for the income year under a life insurance policy that is not an annuity and not a profit participation policy.
(3)
This section supplements the general permission. The general limitations still apply, except that the capital limitation does not apply for a life insurer and the life risk components of claims under life insurance policies that are not annuities and not profit participation policies and have been transferred to the life insurer.
Defined in this Act: capital limitation, claim, deduction, general limitation, general permission, life insurance policy, life insurer, life risk component, profit participation policy
Section DR 4: added, on 1 July 2010, by section 94(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DR 4 heading: replaced (with effect on 1 July 2010), on 27 February 2014, by section 39(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DR 4(2): replaced, on 27 February 2014, by section 39(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DR 4(3): amended (with effect on 1 July 2010), on 27 February 2014, by section 39(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DR 4 list of defined terms capital limitation: inserted (with effect on 1 July 2010), on 27 February 2014, by section 39(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DR 4 list of defined terms life risk component: inserted (with effect on 1 July 2010), on 27 February 2014, by section 39(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DR 4 list of defined terms profit participation policy: inserted (with effect on 1 July 2010), on 27 February 2014, by section 39(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Subpart DS—Film industry expenditure
Contents
DS 1 Acquiring film rights
Deduction
(1)
A person is allowed a deduction for expenditure that they incur in acquiring a film right, if the film is completed, whether it is completed before, at the time, or after the film right is acquired.
Exclusion
(2)
This section does not apply to expenditure that a person incurs in acquiring a film right if—
(a)
the person operates a television station, a television network, or a cable television system, and the film right is acquired mainly to enable the film to be broadcast in New Zealand; or
(b)
the film is intended to be shown as an advertisement; or
(c)
the expenditure is film production expenditure; or
(d)
section DS 2B applies to the expenditure.
Timing of deduction
(3)
The deduction is allocated under section EJ 4 (Expenditure incurred in acquiring film rights in feature films) or EJ 5 (Expenditure incurred in acquiring film rights in films other than feature films).
No other deduction
(4)
No other deduction for expenditure incurred in acquiring a film right is allowed under a provision of this Act other than section DS 2B.
Avoidance arrangements
(5)
The amount of the deduction may be reduced under—
(a)
section GB 17 (Excessive amounts for film rights or production expenditure):
(b)
section GB 18 (Arrangements to acquire film rights or incur production expenditure).
Link with subpart DA
(6)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: arrangement, capital limitation, completed, deduction, film, film production expenditure, film right, general limitation, general permission, New Zealand
Compare: 2004 No 35 s DS 1
Section DS 1(2): substituted (with effect on 1 April 2008), on 7 December 2009, by section 16(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DS 1(4): amended, on 1 April 2008, by section 345(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DS 2 Film production expenditure
Deduction
(1)
A person is allowed a deduction for film production expenditure if—
(a)
the film is completed; and
(b)
the person has a film right in it—
(i)
before it is completed:
(ii)
at the time it is completed:
(iii)
after it is completed.
Inclusions
(2)
For the purposes of subsection (1),—
(a)
if a person (person A) reimburses another person (person B) for film production expenditure that person B incurs, and does it before the film is completed, the reimbursement is treated as film production expenditure incurred by person A; and
(b)
if a person (person A) reimburses another person (person B) for expenditure on interest incurred by person B in producing the film, person A may treat the reimbursement as film production expenditure incurred by person A.
Exclusion
(3)
This section does not apply to film production expenditure if the film—
(a)
is produced mainly for broadcast in New Zealand by a person who operates a television station, a television network, or a cable television system:
(b)
is intended to be shown as an advertisement:
(c)
section DS 2B applies to the film production expenditure.
Timing of deduction
(4)
The deduction is allocated under—
(a)
section EJ 4 or EJ 5 (which relate to expenditure incurred in acquiring film rights) if the film is one for which a large budget film grant is made; or
(b)
section EJ 7 or EJ 8 (which relate to film production expenditure) if the film is not one for which a large budget film grant is made.
No other deduction
(5)
No other deduction for film production expenditure is allowed under a provision of this Act other than section DS 2B.
Avoidance arrangements
(6)
The amount of the deduction may be reduced or the timing of the deduction may be delayed under—
(a)
section GB 17 (Excessive amounts for film rights or production expenditure):
(b)
section GB 18 (Arrangements to acquire film rights or incur production expenditure):
(c)
section GB 19 (When film production expenditure payments delayed or contingent).
Link with subpart DA
(7)
The link between this section and subpart DA (General rules) is as follows:
(a)
it overrides the capital limitation; and
(b)
the other general limitations still apply; and
(c)
either—
(i)
the general permission must be satisfied; or
(ii)
a provision that supplements the general permission must be satisfied.
Defined in this Act: arrangement, capital limitation, completed, deduction, film, film production expenditure, film right, general limitation, general permission, large budget film grant, New Zealand, pay, supplement
Compare: 2004 No 35 s DS 2
Section DS 2(3) heading: substituted, on 1 April 2008, by section 346(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DS 2(3): substituted, on 1 April 2008, by section 346(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DS 2(4) heading: substituted, on 1 January 2010, by section 95(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 2(4): substituted, on 1 January 2010, by section 95(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 2(4)(a): amended (with effect on 1 January 2010), on 7 September 2010, by section 23(1)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DS 2(4)(b): amended (with effect on 1 January 2010), on 7 September 2010, by section 23(1)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DS 2(5): amended, on 1 April 2008, by section 346(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DS 2 list of defined terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 23(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DS 2 list of defined terms government screen production payment: inserted, on 1 January 2010, by section 95(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 2 list of defined terms large budget film grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 23(2)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DS 2 list of defined terms large budget screen production grant: repealed, on 1 January 2010, by section 95(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DS 2B Expenditure when film or film right intended for disposal
When this section applies
(1)
This section applies when—
(a)
a person incurs film production expenditure or expenditure in acquiring a film right; and
(b)
at the time of incurring the expenditure, the person intends to dispose of the film or film right.
Deduction
(2)
The person is allowed a deduction for the amount of the expenditure allocated under section EA 2 (Other revenue account property).
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, film, film production expenditure, film right, general limitation, general permission
Compare: 2004 No 35 s DS 2B
Section DB 2B: inserted, on 1 April 2008, by section 347 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DS 3 Clawback of deductions for film reimbursement schemes
Reduction of deductions
(1)
A person who disposes of property under a film reimbursement scheme must use the formula in subsection (3) to reduce—
(a)
the total deductions that they have been allowed for the disposal under the scheme under section DS 1 or DS 2; or
(b)
the total deductions that they would be allowed for the disposal under the scheme under section DS 1 or DS 2 in the absence of this section.
Order of reduction
(2)
Deductions must be reduced in the same order as they have been allowed or would be allowed.
Formula
(3)
The total deductions must be reduced to an amount equal to the greater of zero and the amount calculated using the formula—
total deductions − total consideration.
Definition of items in formula
(4)
In the formula,—
(a)
total deductions is the total amount of deductions that—
(i)
the person has been allowed under section DS 1 or DS 2; or
(ii)
the person would be allowed under section DS 1 or DS 2 in the absence of this section:
(b)
total consideration is the total amount of consideration for the disposal of the property that the person derives and that is not film income.
Application of Tax Administration Act 1994
(5)
Section 44A of the Tax Administration Act 1994 applies to a person to whom this section applies.
Amendment of assessment
(6)
Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.
Exclusion
(7)
This section does not apply to a deduction for expenditure excluded under section DZ 11 (Film reimbursement scheme on or before 30 June 2001).
Defined in this Act: amount, assessment, Commissioner, deduction, film income, film reimbursement scheme, time bar
Compare: 2004 No 35 s DS 3
DS 4 Meaning of film reimbursement scheme
Meaning
(1)
Film reimbursement scheme means an arrangement to which subsections (2) to (4) apply.
Deduction allowed
(2)
The first requirement for a film reimbursement scheme is that it is a scheme under which a person may incur expenditure for which they are allowed a deduction under—
(a)
section DS 1 or DS 2, or would be allowed a deduction in the absence of section DS 3:
(b)
subpart DA (General rules), if the expenditure is for—
(i)
a film right:
(ii)
a right to an amount that is dependent on or calculated by reference to income from the rental, sale, use, or other exploitation of a film.
Disposal of property
(3)
The second requirement for a film reimbursement scheme is that 1 of the following applies:
(a)
it enables the person or an associated person to dispose of property; or
(b)
it gives a right to the person or an associated person to dispose of property; or
(c)
it gives a right, the right creates an obligation for the person or an associated person, and the person or the associated person may meet the obligation by disposing of property.
Consideration not film income
(4)
The third requirement for a film reimbursement scheme is that it is a scheme under which some or all of the consideration for the property would not be film income.
Associated persons[Repealed]
(5)
[Repealed]Defined in this Act: amount, arrangement, associated person, deduction, film income, film reimbursement scheme, film right, income, shareholder
Compare: 2004 No 35 s DS 4
Section DS 4(5) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DS 4(5): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DS 4 list of defined terms 1973 version provisions: repealed, on 1 April 2010, by section 96(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 4 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 96(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 4 list of defined terms 1990 version provisions: repealed, on 1 April 2010, by section 96(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 4 list of defined terms loss-attributing qualifying company: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart DT—Petroleum mining expenditure
Contents
Petroleum exploration expenditure
DT 1A Ring-fenced allocations
When this section applies
(1)
This section applies to an amount of a person’s deductions for expenditure and loss for an income year to the extent to which it is—
(a)
petroleum exploration expenditure:
(b)
petroleum development expenditure:
(c)
residual expenditure.
Basis for allocation of deductions
(2)
If, but for this subsection, an amount that relates to petroleum mining operations undertaken outside New Zealand would be allocated to an income year (the current year), including an amount carried forward and allocated to the current year, the amount that is allocated to the current year is no more than the amount of the person’s income derived for the current year from all petroleum mining operations undertaken outside New Zealand.
Excess allocations: carried forward and re-instated next year
(3)
Any excess not allocated to the current year because of subsection (2) is carried forward and treated as—
(a)
relating to petroleum mining operations undertaken outside New Zealand for the next income year; and
(b)
allocated to that next income year.
Restriction on reinstating excess allocations
(4)
Despite subsection (3), the excess is not allocated to the next income year, and no deduction is allowed or allocated to any income year for the excess, if sections IA 5, IB 3, IP 3, and IP 3B (which relate to the carrying forward of tax losses for companies) would not have allowed the excess to be carried forward to that next income year in a loss balance, treating the excess as a tax loss component arising on the last day of the current year.
Defined in this Act: deduction, income year, loss balance, New Zealand, petroleum development expenditure, petroleum exploration expenditure, petroleum mining operation, residual expenditure, tax loss component
Section DT 1A: inserted (with effect on 1 April 2008), on 6 October 2009, by section 97(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 1A(4): amended (with effect on 1 April 2020), on 30 March 2022, by section 76 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section DT 1A(4): amended (with effect on 1 April 2020), on 30 March 2021, by section 33 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
DT 1 Petroleum exploration expenditure
Deduction
(1)
A person is allowed a deduction for petroleum exploration expenditure incurred by them.
Relationship with section DT 2
(2)
This section is overridden by section DT 2.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, petroleum exploration expenditure, supplement
Compare: 2004 No 35 s DT 1
DT 2 Arrangement for petroleum exploration expenditure and disposal of property
What this section applies to
(1)
This section applies to a person and an arrangement if—
(a)
the person may incur expenditure under the arrangement and would be allowed a deduction for the expenditure under section DT 1; and
(b)
the person or a person associated with them may dispose of property—
(i)
under the arrangement; or
(ii)
under a right given by the arrangement to the person or the associated person; or
(iii)
in meeting an obligation of the person or the associated person arising from a right given by the arrangement; and
(c)
the property is not—
(i)
exploratory material; or
(ii)
a petroleum permit; or
(iii)
material or a permit that relates to petroleum mining operations undertaken outside New Zealand, and that material or permit are substantially the same as those described in subparagraphs (i) or (ii), with necessary modifications made to this subpart and the Crown Minerals Act 1991.
Amount of deduction
(2)
The person is allowed a deduction in an income year for the expenditure described in subsection (1)(a) but only to the extent of an amount equal to the greater of zero and the amount calculated using the formula—
expenditure − (consideration − lesser amount).
Exclusion
(3)
If consideration for the property is derived in an income year, the person’s deductions in earlier income years for the expenditure described in subsection (1)(a) are reduced so that the total of those deductions is equal to the greater of zero and the amount calculated using the formula—
previous expenditure − consideration.
Definition of items in formulas
(4)
In the formulas in subsections (2) and (3),—
(a)
expenditure is the amount of expenditure for which the person would be allowed a deduction in the income year under section DT 1(1):
(b)
consideration is the total consideration for the property that is derived before or during the income year:
(c)
lesser amount is the lesser of—
(i)
the amount of consideration; and
(ii)
the amount of expenditure for which a person would be allowed a deduction in earlier income years under section DT 1(1):
(d)
previous expenditure is the amount of expenditure for which a person would be allowed a deduction in earlier income years under section DT 1(1).
Order of reduction
(5)
When an adjustment under subsection (3) is being made, deductions are treated as denied in the same order in time as they would have been allowed under section DT 1(1).
Application of Tax Administration Act 1994
(6)
Section 44A of the Tax Administration Act 1994 applies to a person to whom this section applies.
Amendment of assessment
(7)
Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.
Relationship with section DT 1
(8)
This section overrides section DT 1.
Link with subpart DA
(9)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, arrangement, assessment, associated person, Commissioner, consideration, deduction, dispose, exploration permit, exploratory material, income year, petroleum, petroleum exploration expenditure, prospecting permit, supplement, time bar
Compare: 2004 No 35 s DT 2
Section DT 2 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DT 2(1)(b): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 98(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 98(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2(1)(c)(ii): substituted (with effect on 1 April 2008), on 6 October 2009, by section 98(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2(1)(c)(iii): substituted (with effect on 1 April 2008), on 6 October 2009, by section 98(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2 list of defined terms 1973 version provisions: repealed, on 1 April 2010, by section 98(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 98(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2 list of defined terms 1990 version provisions: repealed, on 1 April 2010, by section 98(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DT 3 Acquisition of privileges and permits
When expenditure for privileges or permits incurred
(1)
The consideration that a person pays to acquire a privilege or permit referred to in subsection (2) from a petroleum miner is incurred in the income year in which the petroleum miner disposes of the privilege or permit to the person.
Privileges and permits
(2)
Subsection (1) applies to the person and a privilege or permit if—
(a)
the consideration that the person pays to acquire the privilege or permit is petroleum exploration expenditure; and
(b)
the privilege or permit is—
(i)
an existing privilege that is a prospecting licence granted under Part 1 of the Petroleum Act 1937:
(ii)
a prospecting permit for petroleum:
(iii)
an exploration permit for petroleum.
Defined in this Act: dispose, existing privilege, exploration permit, income year, pay, petroleum, petroleum miner, prospecting permit
Section DT 3: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years but not applying to a person in relation to a tax position taken by the person for an arrangement entered into before 26 February 2015; and relying upon the definition of petroleum exploration expenditure as it was before the amendment made by section 235(44) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016), on 24 February 2016, by section 109(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DT 4 Acquisition of exploratory material
The consideration that a person pays to acquire exploratory material from a petroleum miner is treated as petroleum exploration expenditure incurred in the income year in which the petroleum miner disposes of the material to the person.
Defined in this Act: consideration, dispose, exploratory material, income year, pay, petroleum exploration expenditure, petroleum miner
Compare: 2004 No 35 s DT 4
Petroleum development expenditure
DT 5 Petroleum development expenditure
Deduction
(1)
A petroleum miner is allowed a deduction for petroleum development expenditure incurred by them.
Timing of deduction
(2)
For an income year, an amount of the deduction is allocated to that year, as provided by—
(a)
section EJ 12 (Petroleum development expenditure: default allocation rule); or
(b)
section EJ 12B (Petroleum development expenditure: reserve depletion method); or
(c)
section EJ 13 (Permanently ceasing petroleum mining operations).
Relationship with section DZ 3
(3)
This section is overridden by section DZ 3 (Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991).
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, petroleum development expenditure, petroleum miner, supplement
Compare: 2004 No 35 s DT 5
Section DT 5(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 5(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 5(2) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 5(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 5(2)(b): amended, on 1 April 2018, by section 52(1) (and see section 52(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 5(2)(c): inserted, on 1 April 2018, by section 52(2) (and see section 52(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DT 6 Expenditure on petroleum mining assets
Expenditure that a person incurs in acquiring a petroleum mining asset is treated as petroleum development expenditure if, at the time the asset is acquired,—
(a)
petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that is the one being acquired; or
(b)
petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that applies to the permit area in which an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) is to be used; or
(c)
an application for a petroleum mining permit for the permit area has been made by a person entitled under section 32(3) of the Crown Minerals Act 1991.
Defined in this Act: permit area, petroleum, petroleum development expenditure, petroleum mining asset, petroleum permit
Compare: 2004 No 35 s DT 6
Section DT 6: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DT 6(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DT 7 Exploratory well expenditure
When this section applies
(1)
This section applies when—
(a)
a petroleum miner incurs exploratory well expenditure; and
(b)
the miner then uses the exploratory well for the commercial production of petroleum; and
(c)
the exploratory well expenditure is then treated, under section CT 3 (Exploratory well used for commercial production), as income of the miner.
Treatment of expenditure
(2)
An amount equal to the amount that is treated as income is treated as petroleum development expenditure—
(a)
incurred by the petroleum miner in the income year in which commercial production from the well starts; and
(b)
allocated as provided by section DT 5(2).
Defined in this Act: amount, commercial production, exploratory well expenditure, income, income year, petroleum, petroleum development expenditure, petroleum miner
Compare: 2004 No 35 s DT 7
Section DT 7(2): replaced, on 1 April 2018, by section 53(1) (and see section 53(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DT 7B Resuming commercial production: petroleum development expenditure
When this section applies
(1)
This section applies when a petroleum miner has had an amount of petroleum development expenditure treated as income under section CT 5B (Resuming commercial production).
Amount of income treated as petroleum development expenditure
(2)
An amount equal to the amount that is treated as income under section CT 5B is treated as petroleum development expenditure—
(a)
incurred by the petroleum miner in the income year referred to in section CT 5B; and
(b)
allocated as provided by section DT 5(2).
Defined in this Act: amount, deduction, income, income year, petroleum development expenditure, petroleum miner
Section DT 7B: inserted, on 1 April 2018, by section 54(1) (and see section 54(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DT 8 Acquisition of certain petroleum mining assets
When expenditure for petroleum mining assets incurred
(1)
The consideration that a person pays to acquire a petroleum mining asset, excluding a privilege or permit referred to in subsection (2), from a petroleum miner is incurred in the income year in which the petroleum miner disposes of the petroleum mining asset to the person.
Privileges and permits
(2)
For the purposes of subsection (1) for a person, a privilege or permit is excluded if—
(a)
the consideration that the person pays to acquire the privilege or permit is petroleum exploration expenditure; and
(b)
the privilege or permit is—
(i)
an existing privilege that is a prospecting licence granted under Part 1 of the Petroleum Act 1937:
(ii)
a prospecting permit for petroleum:
(iii)
an exploration permit for petroleum.
Defined in this Act: dispose, existing privilege, exploration permit, income year, pay, petroleum, petroleum development expenditure, petroleum miner, petroleum mining asset, prospecting permit
Section DT 8: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years but not applying to a person in relation to a tax position taken by the person for an arrangement entered into before 26 February 2015; and relying upon the definition of petroleum exploration expenditure as it was before the amendment made by section 235(44) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016), on 24 February 2016, by section 110(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DT 9 Disposal of petroleum mining asset to associate
When this section applies
(1)
This section applies when—
(a)
a petroleum miner disposes of a petroleum mining asset to—
(i)
a person associated with the miner; or
(ii)
a person who holds the asset for the miner; or
(iii)
a person who holds the asset for a person associated with the miner; and
(b)
section EJ 16(2) (Disposal of petroleum mining asset to associate) prevents the miner from taking the full amount of a deduction allocated under section EJ 15 (Disposal of petroleum mining asset) to the income year in which the miner disposes of the asset.
No deduction
(2)
The miner is denied a deduction for the amount that section EJ 16(2) prevents from being allocated to the income year in which the miner disposes of the asset.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: amount, associated person, deduction, dispose, general permission, income year, petroleum miner, petroleum mining asset
Compare: 2004 No 35 s DT 9
Section DT 9(1)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 19(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DT 9(2): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 19(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DT 10 Disposal of petroleum mining asset outside association
When this section applies
(1)
This section applies when—
(a)
a petroleum miner disposes of a petroleum mining asset to a person described in subsection (2) (person A); and
(b)
person A disposes of the asset to a person described in subsection (3) (person B).
Person A
(2)
For the purposes of subsection (1)(a), the persons are—
(a)
an associated person of the miner; or
(b)
a person who holds the asset for the miner; or
(c)
a person who holds the asset for an associated person of the miner.
Person B
(3)
For the purposes of subsection (1)(b), the persons are—
(a)
a person not associated with the miner; or
(b)
a person who does not hold the asset for the miner; or
(c)
a person who does not hold the asset for a person associated with the miner.
Deduction
(4)
Person A is allowed a deduction.
Amount of deduction
(5)
The amount of the deduction is the amount for which the petroleum miner is denied a deduction under section DT 9.
Timing of deduction
(6)
The deduction is allocated to the income year in which person A disposes of the asset.
Link with subpart DA
(7)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, associated person, capital limitation, deduction, dispose, general limitation, general permission, income year, petroleum miner, petroleum mining asset, supplement
Compare: 2004 No 35 s DT 10
DT 11 Association ending
When this section applies
(1)
This section applies when—
(a)
a petroleum miner disposes of a petroleum mining asset to a person (person A) who is—
(i)
an associated person of the miner; or
(ii)
a person who holds the asset for an associated person of the miner; or
(iii)
a person who holds the asset for the miner; and
(b)
while person A holds the asset,—
(i)
the association between the miner and the associated person ends; or
(ii)
the association between the miner and the person who holds the asset for the miner ends.
Exclusion
(2)
This section does not apply when the petroleum miner and the other party to the association end their association—
(a)
for the purpose of the miner being allowed a deduction under this section; or
(b)
for various purposes, 1 of which is, as a more than merely incidental purpose, the miner being allowed a deduction under this section.
Deduction
(3)
The petroleum miner is allowed a deduction.
Amount of deduction
(4)
The amount of the deduction is the amount for which the petroleum miner is denied a deduction under section DT 9.
Timing of deduction
(5)
The deduction is allocated to the income year in which the association ends.
Link with subpart DA
(6)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, associated person, capital limitation, deduction, dispose, general limitation, general permission, income year, petroleum miner, petroleum mining asset, supplement
Compare: 2004 No 35 s DT 11
Other expenditure
DT 12 Damage to assets
Deduction
(1)
A petroleum miner is allowed a deduction for the cost of repairing a damaged asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset).
Link with subpart DA
(2)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, petroleum miner, supplement
Compare: 2004 No 35 s DT 12
DT 13 Disposal of ownership interests in controlled petroleum mining entities
No deduction
(1)
A person who disposes of shares or trust interests in a controlled petroleum mining entity is denied a deduction for their cost.
Application of Tax Administration Act 1994
(2)
Section 65 of the Tax Administration Act 1994 applies when this section applies.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: controlled petroleum mining entity, deduction, dispose, share
Compare: 2004 No 35 s DT 13
DT 14 Farm-out arrangements
When this section applies
(1)
This section applies when a farm-in party under a farm-out arrangement incurs farm-in expenditure that, if it were incurred by the farm-out party, would be petroleum development expenditure, exploratory well expenditure, or prospecting expenditure.
Treatment of farm-in expenditure
(2)
The farm-in expenditure is treated as if it were petroleum development expenditure, exploratory well expenditure, or prospecting expenditure, as applicable.
Deduction
(3)
The farm-in party is allowed a deduction for the farm-in expenditure that is incurred under the farm-out arrangement on or after 16 December 1991.
Relationship with section DZ 5
(4)
Farm-in expenditure that is incurred before 16 December 1991 is dealt with in section DZ 5 (Farm-out arrangements for petroleum mining before 16 December 1991).
Link with subpart DA
(5)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, exploratory well expenditure, farm-in expenditure, farm-in party, farm-out arrangement, general limitation, general permission, petroleum development expenditure, prospecting expenditure, supplement
Compare: 2004 No 35 s DT 14
DT 15 Persons associated with petroleum miner
When this section applies
(1)
This section applies to a person associated with a petroleum miner when—
(a)
the petroleum miner has some or all of an existing privilege; and
(b)
the associated person—
(i)
undertakes petroleum mining operations or decommissioning in the licence area of the existing privilege; and
(ii)
does so under an arrangement for reward; and
(iii)
when doing so is not a petroleum miner in relation to the petroleum mining operations or decommissioning.
Deduction
(2)
The associated person is allowed a deduction for expenditure or loss that they incur in the petroleum mining operations or decommissioning described in subsection (1).
Amount of deduction
(3)
The amount of the deduction is limited to the extent of the amount of income that they derive from the petroleum mining operations or decommissioning.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: amount, arrangement, associated person, decommissioning, deduction, existing privilege, general permission, income, petroleum miner, petroleum mining operations
Compare: 2004 No 35 s DT 15
Section DT 15(1)(b)(i): amended, on 1 April 2018, by section 55(1) (and see section 55(6) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 15(1)(b)(iii): amended, on 1 April 2018, by section 55(2) (and see section 55(6) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 15(2): amended, on 1 April 2018, by section 55(3) (and see section 55(6) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 15(3): amended, on 1 April 2018, by section 55(4) (and see section 55(6) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 15 list of defined terms decommissioning: inserted, on 1 April 2018, by section 55(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DT 16 Decommissioning
Deduction
(1)
A petroleum miner is allowed a deduction for expenditure that they incur on decommissioning.
Timing of deduction
(2)
The deduction is allocated to the income year in which the expenditure is incurred.
Relationship with section EA 2
(3)
This section overrides section EA 2 (Other revenue account property).
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, decommissioning, deduction, general limitation, general permission, income year, petroleum miner, supplement
Compare: 2004 No 35 s DT 16
Section DT 16 heading: replaced, on 1 April 2018, by section 56(1) (and see section 56(4) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 16(1): amended, on 1 April 2018, by section 56(2) (and see section 56(4) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 16 list of defined terms decommissioning: inserted, on 1 April 2018, by section 56(3)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 16 list of defined terms removal or restoration operations: repealed, on 1 April 2018, by section 56(3)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
General provisions
DT 17 Attribution of expenditure
Petroleum mining permit
(1)
A deduction for expenditure incurred to acquire a petroleum permit is attributable to the permit area of the petroleum permit.
Other assets
(2)
A deduction for expenditure incurred to acquire an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) is attributable to—
(a)
the asset; and
(b)
the permit area to which the asset relates.
Relationship between subpart and section GB 20
(3)
This section applies for the purposes of this subpart, section GB 20 (Arrangements involving petroleum and mineral mining), and section 91 of the Tax Administration Act 1994.
Defined in this Act: permit area, petroleum permit
Compare: 2004 No 35 s DT 17
Section DT 17(3) heading: replaced, on 1 April 2018, by section 57(1) (and see section 57(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 17(3): amended, on 1 April 2018, by section 57(2) (and see section 57(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 17(3): amended, on 1 April 2014, by section 40 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DT 18 Replacement permits
In this subpart, a reference to a petroleum permit includes a reference to a replacement permit. All expenditure incurred, deductions allowed, and petroleum mining assets that are attributable to the petroleum permit are attributable to the replacement permit.
Defined in this Act: deduction, petroleum mining asset, petroleum permit, replacement permit
Compare: 2004 No 35 s DT 18
DT 19 Partnership interests and disposal of part of asset
In this subpart, unless the context requires otherwise,—
(a)
a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their interest in the income of the partnership:
(b)
references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: dispose, income, petroleum permit
Compare: 2004 No 35 s DT 19
DT 20 Petroleum mining operations outside New Zealand
This subpart applies, with any necessary modifications, to a petroleum miner undertaking petroleum mining operations that are or decommissioning that is—
(a)
outside New Zealand and undertaken through a branch or a controlled foreign company; and
(b)
substantially the same as the petroleum mining activities governed by this subpart.
Defined in this Act: controlled foreign company, decommissioning, New Zealand, petroleum miner, petroleum mining operations
Compare: 2004 No 35 s DT 20
Section DT 20: amended, on 1 April 2018, by section 58(1) (and see section 58(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DT 20 list of defined terms decommissioning: inserted, on 1 April 2018, by section 58(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Subpart DU—Mineral mining expenditure
Subpart DU: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Contents
DU 1 Mining expenditure: prospecting and exploration expenditure
Deduction
(1)
A mineral miner is allowed a deduction for the following expenditure:
(a)
mining prospecting expenditure:
(b)
mining exploration expenditure, subject to sections DU 6 and DU 7.
Link with subpart DA
(2)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, mineral miner, mining exploration expenditure, mining prospecting expenditure
Section DU 1: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DU 1(2): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 62(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DU 1 list of defined terms capital limitation: inserted (with effect on 1 April 2014), on 30 June 2014, by section 62(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DU 2 Mining expenditure: rehabilitation expenditure
Deduction
(1)
A mineral miner is allowed a deduction for mining rehabilitation expenditure.
Timing of deduction
(2)
The deduction is allocated to the income year in which the mineral miner incurs the amount of mining rehabilitation expenditure.
Tax credit
(3)
If a mineral miner has a net mining loss for a tax year after taking into account an amount of mining rehabilitation expenditure incurred in relation to a permit area, they may have a tax credit for the amount under section LU 1 (Tax credits for mineral miners) for the corresponding income year.
Link with subpart DA
(4)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, corresponding income year, deduction, general limitation, general permission, income year, mineral miner, mining rehabilitation expenditure, net mining loss, permit area, tax credit, tax year
Section DU 2: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 3 Acquisition of land for mining operations
Deduction
(1)
A mineral miner is allowed a deduction for expenditure incurred in acquiring land or an interest in land for the purposes of their mining operations or associated mining operations.
Exclusions
(2)
Subsection (1) does not apply to the following expenditure:
(a)
expenditure incurred on or in relation to land that—
(i)
does not constitute a mining permit area or land adjacent to it:
(ii)
does not form, or is not intended to form, part of a mining permit area or land adjacent to it:
(b)
expenditure referred to in section DU 8(1):
(c)
expenditure for which the mineral miner has a deduction before disposing of the land or interest in land:
(d)
residual expenditure.
Timing of deduction
(3)
The deduction is allocated to the income year in which the mineral miner disposes of the land or interest in land.
Treatment of losses on disposal of land
(4)
If the mineral miner has a net mining loss for a tax year after taking into account the amount derived from the disposal of the land or interest in land, they may have a tax credit for the amount of the loss on disposal under section LU 1 (Tax credits for mineral miners) for the corresponding income year.
Link with subpart DA
(5)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, associated mining operations, capital limitation, deduction, general limitation, general permission, interest, income year, land, mineral miner, mining operations, net mining loss, permit area, residual expenditure, tax credit, tax year
Section DU 3: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 4 Acquisition of mineral mining assets
Deduction for assets acquired before mining permits
(1)
If a person acquires a mineral mining asset before the date on which a mining permit for the permit area to which the asset relates is obtained, they are allowed a deduction for expenditure incurred in acquiring the asset.
Mining development expenditure for later assets
(2)
If a person acquires a mineral mining asset after the date on which a mining permit for the permit area to which the asset relates is obtained, the expenditure incurred in acquiring the asset is treated as mining development expenditure.
No application costs
(3)
For the purposes of this section, expenditure incurred does not include the cost of an application for a mining right or mining permit.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, mineral mining asset, mining development expenditure, mining permit, permit area
Section DU 4: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 5 Farm-out arrangements
When this section applies
(1)
This section applies when a farm-in party under a farm-out arrangement incurs farm-in expenditure that, if it were incurred by the farm-out party, would fall into 1 of the classes of mining expenditure referred to in section DU 8(1).
Treatment of farm-in expenditure
(2)
The farm-in expenditure is treated as if it were the applicable class of mining expenditure.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, farm-in expenditure, farm-out arrangement, general limitation, general permission
Section DU 5: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 6 Deduction for certain mining expenditure spread over assumed life of mine
When this section applies
(1)
This section applies when—
(a)
a mineral miner—
(i)
incurs an amount of mining development expenditure for an income year on or in relation to their mining operations or associated mining operations in a mining permit area:
(ii)
has incurred an amount of mining exploration expenditure in relation to a mining permit area on acquiring or creating property for which the mineral miner has been allowed a deduction in an earlier income year, and the amount is recovered as income under section CU 4 (Recovery of certain expenditure); and
(b)
the mineral miner starts to use the mining permit area to derive income; and
(c)
the mineral miner either does not meet the requirements to allow allocation of the expenditure under section EJ 20E (Certain mining expenditure spread on basis of units of production) or, if they do, they do not choose to allocate the expenditure under that section.
No deduction (with exception)
(2)
The mineral miner is denied a deduction for the expenditure except to the extent quantified and allocated under section EJ 20B (Certain mining expenditure spread over assumed life of mine).
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, associated mining operations, capital limitation, deduction, general limitation, general permission, income, income year, mineral miner, mining development expenditure, mining exploration expenditure, mining operations, permit area
Section DU 6: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 7 Deduction for certain mining expenditure spread on basis of units of production
When this section applies
(1)
This section applies when a mineral miner—
(a)
incurs expenditure described in section DU 6(1)(a) on or in relation to their mining operations or associated mining operations in a mining permit area; and
(b)
starts to use the permit area to derive income; and
(c)
either—
(i)
uses IFRS rules to prepare their financial statements; or
(ii)
keeps appropriate records that are sufficient to enable the Commissioner to verify the calculations used by the mineral miner; and
(d)
chooses to apply this section in the way described in section EJ 20E(2) (Certain mining expenditure spread on basis of units of production).
What this section does not apply to
(1B)
This section does not apply to an amount of mining outgoing excess of a loss-attributing qualifying company.
No deduction (with exception)
(2)
The mineral miner is denied a deduction for the expenditure except to the extent quantified and allocated under section EJ 20E.
Link with subpart DA
(3)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: associated mining operations, capital limitation, Commissioner, deduction, financial statement, general limitation, general permission, IFRS, income, mineral miner, mining operations, permit area
Section DU 7: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DU 7(1B) heading: inserted, on 29 March 2018 (with effect on 1 April 2008 and applying for the 2008–09, 2009–10, and 2010–11 income years), by section 59(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DU 7(1B): inserted, on 29 March 2018 (with effect on 1 April 2008 and applying for the 2008–09, 2009–10, and 2010–11 income years), by section 59(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Classes of mining expenditure
Heading: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 8 Classes of mineral mining expenditure
Classes
(1)
Sections DU 9 to DU 12 set out the classes of mineral mining expenditure. They are—
(a)
mining prospecting expenditure, see section DU 9:
(b)
mining exploration expenditure, see section DU 10:
(c)
mining development expenditure, see section DU 11:
(d)
mining rehabilitation expenditure, see section DU 12.
No recharacterisation as mining prospecting expenditure
(2)
For the purposes of this subpart, subpart CU (Income from mineral mining), sections EJ 20B to EJ 20E (which relate to spreading rules for certain mining expenditure), GB 20 (Arrangements involving petroleum and mineral mining), IA 7(7), IS 1, and IS 2 (which relate to tax losses), and LU 1 (Tax credits for mineral miners), no amount of expenditure that properly falls into a class of expenditure referred to in subsection (1)(b) to (d) may be characterised as mining prospecting expenditure because of the timing of the expenditure or for any other reason.
Defined in this Act: amount, mining development expenditure, mining exploration expenditure, mining prospecting expenditure, mining rehabilitation expenditure
Section DU 8: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 9 Some definitions
Meaning of mining prospecting expenditure
(1)
Mining prospecting expenditure—
(a)
means expenditure that a mineral miner incurs directly in relation to the acquisition of—
(i)
a prospecting right under the Crown Minerals Act 1991:
(ii)
mining prospecting information, including labour, materials, services, and administrative expenses directly incurred in acquiring the information; and
(b)
includes prospecting for minerals by electrical, geochemical, gravimetric, magnetic, radioactive, seismic, or other geological methods; and
(c)
does not include—
(i)
the cost of land, plant, or machinery:
(ii)
expenditure referred to in section DU 8(1)(b) to (d):
(iii)
residual expenditure.
Meaning of mining prospecting information
(2)
Mining prospecting information means geological, geophysical, or technical information—
(a)
that is about the presence, absence, extent, or volume of listed industrial minerals in an area; or
(b)
that is likely to assist in determining the presence, absence, extent, or volume of listed industrial minerals in an area.
Defined in this Act: land, listed industrial mineral, mineral miner, mining prospecting expenditure, mining prospecting information, residual expenditure
Section DU 9: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 10 Meaning of mining exploration expenditure
Mining exploration expenditure—
(a)
means expenditure that a mineral miner incurs in exploring or searching in New Zealand for a listed industrial mineral; and
(b)
includes expenditure that the mineral miner incurs directly in relation to—
(i)
acquiring an exploration right or permit under the Crown Minerals Act 1991:
(ii)
geological mapping and geophysical surveys:
(iii)
systematic searches for areas containing listed industrial minerals:
(iv)
searching by drilling in areas containing listed industrial minerals:
(v)
searching for ore containing a listed industrial mineral within or in the vicinity of an ore body by crosscuts, drilling, drives, rises, shafts, or winzes; and
(c)
does not include—
(i)
the cost of land, plant, or machinery:
(ii)
expenditure referred to in section DU 8(1)(a), (c), and (d):
(iii)
residual expenditure.
Defined in this Act: land, listed industrial mineral, mineral miner, mining exploration expenditure, residual expenditure
Section DU 10: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DU 11 Meaning of mining development expenditure: exclusion of operational expenditure
Meaning of mining development expenditure
(1)
Mining development expenditure means—
(a)
expenditure that a mineral miner incurs in preparing a permit area for their mining operations or associated mining operations:
(b)
expenditure on operations that are carried on by a mineral miner on a permit area in New Zealand for the purpose of deriving income and consist of—
(i)
mining for 1 or more listed industrial mineral; or
(ii)
performing work directly related to mining for 1 or more listed industrial mineral; or
(iii)
undertaking earthworks, including tailing dams, that are necessary for the working of the mine.
Inclusions
(2)
Mining development expenditure includes expenditure that the mineral miner incurs directly in relation to the permit area in—
(a)
acquiring a mining right or permit under the Crown Minerals Act 1991 for their mining operations or associated mining operations:
(b)
obtaining required resource consents for their mining operations or associated mining operations:
(c)
establishing mine infrastructure on any of the following:
(i)
plant or machinery, including vehicles or vessels:
(ii)
production equipment or facilities:
(iii)
storage facilities:
(d)
providing, or contributing to the cost of providing, communication equipment, fuel, light, power, or water in relation to their mining operations or associated mining operations in the permit area.
Exclusions
(3)
Mining development expenditure does not include—
(a)
the cost of land:
(b)
operational expenditure:
(c)
expenditure on property acquired after the start of commercial production from the permit area that has an estimated useful life that does not depend on the remaining assumed life of the mine:
(d)
expenditure referred to in section DU 8(1)(a), (b), and (d):
(e)
residual expenditure.
Meaning of operational expenditure
(4)
For the purposes of this section and section IS 2(1) (Treatment of net losses resulting from certain expenditure), operational expenditure means expenditure that—
(a)
is incurred in operations carried on by a mineral miner in a mining permit area; and
(b)
is incurred after the start of commercial production from the mining permit area; and
(c)
does not create, or contribute to the creation of, an asset that has an estimated useful life of more than 1 year.
Defined in this Act: associated mining operations, commercial production, estimated useful life, income, land, listed industrial mineral, mineral miner, mining development expenditure, mining operations, New Zealand, operational expenditure, permit area, residual expenditure
Section DU 11: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DU 11(4)(c): amended (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 63(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DU 12 Meaning of mining rehabilitation expenditure
Mining rehabilitation expenditure—
(a)
means expenditure that a mineral miner incurs in New Zealand directly in relation to rehabilitation of land that is the permit area of their mining operations or associated mining operations carried out as a result of—
(i)
the mineral miner’s permit requirements:
(ii)
the requirements of an access arrangement issued under the Crown Minerals Act 1991 or regulations made under that Act:
(iii)
an obligation of the mineral miner under the Resource Management Act 1991 or regulations made under that Act:
(iv)
a concession under the Conservation Act 1987:
(v)
an authority under the Historic Places Act 1993; and
(b)
includes an amount that the mineral miner pays to restore, or towards restoring, the area of their operations either during or after those operations; and
(c)
does not include—
(i)
the cost of land:
(ii)
expenditure referred to in section DU 8(1)(a) to (c):
(iii)
residual expenditure.
Defined in this Act: amount, associated mining operations, land, mineral miner, mining operations, New Zealand, pay, permit area, residual expenditure
Section DU 12: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DU 12(a)(iii): amended, on 23 December 2023, by section 6 of the Resource Management (Natural and Built Environment and Spatial Planning Repeal and Interim Fast-track Consenting) Act 2023 (2023 No 68).
Subpart DV—Expenditure specific to certain entities
Contents
Superannuation funds
DV 1 Publicising superannuation funds
When this section applies
(1)
This section applies when a superannuation fund incurs expenditure to which all the following apply:
(a)
it is incurred in developing, marketing, selling, promoting, or advertising the fund; and
(b)
it is not incurred in acquiring a building, equipment, land, machinery, or plant; and
(c)
it is assessable income of the recipient.
Deduction
(2)
The superannuation fund is allowed a deduction for the expenditure.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation and the exempt income limitation. The other general limitations still apply.
Defined in this Act: assessable income, capital limitation, deduction, exempt income limitation, general limitation, general permission, superannuation fund, supplement
Compare: 2004 No 35 s DV 1
DV 2 Transfer of expenditure to master fund
When this section applies
(1)
This section applies when—
(a)
a superannuation fund (the member superannuation fund) invests some or all of its funds in another superannuation fund (the master superannuation fund); and
(b)
while the member superannuation fund has funds invested in the master superannuation fund, the member superannuation fund incurs expenditure of a kind described in subsection (2).
Expenditure on publicising or managing
(2)
The expenditure is expenditure to which all the following apply:
(a)
it is incurred—
(i)
in developing, marketing, selling, promoting, or advertising the fund; or
(ii)
in managing the fund; and
(b)
it is not incurred in acquiring a building, equipment, land, machinery, or plant; and
(c)
it is assessable income of the recipient.
When expenditure becomes master superannuation fund’s
(3)
The member superannuation fund may choose to treat some or all of the expenditure as expenditure incurred by the master superannuation fund in deriving assessable income.
How election made
(4)
The member superannuation fund makes the election by giving notice to the Commissioner within 1 of the following times:
(a)
the time in which its return of income must be filed under section 37 of the Tax Administration Act 1994; or
(b)
a longer time allowed by the Commissioner.
Effect of election
(5)
When the member superannuation fund makes an election, subsections (6) to (9) apply to the part or the whole, as chosen, of the expenditure.
When expenditure incurred
(6)
The expenditure is treated as being incurred by the master superannuation fund as follows:
(a)
for a master fund that is a multi-rate PIE, in the income year in which the expenditure is transferred by the member superannuation fund; or
(b)
for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.
Deduction allowed to master superannuation fund
(7)
The master superannuation fund is allowed a deduction for the expenditure. The amount of the deduction is limited by subsection (8).
Amount of deduction
(8)
The formula in section DV 3 is used to calculate the maximum deduction that the master superannuation fund is allowed for expenditure of the member superannuation fund treated as being incurred by the master superannuation fund.
Amount of deduction when master fund is multi-rate PIE
(8B)
Despite subsection (8), a master superannuation fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund’s share of the taxable income of the PIE for the income year in which the amount is transferred, any excess being treated as not transferred.
Deducted expenditure not incurred by member superannuation fund
(9)
The expenditure for which the master superannuation fund is allowed a deduction is treated as not being incurred by the member superannuation fund.
Link with subpart DA
(10)
The link between this section and subpart DA (General rules) is as follows:
(a)
for subsection (7),—
(i)
it supplements the general permission:
(ii)
it overrides the capital limitation and the exempt income limitation:
(iii)
the other general limitations still apply:
(b)
subsection (9) overrides the general permission.
Defined in this Act: amount, assessable income, capital limitation, Commissioner, deduction, exempt income limitation, general limitation, general permission, income year, multi-rate PIE, notice, return of income, superannuation fund, supplement
Compare: 2004 No 35 s DV 2
Section DV 2(6): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 102(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2(8B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 102(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2(8B) heading: amended, on 29 March 2018 (with effect on 1 April 2008), by section 60 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section DV 2(8B): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 102(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2 list of defined terms investor interest: repealed (with effect on 1 April 2010), on 21 December 2010, by section 43 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DV 2 list of defined terms multi-rate PIE: inserted, on 1 April 2010, by section 102(6)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2 list of defined terms portfolio investor interest: repealed, on 1 April 2010, by section 102(6)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2 list of defined terms portfolio tax rate entity: repealed, on 1 April 2010, by section 102(6)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 3 Formula for calculating maximum deduction
Formula
(1)
The formula referred to in section DV 2(8) is—
taxable income − non-resident passive income.
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) and (4).
Taxable income
(3)
Taxable income is the amount that would be the master superannuation fund’s taxable income in the tax year in which the expenditure is incurred in the absence of sections DV 2 to DV 4.
Non-resident passive income
(4)
Non-resident passive income is the total of any amounts of non-resident passive income of any of the kinds to which section RF 2(5) (Non-resident passive income) applies derived by the master superannuation fund in the corresponding income year in which the expenditure is incurred.
Defined in this Act: amount, corresponding income year, deduction, non-resident passive income, superannuation fund, tax year, taxable income
Compare: 2004 No 35 s DV 3
DV 4 Carry forward of expenditure
When this section applies
(1)
This section applies when—
(a)
the expenditure treated as being incurred by the master superannuation fund, under section DV 2(3), is more than the maximum amount for which it is allowed a deduction, as calculated under section DV 3, so there is surplus expenditure; and
(b)
the member superannuation fund chooses to deal with the surplus expenditure under this section, rather than deducting it itself; and
(c)
the member superannuation fund has funds invested in the master superannuation fund at the time referred to in section DV 2(1)(b) and while its election under section DV 2(3) continues and while it deals with the surplus expenditure under this section.
What this section does not apply to
(1B)
This section does not apply to a transfer of expenditure to a master superannuation fund that is a multi-rate PIE.
KiwiSaver schemes[Repealed]
(2)
[Repealed]Surplus carried forward
(3)
The member superannuation fund carries the surplus expenditure forward to the next income year and takes the following steps:
(a)
it gets the combined expenditure by adding the surplus expenditure to the expenditure, if any, incurred by it in the income year that it chooses to treat as being incurred by the master superannuation fund:
(b)
it calculates the maximum deduction for the income year, using the formula in section DV 3:
(c)
if the combined expenditure is the same as or less than the maximum deduction, it—
(i)
treats the surplus expenditure as expenditure incurred by the master superannuation fund in deriving assessable income in the income year; and
(ii)
applies subsections (5) to (8):
(d)
if the combined expenditure is more than the maximum deduction, it—
(i)
carries forward the new surplus expenditure to the next income year; and
(ii)
applies subsection (4).
Surplus dealt with until gone
(4)
The member superannuation fund repeats the steps in subsection (3) for the following income years until all surplus expenditure is deducted.
Deduction allowed to master superannuation fund
(5)
Expenditure treated under subsection (3)(c)(i) as incurred by the master superannuation fund in deriving income is allowed as a deduction in the income year in which it is so treated. The amount of the deduction is limited by subsection (6).
Amount of deduction
(6)
The maximum amount of a deduction under subsection (5) is the maximum deduction for the income year, calculated using the formula in section DV 3.
Deducted expenditure not incurred by member superannuation fund
(7)
Expenditure for which the master superannuation fund is allowed a deduction is treated as not being incurred by the member superannuation fund.
Sequential deductions
(8)
Expenditure for which the master superannuation fund is allowed a deduction must be deducted in sequence according to the income year in which the member superannuation fund incurred it.
Link with subpart DA
(9)
The link between this section and subpart DA (General rules) is as follows:
(a)
subsection (5) supplements the general permission and overrides the capital limitation; the other general limitations still apply:
(b)
subsection (7) overrides the general permission.
Defined in this Act: amount, assessable income, capital limitation, deduction, general limitation, general permission, income, income year, KiwiSaver scheme, multi-rate PIE, superannuation fund, superannuation scheme, supplement
Compare: 2004 No 35 s DV 4
Section DV 4(1B) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 103(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 4(1B): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 103(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 4(2) heading: repealed, on 1 May 2011, by section 56 of the KiwiSaver Amendment Act 2011 (2011 No 8).
Section DV 4(2): repealed, on 1 May 2011, by section 56 of the KiwiSaver Amendment Act 2011 (2011 No 8).
Section DV 4 list of defined terms multi-rate PIE: inserted, on 1 April 2010, by section 103(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 4 list of defined terms portfolio tax rate entity: repealed, on 1 April 2010, by section 103(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 4B Carry forward of expenditure by member funds investing in portfolio investment entities
When this section applies
(1)
This section applies when—
(a)
a master fund that is a multi-rate PIE has a deduction under section DV 2(8B) for an income year for expenditure transferred to it by a member fund; and
(b)
the amount of the expenditure that meets the tests set out in section DV 2(2) is more than the amount transferred for the income year, so there is surplus expenditure for the member fund.
Member fund carrying expenditure forward
(2)
The member fund may carry forward the surplus expenditure for transfer under section DV 2(8B) in a later income year.
Expenditure as loss balance
(3)
If the member fund carries forward surplus expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.
Defined in this Act: amount, deduction, income year, loss balance, master fund, multi-rate PIE, tax year
Section DV 4B: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 104(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Other entities
DV 5 Investment funds: transfer of expenditure to master funds
When this section applies
(1)
This section applies when—
(a)
a group investment fund that derives category A income, a public unit trust, or a superannuation fund (the member fund) invests some or all of its funds in a master fund; and
(b)
while the member fund has funds invested in the master fund, the member fund incurs expenditure of a kind described in subsection (2); and
(c)
the member fund has some or all of its funds invested in the master fund throughout the period starting at the time at which the member fund incurs the expenditure and ending with the close of the last day of the income year in which the expenditure is deducted by the master fund under this section.
Expenditure described
(2)
The expenditure is expenditure for which the member fund is allowed a deduction,—
(a)
including expenditure on a financial arrangement that is denominated in New Zealand dollars and for which expenditure is allocated using the yield to maturity method set out in subpart EW (Financial arrangements rules); and
(b)
not including—
(i)
expenditure on any other financial arrangement; or
(ii)
expenditure on revenue account property.
When expenditure becomes master fund’s
(3)
The expenditure incurred by the member fund may be transferred to the master fund, subject to the following conditions:
(a)
the member fund and the master fund must agree to the transfer of the expenditure; and
(b)
the member fund may transfer expenditure only to the extent to which it has a tax loss in the corresponding tax year, with the tax loss calculated as if this section did not exist; and
(c)
a member fund that is a group investment fund that derives category A income may transfer only expenditure that relates to the category A income.
Income year in which investment stops
(4)
In an income year in which the member fund stops investing in the master fund,—
(a)
neither the master fund nor the member fund is allowed a deduction for expenditure that would otherwise be transferable; and
(b)
the member fund must treat the expenditure as a loss balance.
When expenditure incurred
(5)
The expenditure referred to in subsection (3) is treated as being incurred by the master fund in the income year in which it is transferred by the member fund.
Deduction allowed to master fund
(6)
The master fund is allowed a deduction for the expenditure, subject to the following conditions:
(a)
a master fund that is a group investment fund that derives category A income may deduct expenditure only from its category A income; and
(b)
the amount of the deduction is limited by subsection (7).
Amount of deduction
(7)
The formula in section DV 6 is used to calculate the maximum deduction that the master fund is allowed for expenditure of the member fund treated as being incurred by the master fund.
Amount of deduction when master fund is multi-rate PIE
(7B)
Despite subsection (7), a master fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a member fund. However, the maximum amount transferred must be no more than the member fund’s share of the taxable income of the PIE for the income year in which the amount is transferred, any excess being treated as not transferred.
Additional transfer
(8)
If, after the date on which the master fund has filed its return of income, the master fund is able to deduct more than the amount actually deducted, the Commissioner may allow the member fund to transfer expenditure to the extent of the difference after the return of income has been filed.
Deducted expenditure not incurred by member fund
(9)
The expenditure for which the master fund is allowed a deduction is treated as not being incurred by the member fund.
Link with subpart DA
(10)
The link between this section and subpart DA (General rules) is as follows:
(a)
subsection (6) supplements the general permission and overrides the capital limitation; the other general limitations still apply:
(b)
subsection (9) overrides the general permission.
Defined in this Act: amount, capital limitation, category A income, Commissioner, deduction, financial arrangement, general limitation, general permission, group investment fund, income year, loss balance, master fund, multi-rate PIE, public unit trust, return of income, revenue account property, superannuation fund, supplement, tax loss, tax year
Compare: 2004 No 35 s DV 5
Section DV 5(7B) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 105(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 5(7B): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 105(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 5 list of defined terms investor interest: repealed (with effect on 1 April 2010), on 21 December 2010, by section 44 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DV 5 list of defined terms multi-rate PIE: inserted, on 1 April 2010, by section 105(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 5 list of defined terms portfolio investor interest: repealed, on 1 April 2010, by section 105(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 5 list of defined terms portfolio tax rate entity: repealed, on 1 April 2010, by section 105(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 6 Formula for calculating maximum deduction
Formula used to calculate maximum deduction
(1)
The formula referred to in section DV 5(7) is—
taxable income − non-resident passive income.
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) and (4).
Taxable income
(3)
Taxable income is the amount that would be the master fund’s taxable income in the tax year in which the expenditure is transferred in the absence of sections DV 5 to DV 7.
Non-resident passive income
(4)
Non-resident passive income is the total of any amounts of non-resident passive income of any of the kinds to which section RF 2(5) (Non-resident passive income) applies derived by the master fund in the corresponding income year in which the expenditure is incurred.
Multi-rate PIEs
(5)
This section does not apply to an amount of expenditure transferred to a master fund that is a multi-rate PIE.
Defined in this Act: amount, corresponding income year, deduction, master fund, multi-rate PIE, non-resident passive income, taxable income
Compare: 2004 No 35 s DV 6
Section DV 6(5) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 106(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 6(5): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 106(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 6 list of defined terms multi-rate PIE: inserted, on 1 April 2010, by section 106(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 6 list of defined terms portfolio tax rate entity: repealed, on 1 April 2010, by section 106(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 7 Carry forward of expenditure
When this section applies
(1)
This section applies when a member superannuation fund incurs expenditure that is more than—
(a)
the member fund and master fund agree can be transferred; or
(b)
the maximum amount that can be transferred.
Member fund carrying expenditure forward
(1B)
The member fund may carry forward the expenditure for transfer in a later income year.
Expenditure as loss balance
(2)
If the member fund carries forward expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.
Defined in this Act: income year, loss balance, master fund, tax year
Compare: 2004 No 35 s DV 7
Section DV 7(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 7(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 7(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 7(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 8 Non-profit organisations
When this section applies
(1)
This section applies when an incorporated or unincorporated organisation—
(a)
does not have the purpose of making a profit for a proprietor, member, or shareholder; and
(b)
has a constitution that prohibits a distribution of property in any form to a member, proprietor, or shareholder.
Amount of deduction
(2)
The organisation is allowed a deduction for the lesser of—
(a)
$1,000; and
(b)
the amount that would be the organisation’s net income in the absence of this section.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission, net income, shareholder, supplement
Compare: 2004 No 35 s DV 8
DV 9 Trusts
No deduction
(1)
A person who derives beneficiary income is denied a deduction for expenditure or loss that a trustee incurs in deriving the income.
Trustee income
(2)
For the purpose of determining the deductions that a trustee is allowed in an income year, beneficiary income of beneficiaries of the trust in the income year is treated as trustee income.
Link with subpart DA
(3)
The link between this section and subpart DA (General rules) is as follows:
(a)
subsection (1) overrides the general permission:
(b)
subsection (2) supplements the general permission; the general limitations still apply.
Defined in this Act: beneficiary income, deduction, general limitation, general permission, income year, supplement, trustee, trustee income
Compare: 2004 No 35 s DV 9
DV 10 Building societies
Deduction
(1)
A building society is allowed a deduction for—
(a)
expenditure incurred on money borrowed by way of withdrawable shares:
(b)
interest and other financial charges incurred in providing money that is used to provide an interest-free loan to a person who holds a terminating share:
(c)
an amount incurred in purchasing a balloted loan right from a person who holds a terminating share.
Timing of deduction
(2)
The deduction for the amount referred to in subsection (1)(c) is allocated to the income year in which the amount is paid.
Meaning of balloted loan right
(3)
In this section, balloted loan right means a right arising from a ballot that—
(a)
is held by or for a building society; and
(b)
is of terminating shares; and
(c)
is held for the purpose of finding out which of the holders of the shares are entitled to receive an interest-free loan relating to their shares.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and other general limitations still apply.
Defined in this Act: amount, balloted loan right, building society, capital limitation, deduction, general limitation, general permission, income year, pay, terminating share, withdrawable share
Compare: 2004 No 35 s DV 10
DV 11 Distribution to member of co-operative company, excluded from being dividend
Deduction
(1)
A co-operative company, or a company owned by a co-operative company, is allowed a deduction for a distribution made for an income year to a member of the co-operative company if an amount of the distribution is excluded by section CD 34B (Distributions to members of co-operative companies) from being a dividend.
Amount of deduction
(2)
The amount of the deduction is the amount of the distribution that is excluded by section CD 34B from being a dividend.
Timing of deduction
(3)
The deduction is allocated to the income year to which the distribution relates.
Link with subpart DA
(4)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: company, co-operative company, deduction, general permission, general limitation, income year, shareholder
Compare: 2004 No 35 s DV 10B
Section DV 11(1): amended (with effect on 1 April 2010), on 7 September 2010, by section 24(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DV 11(2): amended (with effect on 1 April 2010), on 7 September 2010, by section 24(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DV 11(3): amended (with effect on 1 April 2010), on 7 September 2010, by section 24(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
DV 12 Maori authorities: donations
Deduction
(1)
A Maori authority is allowed a deduction for—
(a)
a donation that it makes to a Maori association, as defined in the Maori Community Development Act 1962, for the purposes of the Act:
(b)
a charitable or other public benefit gift that it makes to a donee organisation.
No deduction
(1B)
Despite subsection (1), a Maori authority is not allowed a deduction for the amount of a donation it makes or for the amount of a charitable or other public benefit gift it makes, to the extent to which the amount is, for the Maori authority, an asset ignored for the purposes of section HR 12 (Non-exempt charities: treatment of tax-exempt accumulations) and described in section HR 12(3)(a).
Amount of deduction
(2)
The deduction for the total of all donations and gifts made in an income year is limited to the amount that would be the Maori authority’s net income in the corresponding tax year in the absence of this section.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, charitable or other public benefit gift, deduction, donee organisation, general limitation, general permission, income year, Maori authority, net income, supplement, tax year
Compare: 2004 No 35 s DV 11
Section DV 12(1)(b): amended, on 6 January 2010, by section 108(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 12(1)(b): amended, on 1 April 2008, by section 348(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DV 12(1B) heading: inserted (with effect on 14 April 2014), on 18 March 2019, by section 155 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DV 12(1B): inserted (with effect on 14 April 2014), on 18 March 2019, by section 155 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DV 12(2): amended, on 1 April 2008, by section 348(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DV 12 list of defined terms donee organisation: inserted, on 6 January 2010, by section 108(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 13 Group companies
When this section applies
(1)
This section applies when,—
(a)
in an income year, a company (company A) that is part of a wholly-owned group of companies derives income under section CV 1 (Group companies); and
(b)
no other provision of this Act allows company A a deduction for the expenditure it incurs in deriving the income; and
(c)
if the wholly-owned group of companies were a single company, the single company would be allowed a deduction for the expenditure that company A incurs in deriving the income.
Amount, and timing, of deduction
(2)
Company A is allowed a deduction for the expenditure in the income year in which the income is derived.
Link with subpart DA
(3)
This section supplements the general permission and overrides the exempt income limitation. The other general limitations still apply.
Defined in this Act: company, deduction, exempt income limitation, general limitation, general permission, income, income year, supplement, wholly-owned group of companies
Compare: 2004 No 35 s DV 12
DV 14 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses
When this section applies
(1)
This section applies when—
(a)
an amalgamating company ends its existence on a resident’s restricted amalgamation; and
(b)
the amalgamated company acquires land or a business from the amalgamating company; and
(c)
the amalgamating company would have been allowed a deduction under any of section DO 4, DO 5, DO 6, DO 12, or DP 3 (which relate to improvements and expenditure on land) for the land or business if the amalgamation had not occurred.
Deduction
(2)
While the amalgamated company holds the land or carries on the business, it is allowed the deduction that the amalgamating company would have been allowed under section DO 4, DO 5, DO 6, DO 12, or DP 3.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amalgamated company, amalgamating company, business, deduction, general limitation, general permission, resident’s restricted amalgamation, supplement
Compare: 2004 No 35 s DV 13
DV 15 Amalgamated companies: property passing on resident’s restricted amalgamation
When this section applies
(1)
This section results from sections FO 8 and FO 10 (which relate to resident’s restricted amalgamations).
Deduction for bad debts or expenditure or loss
(2)
On a resident’s restricted amalgamation, an amalgamated company is allowed a deduction for an amount written off as bad, or an amount of expenditure or loss, including an amount of depreciation loss, incurred as a result of something that the amalgamating company did or did not do in the circumstances set out in section FO 8.
Depreciation loss for property transferred
(3)
On a resident’s restricted amalgamation, an amalgamating company is allowed a deduction for an amount of depreciation loss for property transferred to the amalgamated company for the period described in section FO 10(7).
Link with subpart DA
(4)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amalgamated company, amalgamating company, amount, deduction, depreciation loss, general permission, resident’s restricted amalgamation
DV 16 Consolidated groups: intra-group transactions
When this section applies
(1)
This section applies in relation to a consolidated group of companies for the purposes of section FM 10 (Expenditure: intra-group transactions).
No deduction (with exception)
(2)
A company that is a part of a consolidated group of companies is denied a deduction for expenditure or loss incurred through a payment or disposal to, or transaction or arrangement with, another group company, and a deduction would not be allowed for the expenditure or loss if the group were 1 company, except to the extent to which the expenditure or loss arises—
(a)
from the company’s acquisition of trading stock; or
(b)
under sections FM 15 to FM 23 (which relate to accounting for particular property).
Other expenditure or loss
(3)
A company that is part of a consolidated group is—
(a)
allowed a deduction for expenditure or loss or an amount of depreciation loss:
(b)
denied a deduction for expenditure or loss or amount of depreciation loss except to the extent to which the expenditure or loss is interest on money that the company has borrowed outside the consolidated group.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: amount, arrangement, company, consolidated group, deduction, depreciation loss, general permission, interest, pay
Compare: 2004 No 35 s HB 2(1)(b), (d)
DV 17 Consolidated groups: expenditure or loss incurred by group companies
When this section applies
(1)
This section results from sections FM 11 and FM 12 (which relate to expenditure or loss incurred by group companies).
Deduction allowed: nexus with income derivation
(2)
To the extent set out in section FM 11, if the consolidated group would be allowed a deduction for an item of expenditure or loss as 1 company because of a nexus between the expenditure and the income or carrying on of a business by another group company, a company that is part of the consolidated group is allowed a deduction.
No deduction except for interest on money borrowed
(3)
To the extent set out in section FM 12, if the consolidated group would be denied a deduction for an item of expenditure or loss as 1 company, a company that is part of the consolidated group is denied a deduction, except for an amount of expenditure or loss that is interest on money borrowed by the company from a group company in the circumstances described in that section.
Link with subpart DA
(4)
Subsection (2) supplements the general permission, and the general limitations still apply. Subsection (3) overrides the general permission.
Defined in this Act: amount, arrangement, company, consolidated group, deduction, depreciation loss, general permission, loss, pay
Compare: 2004 No 35 s HB 2(1)(c)
DV 18 Statutory producer boards and co-operative companies
When this section applies
(1)
This section applies for the purposes of sections OB 73, OB 78, and OB 78B (which relate to imputation credits attached to cash distributions by statutory producer boards and co-operative companies) when a producer board or co-operative company chooses to treat a distribution as a dividend.
No deduction
(2)
The producer board or co-operative company making the distribution is denied a deduction for the amount of the distribution.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: amount, co-operative company, deduction, general permission, imputation credit, statutory producer board
Compare: 2004 No 35 ss ME 30(2), ME 35(2)
Section DV 18(1): amended, on 26 June 2019, by section 60 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
DV 18B Cost base for shares when debt remitted within economic group
For a shareholder of a company that is a calculation company under section CD 43(6B) or (6C) (Available subscribed capital (ASC) amount), an amount of the subscriptions amount under section CD 43(6D) for the calculation company is treated as expenditure incurred for the purchase of the shareholder’s shares in the calculation company. The maximum expenditure for the shareholder’s shares is the subscriptions amount under section CD 43(6D) for the calculation company multiplied by one of the following interests, determined before the application of section YC 4 (Look-through rule for corporate shareholders):
(a)
the shareholder’s voting interests in the calculation company; or
(b)
the shareholder’s market value interest in the calculation company, if there is a market value circumstance.
Defined in this Act: amount, company, expenditure, market value circumstance, market value interest, share, voting interest
Section DV 18B: inserted (with effect on 1 April 2008), on 30 March 2017, by section 51(1) (and see section 51(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section DV 18B heading: amended (with effect on 1 April 2008), on 30 March 2022, by section 77 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
DV 19 Association rebates
When this section applies
(1)
This section applies when an association—
(a)
enters into a mutual transaction with a member; and
(b)
in relation to the transaction, pays an association rebate to a member.
Deduction
(2)
The association is allowed a deduction for the lesser of—
(a)
the amount described in subsection (4); and
(b)
the amount calculated using the formula in subsection (5).
Allocation
(3)
The deduction is allowed in the income year corresponding to the accounting year for which the association rebate is paid.
Amount paid
(4)
The amount referred to in subsection (2)(a) is the total amount that the association pays as association rebates to members for those mutual transactions with members that arise in the income year and which the association takes into account in determining its net income or net loss. In the calculation of the total amount, it is irrelevant that the amount paid may be limited or reduced because a member of the association has a share or interest in the capital of the association.
Amount under formula
(5)
The amount is calculated using the formula—
assessable income − (deductions + amount distributed).
Definition of items in formula
(6)
In the formula,—
(a)
assessable income is the total amount of the association’s assessable income attributable to mutual transactions with members:
(b)
deductions are the total deductions that the association is allowed, other than under this section, that are attributable to the assessable income referred to in paragraph (a):
(c)
amount distributed is the total amount that the association distributes to members in the income year through a cash distribution for which a determination is made under section OB 82(1)(a) (When and how co-operative company makes election).
Statutory producer boards’ deductions
(7)
When an association is a statutory producer board that pays an association rebate to a member—
(a)
the amount allowed as a deduction is the amount referred to in subsection (4):
(b)
the board may choose whether the rebate is a deduction in the income year in which the amount is paid, or in the income year in which the mutual transaction giving rise to the amount is made.
Link with subpart DA
(8)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: accounting year, amount, assessable income, association, association rebate, capital limitation, deduction, general permission, imputation credit, income, income year, member, mutual transaction, net income, net loss, pay, share, statutory producer board
Compare: 2004 No 35 s HF 1(2), (3)(a), (b), (4)
Section DV 19(1): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 25(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DV 19(1)(a): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DV 19(2)(a): amended (with effect on 1 April 2008), on 18 March 2019, by section 156(1) (and see section 156(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DV 19(3): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 25(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DV 19(4): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DV 19(6)(a): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(3)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DV 19(6)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(3)(b) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DV 19 list of defined terms accounting year: inserted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 25(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Partners and partnerships
Heading: inserted, on 1 April 2008, by section 10(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
DV 20 Partners
A person who is a partner is allowed a deduction for expenditure or loss to the extent to which the deduction results from the application of subpart HG (Joint venturers, partners, and partnerships) to them and their partnership.
Defined in this Act: amount, deduction, partner, partnership
Section DV 20: inserted, on 1 April 2008, by section 10(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
DV 21 Losses for QCs entering partnership regime
When this section applies
(1)
This section applies to a person when,—
(a)
for an income year, a person’s partnership (the partnership) has effectively replaced a qualifying company or companies under a QCP transitional process; and
(b)
ignoring the application of section HZ 4B(3) (Qualifying companies: transition into partnership), the company or companies would have had loss balances to carry forward to the first or second income year, as applicable, starting on or after 1 April 2011 (the relevant transitional income year).
Losses extinguished
(2)
Despite section HZ 4B(3), for the relevant transitional income year and subsequent income years, a loss balance under Part I (Treatment of tax losses) is cancelled if the loss balance arose in relation to an income year before the relevant transitional income year.
Deduction
(3)
The person is allowed a deduction for an amount equal to an amount given by the formula in subsection (4), to the extent to which it is equal to or less than the net income the person would have for the income year if they were treated as having only income and deductions arising from the application of subpart HG (Joint venturers, partners, and partnerships) for the partnership.
Deduction formula
(4)
For the purposes of subsection (3), the amount is calculated using the formula—
(loss balance extinguished − subsequent deductions) × partnership share.
Definition of items in formula
(5)
In the formula,—
(a)
loss balance extinguished is the loss balance cancelled under subsection (2):
(b)
subsequent deductions is the total amount of deductions allowed for previous income years under this section for all persons with a partnership share in the partnership:
(c)
partnership share is the person’s average partnership share for the partnership for the income year.
Exception
(6)
Despite subsection (3), a person is not allowed a deduction for an amount in subsection (4) to the extent to which—
(a)
it arises from an amount carried forward under subparts IA and IQ (which relate to the treatment of foreign losses); and
(b)
it is greater than the maximum amount they may subtract from their net income under subpart IQ, treating the amount as an attributed CFC net loss or a FIF net loss carried forward under subpart IQ, and the person as having the net income they would have for the income year if they were treated as having only income and deductions arising from the application of subpart HG for the partnership.
Link with subpart DA
(7)
This section overrides the general permission and the general limitations.
Defined in this Act: amount, attributed CFC net loss, company, deduction, FIF net loss, general limitation, general permission, income, income year, loss balance, net income, partnership, partnership share, QCP transitional process, qualifying company
Section DV 21: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Look-through companies
Heading: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DV 22 Owners of look-through companies
A person who has an effective look-through interest for a look-through company has a deduction to the extent to which a deduction results from the application of subpart HB (Look-through companies) to them and the look-through company.
Defined in this Act: deduction, effective look-through interest, look-through company
Section DV 22: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DV 23 Losses for QCs entering look-through companies rules
When this section applies
(1)
This section applies to a person who has an effective look-through interest for a look-through company (the LTC) for an income year when—
(a)
the LTC was a qualifying company that first becomes a look-through company for the first or second income year that starts on or after 1 April 2011; and
(b)
but for becoming a look-through company and the application of section HB 3 (Loss balances extinguished), there would have been a loss balance to carry forward to the first or second income year that starts on or after 1 April 2011 (the relevant transitional income year).
Deduction
(2)
The person is allowed a deduction for an amount equal to an amount given by the formula in subsection (3), to the extent to which it is equal to or less than the net income the person would have for the income year if they were treated as having only income and deductions arising from the application of subpart HB (Look-through companies) for the LTC.
Deduction formula
(3)
For the purposes of subsection (2), the amount is calculated using the formula—
(loss balance extinguished − subsequent deductions) × effective interest.
Definition of items in formula
(4)
In the formula,—
(a)
loss balance extinguished is the loss balance that would have been carried forward to the relevant transitional income year:
(b)
subsequent deductions is the total amount of deductions allowed for previous income years under this section for all persons with an effective look-through interest for the LTC:
(c)
effective interest is the person’s average effective look-through interest for the income year for the LTC.
Exception
(5)
Despite subsection (2), a person is denied a deduction for an amount in subsection (3) to the extent to which—
(a)
it arises from an amount carried forward under subparts IA and IQ (which relate to the treatment of foreign losses); and
(b)
it is greater than the maximum amount they may subtract from their net income under subpart IQ, treating the amount as an attributed CFC net loss or a FIF net loss carried forward under subpart IQ, and the person as having the net income they would have for the income year if they were treated as having only income and deductions arising from the application of subpart HB for the LTC.
Link with subpart DA
(6)
This section overrides the general permission and the general limitations.
Defined in this Act: amount, attributed CFC net loss, deduction, effective look-through interest, FIF net loss, general limitation, general permission, income, income year, look-through company, loss balance, net income, qualifying company
Section DV 23: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Sole traders
Heading: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DV 24 Losses for QCs becoming sole traderships
When this section applies
(1)
This section applies to a person when,—
(a)
for an income year, the person’s sole tradership has effectively replaced a qualifying company under a QCST transitional process; and
(b)
ignoring the application of section HZ 4D(3) (Qualifying companies: transition into sole traderships), the company would have had a loss balance to carry forward to the first or second income year, as applicable, starting on or after 1 April 2011 (the relevant transitional income year).
Losses extinguished
(2)
Despite section HZ 4D(3), for the relevant transitional income year and subsequent income years, a loss balance under Part I (Treatment of tax losses) is cancelled if the loss balance arose in relation to an income year before the relevant transitional income year.
Deduction
(3)
The person is allowed a deduction for an amount equal to an amount given by the formula in subsection (4).
Deduction formula
(4)
For the purposes of subsection (3), the amount is calculated using the following formula:
loss balance extinguished − subsequent deductions.
Definition of items in formula
(5)
In the formula,—
(a)
loss balance extinguished is the loss balance cancelled under subsection (2):
(b)
subsequent deductions is the total amount of deductions allowed for previous income years under this section.
Exception
(6)
Despite subsection (3), a person is denied a deduction for an amount in subsection (4) to the extent to which—
(a)
it arises from an amount carried forward under subparts IA and IQ (which relate to the treatment of foreign losses); and
(b)
it is greater than the maximum amount they may subtract from their net income under subpart IQ, treating the amount as an attributed CFC net loss or a FIF net loss carried forward under subpart IQ.
Link with subpart DA
(7)
This section overrides the general permission and the general limitations.
Defined in this Act: amount, attributed CFC net loss, deduction, FIF net loss, general limitation, general permission, income, income year, loss balance, net income, QCST transitional process, qualifying company
Section DV 24: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DV 25 Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests
Deduction
(1)
A person is allowed a deduction for the amount of expenditure that the person has under section EM 6 (Income and expenditure for fair dividend rate hedge portions).
Link with subpart DA
(2)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission
Section DV 25: inserted, on 17 July 2013, by section 35 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Reinstatement of R&D tax losses
Heading: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on 24 February 2016, by section 111(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DV 26 Deduction for reinstatement of R&D tax losses
Deduction
(1)
A person is allowed a deduction for the amount given by section MX 7(7) (Reinstatement of R&D tax losses and R&D repayment tax).
Allocation of deduction
(2)
The deduction is allocated to the income year in which the person incurs the expenditure of the R&D repayment tax.
Link with subpart DA
(3)
This section overrides the general permission and the general limitations.
Defined in this Act: deduction, general limitation, general permission, income year, R&D repayment tax
Section DV 26: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on 24 February 2016, by section 111(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Employee share schemes
Heading: inserted, on 29 September 2018, by section 61 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DV 27 Employee share schemes
When this section applies
(1)
This section applies when a person is party to an employee share scheme.
No deduction except as provided by this section
(2)
Except as provided by this section, the person is denied a deduction for an amount of expenditure or loss for an income year incurred in relation to the employee share scheme.
Interest, establishment and management
(3)
Subsection (2) does not apply to an amount of expenditure or loss to the extent to which the amount relates to—
(a)
a loan or interest:
(b)
establishing or managing the employee share scheme.
Deduction under section CE 2(3)
(4)
The person is allowed a deduction for the amount of the deduction they are allowed under section CE 2(3) (Benefits under employee share schemes) for the income year.
Employment income
(5)
The person is allowed a deduction for an amount of expenditure or loss incurred on employment income other than under section CE 1(1)(d) (Amounts derived in connection with employment).
Deduction for benefit
(6)
If the person is the employing or contracting company for an employee share scheme beneficiary described in section CE 7(a)(i) or (ii) (Meaning of employee share scheme) (the employee), the person has an amount of expenditure or loss calculated using the formula in subsection (7).
Formula
(7)
For the purposes of subsection (6), the amount of the expenditure or loss is the positive amount calculated using the formula—
employee amount − previous deductions.
Definition of items in formula
(8)
In the formula,—
(a)
employee amount is the amount for the employee calculated under the formula in section CE 2(1):
(b)
previous deductions is the total amount of deductions that have been allowed to a party to the employee share scheme or an associate for expenditure or loss incurred—
(i)
in relation to the employee amount; and
(ii)
before the date that is 6 months after the date of Royal assent for the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018.
Income
(9)
A negative amount calculated using the formula in subsection (7) is an amount of income of the person.
Link with subpart DA
(10)
Subsection (4) supplements the general permission. Subsection (4) overrides the employment limitation.
Defined in this Act: amount, associated person, company, deduction, employee share scheme, employee share scheme beneficiary, employment income, employment limitation, general permission, income, income year, interest, loan, share
Section DV 27: inserted, on 29 September 2018, by section 61 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DV 28 Exempt employee share schemes
When this section applies
(1)
This section applies when a person is party to an exempt ESS.
No deduction
(2)
The person is denied a deduction for expenditure or loss in relation to the exempt ESS, except to the extent to which the expenditure or loss relates to establishing or managing the exempt ESS.
Defined in this Act: exempt ESS, deduction
Section DV 28: inserted, on 29 March 2018 (applying on and after that date, or 6 April 2017 if shares under the exempt ESS were acquired after that date in other than the ordinary course of the exempt ESS), by section 62(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Subpart DW—Expenditure specific to certain industries
Contents
DW 1 Airport operators
No deduction (with exception)
(1)
An airport operator is denied a deduction for expenditure or loss to the extent to which the expenditure or loss is, in terms of the joint venture agreement that relates to the airport operator, a charge against any part of the joint income of the parties to the agreement that has been allocated or distributed to any party.
Meaning of expenditure
(2)
In subsection (1), expenditure includes a provision that is treated as expenditure or loss in the nature of interest under sections HR 5 and HR 6 (which relate to airport operators).
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: airport operator, deduction, expenditure, general permission, income, joint venture agreement
Compare: 2004 No 35 s DW 1
DW 2 Bloodstock racing
No deduction
(1)
A person is denied a deduction for expenditure or loss that they incur—
(a)
on the racing of bloodstock; or
(b)
in relation to the racing of bloodstock.
No deduction (with exception)
(2)
A person is denied a deduction for expenditure or loss that they incur in preparing bloodstock for racing, except, first, when—
(a)
the person is in the business of breeding bloodstock; and
(b)
they incur the expenditure or loss in preparing for disposal of bloodstock that they are preparing for racing; and
(c)
they do not race the bloodstock on which they incur the expenditure or loss.
No deduction (with exception)
(3)
A person is denied a deduction for expenditure or loss that they incur in preparing bloodstock for racing, except, second, when—
(a)
the person incurs the expenditure or loss in preparing the bloodstock for racing; and
(b)
they receive consideration for preparing the bloodstock for racing; and
(c)
the consideration is income of the person.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: bloodstock, business, deduction, general permission, income, loss
Compare: 2004 No 35 s DW 2
Section DW 2(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DW 3 Non-resident general insurers and shippers
No deduction
(1)
A person listed in subsection (2) is denied a deduction for expenditure incurred in deriving the income described in the relevant section.
Persons
(2)
The persons referred to in subsection (1) are—
(a)
a non-resident person who derives income under section CR 3 (Income of non-resident general insurer):
(b)
a non-resident person who derives income under section CV 16 (Non-resident shippers) for cargo, mail, or passengers shipped outside New Zealand.
(c)
[Repealed]Non-resident shipper’s expenditure on depreciation
(3)
The non-resident person referred to in subsection (2)(b) has no amount of depreciation loss in relation to that income.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: amount, deduction, depreciation loss, film, general permission, income, insurer, New Zealand, non-resident
Compare: 2004 No 35 ss FC 15, FC 20, FC 21(3), (5)
Section DW 3 heading: replaced, on 2 November 2012, by section 26(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DW 3(2)(b): amended, on 2 November 2012, by section 26(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DW 3(2)(c): repealed, on 2 November 2012, by section 26(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DW 3B Lloyd’s of London: deductions for life insurance business
No deductions
(1)
Lloyd’s of London is denied a deduction for expenditure incurred in deriving income under section CR 3B (Lloyd’s of London: income from life insurance premiums).
Link with subpart DA
(2)
This section overrides the general permission.
Defined in this Act: deduction, general permission, income, Lloyd’s of London, premium
Section DW 3B: inserted, on 29 March 2018 (with effect on 1 April 2017 and applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 63(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
DW 4 Deduction for general insurance outstanding claims reserve
When this section applies
(1)
This section applies for—
(a)
an insurer who—
(i)
uses IFRS 4, Appendix D, or IFRS 17 for general insurance contracts:
(ii)
is a life insurer who has general insurance contracts; and
(b)
general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.
When this section does not apply
(1B)
This section does not apply for contracts that section DZ 10 (General insurance with risk period straddling 1 July 1993) applies to.
No deduction on account of claims
(2)
For an insurer’s general insurance contracts, the insurer is denied a deduction relating to the insurer’s outstanding claims liability or for a claim’s expenditure or loss, except as provided by this section.
Formula for insurer’s OCR deduction
(3)
For an income year (the current year), an insurer is allowed a deduction for the amount by which zero is greater than the amount calculated using the formula—
opening outstanding claims reserve − closing outstanding claims reserve.
Definition of items in formula
(4)
In the formula,—
(a)
opening outstanding claims reserve is—
(i)
the amount of the insurer’s closing outstanding claims reserve for the income year before the current year (the prior year), if none of subparagraphs (ii), (iii), and (iv) applies; or
(ii)
the amount of the insurer’s reserve for outstanding claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the first year that this section applies to the insurer; or
(iii)
the amount of the insurer’s reserve for outstanding claims liability, calculated at the end of the prior year using the basis the insurer used for tax purposes in that prior year for general insurance contracts, if the insurer is a general insurer and the current year is the first year in which the insurer adopts IFRS 17 for general insurance contracts; or
(iv)
the amount of the insurer’s reserve for outstanding claims liability, calculated at the end of the prior year using the basis the insurer used for tax purposes in that prior year for general insurance contracts, if the insurer is a life insurer with general insurance contracts who does not adopt IFRS 17 in the current year and the current year is the first year in which the insurer applies the definition of present value (gross) in section EY 24(5) (Outstanding claims reserving amount: non-participation policies not annuities):
(b)
closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.
Contracts transferred to insurer
(4B)
If a person (the transferor) transfers a general insurance contract (the contract) to the insurer by a transfer to which section ED 3(1B) (Part-year tax calculations for transfers: general insurance OCR) applies, the amount of the item opening outstanding claims reserve for the contract under subsection (4) for the insurer is the amount calculated using the formula—
unreported claim events + reported claims unpaid + risk adjustment.
Definition of items in formula in subsection (4B)
(4C)
In the formula in subsection (4B),—
(a)
unreported claim events is the actuarially determined estimate of the present value of claims, not reported to the transferor before the transfer, for events occurring before the transfer,—
(i)
taking into account the probability of the claims being paid and the future expenses for administering the claims; and
(ii)
after subtracting the present value of relevant reinsurance claims of the insurer:
(b)
reported claims unpaid is the actuarially determined estimate of the present value of the claims reported to the transferor before the transfer and not paid before the transfer,—
(i)
taking into account the probability of the claims being paid and the future expenses for administering the claims; and
(ii)
after subtracting the present value of relevant reinsurance claims of the insurer:
(c)
risk adjustment is the appropriate adjustment for claims described in paragraph (a) or (b), to the extent to which the adjustment—
(i)
is actuarially determined; and
(ii)
reflects the uncertainty of the estimates arising from the use of the relevant best estimate assumptions; and
(iii)
is not already included in the risk components of the claims.
Deduction for payments of current claims
(5)
The insurer is allowed a deduction for the amount of expenditure or loss of a claim paid to an insured under a general insurance contract for the income year.
Link with subpart DA
(6)
This section supplements the general permission. The general limitations still apply, except that the capital limitation does not apply for general insurance contracts after they are transferred to an insurer.
Defined in this Act: actuarially determined, amount, best estimate assumptions, capital limitation, deduction, general insurance, general limitation, general permission, IFRS 4, IFRS 17, income year, insurer, life insurer, New Zealand resident, non-resident, outstanding claims reserve, pay, present value (gross)
Section DW 4: added (with effect on 1 April 2008), on 6 October 2009, by section 109(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DW 4(1)(a)(i): amended (with effect on 1 January 2023), on 31 March 2023, by section 49(1) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(1B) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 36(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DW 4(1B): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 36(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DW 4(4)(a)(i): amended (with effect on 1 January 2023), on 31 March 2023, by section 49(2) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(4)(a)(ii): amended (with effect on 1 January 2023), on 31 March 2023, by section 49(3) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(4)(a)(iii): inserted (with effect on 1 January 2023), on 31 March 2023, by section 49(4) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(4)(a)(iv): inserted (with effect on 1 January 2023), on 31 March 2023, by section 49(4) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(4B) heading: inserted, on 1 April 2014, by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4(4B): inserted, on 1 April 2014, by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4(4B) formula: amended (with effect on 1 January 2023), on 31 March 2023, by section 49(5) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(4C) heading: inserted, on 1 April 2014, by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4(4C): inserted, on 1 April 2014, by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4(4C)(c): amended (with effect on 1 January 2023), on 31 March 2023, by section 49(6)(a) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(4C)(c): amended (with effect on 1 January 2023), on 31 March 2023, by section 49(6)(b) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(4C)(c): amended (with effect on 1 January 2023), on 31 March 2023, by section 49(6)(c) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4(6): amended (with effect on 7 September 2010), on 2 November 2012, by section 27(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DW 4 list of defined terms actuarially determined: inserted, on 1 April 2014, by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4 list of defined terms best estimate assumptions: inserted, on 1 April 2014, by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4 list of defined terms capital limitation: inserted (with effect on 7 September 2010), on 2 November 2012, by section 27(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DW 4 list of defined terms general insurance: inserted, on 1 April 2014, by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4 list of defined terms general insurance contract: repealed (with effect on 1 April 2008), on 7 September 2010, by section 26(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DW 4 list of defined terms IFRS 17: inserted (with effect on 1 January 2023), on 31 March 2023, by section 49(7) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DW 4 list of defined terms New Zealand resident: inserted, on 1 April 2014, by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4 list of defined terms non-resident: inserted, on 1 April 2014, by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DW 4 list of defined terms pay: inserted (with effect on 1 April 2008), on 7 September 2010, by section 26(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DW 4 list of defined terms present value (gross): inserted (with effect on 1 January 2023), on 31 March 2023, by section 49(7) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
DW 5 Aircraft operators: aircraft engines and aircraft engine overhauls
When this section applies
(1)
This section applies for a person when—
(a)
the person carries on a business involving the operation of an aircraft that includes an aircraft engine; and
(b)
the person is required to maintain and repair the aircraft engine and pieces of the aircraft engine, when operating the aircraft, and to perform successive aircraft engine overhauls of the aircraft engine at intervals no greater than the scheduled overhaul period for the aircraft engine.
Deduction for aircraft engine overhaul
(2)
For expenditure incurred by the person in carrying out an aircraft engine overhaul of an aircraft engine—
(a)
the person has a deduction to the extent to which the process does not produce a significant increase in the performance of the aircraft engine by comparison with the aircraft engine’s performance specifications before the aircraft engine overhaul:
(b)
an amount for which the person does not have a deduction under paragraph (a)—
(i)
is an increase in the cost of the aircraft to the person, if the aircraft engine is an unpriced aircraft engine; or
(ii)
is an increase in the cost of the aircraft engine to the person, otherwise.
Deduction for aircraft engine when acquired for price
(3)
A person who acquires an aircraft engine for use with an aircraft, other than as an unpriced aircraft engine with the aircraft, has a deduction of an amount given by subsection (4)—
(a)
for expenditure incurred in acquiring the aircraft engine, if the aircraft engine is acquired other than under a finance lease; or
(b)
for part of the value of the aircraft engine determined under section EW 32 (Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease), if the aircraft engine is acquired under a finance lease.
Amount of deduction under subsection (3)
(4)
The amount of the person’s deduction under subsection (3) is—
(a)
equal to the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition, if—
(i)
when the aircraft engine is acquired, the aircraft engine has not been used significantly since being manufactured or having an aircraft engine overhaul; and
(ii)
the estimated cost is less than the amount referred to in paragraph (c); or
(b)
equal to a fraction, calculated from the proportion of the scheduled overhaul period for the aircraft engine that is unexpired when the aircraft engine is acquired, of the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition, if the fraction of the estimated cost is less than the amount referred to in paragraph (c); or
(c)
equal to the expenditure incurred in acquiring the aircraft engine, if the amount is not given by paragraph (a) or (b).
Deduction for unpriced aircraft engine when acquired
(5)
A person who acquires an aircraft including an unpriced aircraft engine has a deduction of an amount given by subsection (6)—
(a)
for part of the expenditure incurred in acquiring the aircraft, if the aircraft is acquired other than under a finance lease; or
(b)
for part of the value of the aircraft determined under section EW 32, if the aircraft is acquired under a finance lease.
Amount of deduction under subsection (5)
(6)
The amount of the person’s deduction under subsection (5) is—
(a)
equal to the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition, based on market prices, if the aircraft engine, when acquired, has not been used significantly since being manufactured or having an aircraft engine overhaul; or
(b)
equal to a fraction, calculated from the proportion of the scheduled overhaul period for the aircraft engine that is unexpired when the aircraft is acquired, of the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition based on market prices; or
(c)
equal to a fraction, agreed with the Commissioner, of the expenditure incurred in acquiring the aircraft including the unpriced aircraft engine.
Exception: person making election under section EJ 26
(7)
If a person has made an election under section EJ 26 (Allocation of expenditure on aircraft engine overhauls: election by operator of single aircraft),—
(a)
the person is not allowed a deduction referred to in subsection (3) or (5); and
(b)
each aircraft engine of the person is an unpriced aircraft engine for the purposes of this section.
Expenditure on piece fitted to aircraft in aircraft engine overhaul
(8)
The amount of expenditure incurred by a person, in carrying out an aircraft engine overhaul, for a piece that is fitted as a replacement piece to the aircraft as part of the aircraft engine overhaul is—
(a)
the adjusted tax value of the piece for the person before the piece is fitted, if the piece is an item of depreciable property before being fitted:
(b)
the portion of the person’s expenditure on the piece that is unexpired before the piece is fitted, otherwise.
Link with subpart DA
(9)
This section overrides the capital limitation. The other general limitations still apply.
Defined in this Act: adjusted tax value, aircraft engine, aircraft engine overhaul, business, capital limitation, deduction, depreciable property, finance lease, general limitation, scheduled overhaul period, unpriced aircraft engine
Section DW 5: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 52(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
DW 6 Aircraft operators: payments and adjustments under finance leases
When this section applies
(1)
This section applies when a person leasing under a finance lease an aircraft engine, or an aircraft including an unpriced aircraft engine, meets the requirements of section DW 5(1) for being allowed a deduction for expenditure incurred in performing an aircraft engine overhaul of the aircraft engine.
Payments during lease to lessor towards aircraft engine maintenance
(2)
If, during the term of the lease, the person pays an amount under the lease to the lessor towards the cost of aircraft engine overhauls,—
(a)
the person does not have a deduction for the payment; and
(b)
a payment of a corresponding amount by the lessor to the person when the person incurs expenditure in performing an aircraft engine overhaul of the aircraft engine is not income of the person.
Deduction for surplus payments
(3)
If, at the end of the lease, the total amount of the payments referred to in subsection (2)(a) exceed the total amount of the payments referred to in subsection (2)(b), the person has a deduction for the income year in which the lease ends equal to the amount of the excess.
Payments at end of lease by or to lessor for aircraft engine maintenance
(4)
If the lease requires the person to pay to the lessor, or the lessor to pay to the person, at the end of the lease an amount that is calculated from the cost of an aircraft engine overhaul and the proportion of the scheduled overhaul period for the aircraft engine that is expired when the lease ends,—
(a)
an amount that the person is required to pay is allowed as a deduction of the person; and
(b)
an amount that the person is entitled to receive is income of the person under section CG 4(2) (Receipts for expenditure or loss from insurance, indemnity, or otherwise).
Relationship with section CG 4
(5)
This section overrides section CG 4.
Defined in this Act: aircraft engine, aircraft engine overhaul, deduction, finance lease, lease, lessor, pay, scheduled overhaul period, unpriced aircraft engine
Section DW 6: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 52(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Subpart DX—Other expenditure
Contents
DX 1 Testamentary annuities
When this section applies
(1)
This section applies when—
(a)
property is subject to the payment of an annuity—
(i)
because of a provision in a will; or
(ii)
because of a court order under the Family Protection Act 1955; or
(iii)
because of a deed of family arrangement; and
(b)
the property, or property substituted for it, is transferred to a beneficiary; and
(c)
the property transferred, or property that the beneficiary substitutes for it, is charged with the payment of the annuity or part of the annuity.
Deduction
(2)
The owner of the property, or the substituted property, is allowed a deduction for an amount that they pay on account of the annuity.
Exclusion
(3)
The owner is denied a deduction—
(a)
if the owner is not a beneficiary but a person who has acquired the property subject to the condition that they assume the liability for the annuity, or a part of it:
(b)
to the extent to which the annuity is payable under a court order or under a deed of family arrangement and represents consideration for the purchase of the property, or the substituted property, by the owner.
Amount of deduction
(4)
The deduction is limited in an income year to the amount that would be the net income of the owner for the corresponding tax year if the owner’s only income in the income year were from the property, or the substituted property.
Meaning of beneficiary
(5)
In this section, beneficiary—
(a)
means—
(i)
a person to whom a testator has left the property in their will; or
(ii)
a person to whom the testator has given a right to acquire the property in their will; and
(b)
includes a person who is entitled to the property under—
(i)
an order of a court under the Family Protection Act 1955; or
(ii)
a deed of family arrangement.
Link with subpart DA
(6)
This section supplements the general permission and overrides the private limitation. The other general limitations still apply.
Defined in this Act: amount, arrangement, beneficiary, deduction, general limitation, general permission, income, income year, net income, pay, private limitation, supplement, tax year
Compare: 2004 No 35 s DX 1
Section DX 1(3)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DX 1(5)(a)(ii): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DX 2 Tax credits: conduit financing arrangements
[Repealed]Section DX 2: repealed (with effect on 30 June 2009), on 6 October 2009, by section 110(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DX 3 Tax credits: supplementary dividend holding companies
[Repealed]Section DX 3: repealed, on 1 October 2012 (applying for the 2013–14 and later income years), by section 17(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Subpart DZ—Terminating provisions
Contents
DZ 1 Commercial bills before 31 July 1986
Deduction
(1)
A person is allowed a deduction if they acquire a commercial bill from another person, other than under a relationship agreement, and derive income under section CZ 6 (Commercial bills before 31 July 1986) on the redemption or disposal of the commercial bill.
Amount of deduction
(2)
The amount of the deduction is the value of the commercial bill on the date on which the person acquired it.
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, commercial bill, deduction, general limitation, general permission, income, relationship agreement, supplement
Compare: 2004 No 35 s DZ 1
DZ 2 Life insurers acquiring property before 1 April 1988
When this section applies
(1)
This section applies when—
(a)
a life insurer started carrying on the business of providing life insurance on or before the last day of the 1988–89 income year; and
(b)
on the last day of the 1987–88 income year the life insurer’s Life Insurance Fund covered some or all of the following matters:
(i)
superannuation policies; and
(ii)
pre-1983 mortgage repayment insurance policies; and
(iii)
annuities that had been granted; and
(c)
the life insurer, as part of the business, acquired property before 1 April 1988; and
(d)
the life insurer, as part of the business, disposes of the property; and
(e)
either—
(i)
the life insurer has not already been allowed a deduction for the property, whether under section DR 2 (Disposal of property) or any other provision; or
(ii)
the life insurer has been allowed a deduction for the property, but only for an amount of depreciation loss or because of the application of the old financial arrangements rules or the financial arrangements rules; and
(f)
section DR 2 does not apply to the disposal.
Deduction
(2)
The life insurer is allowed a deduction for the amount quantified in section EZ 1 (Life insurers acquiring property before 1 April 1988).
Meaning of superannuation policy
(3)
Superannuation policy means a life insurance policy—
(a)
that—
(i)
is vested in a superannuation fund that was or was treated as being a superannuation category 1 scheme on or before 17 December 1987, not including a scheme that was classified by the Government Actuary as a personal pension superannuation scheme and that admitted new members after 17 December 1987; or
(ii)
was effected for the purposes of any such superannuation fund; or
(iii)
was accepted by any such superannuation fund for the purposes of the fund; and
(b)
that has not ceased to be a policy for the purposes of the superannuation fund.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, depreciation loss, financial arrangements rules, general limitation, general permission, income year, life insurance, Life Insurance Fund, life insurance policy, life insurer, old financial arrangements rules, pay, property, superannuation category 1 scheme, superannuation fund, superannuation policy, superannuation scheme
Compare: 2004 No 35 s DZ 2
DZ 3 Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991
Deduction
(1)
A petroleum miner is allowed a deduction for petroleum mining development expenditure incurred by them on or after 1 October 1990 and before or on 15 December 1991. This subsection is overridden by subsection (2).
Relationship with section DZ 4
(2)
The petroleum miner is denied a deduction for petroleum mining development expenditure as described in subsection (1) if it has been deducted under—
(a)
section DZ 4; or
(b)
sections 214D to 214M of the Income Tax Act 1976 as they were immediately before their repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.
Timing of deduction
(3)
The deduction is allocated under section EZ 3 (Petroleum development expenditure from 1 October 1990 to 15 December 1991).
Meaning of petroleum mining development expenditure
(4)
In this section, petroleum mining development expenditure has the same meaning as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.
Link with subpart DA
(5)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: deduction, general limitation, general permission, petroleum miner, petroleum mining development expenditure, supplement
Compare: 2004 No 35 s DZ 3
DZ 4 Expenditure on abandoned exploratory well before 16 December 1991
Deduction
(1)
A petroleum miner is allowed a deduction for expenditure that they incur before 16 December 1991 in drilling, testing, completing, and abandoning an exploratory well if—
(a)
the miner seals and abandons the well before commercial production from the well starts; and
(b)
the expenditure has not been deducted in any earlier income year.
Sealing and abandoning well
(2)
To seal and abandon an exploratory well, a petroleum miner must make a declaration under the Oaths and Declarations Act 1957 that they do not intend—
(a)
to use the exploratory well in petroleum mining operations; or
(b)
to apply for an existing privilege that is a mining licence under Part 1 of the Petroleum Act 1937 over the area containing the exploratory well.
Timing of deduction
(3)
The deduction is allocated to the income year in which the well is sealed and abandoned.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, commercial production, deduction, existing privilege, exploratory well, general limitation, general permission, income year, petroleum miner, petroleum mining operations, seal and abandonment
Compare: 2004 No 35 s DZ 4
Section DZ 4(2)(b): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 112(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DZ 5 Farm-out arrangements for petroleum mining before 16 December 1991
Deduction: excess expenditure incurred before 16 December 1991
(1)
A transferee under a farm-out arrangement is allowed a deduction of excess expenditure incurred before 16 December 1991 in a farm-out arrangement entered into before 16 December 1991, and for which a deduction has not been allowed in any earlier income year. The deduction is allowed under section DT 1 (Petroleum exploration expenditure) or DT 5 (Petroleum development expenditure).
Deduction: excess expenditure incurred on or after 16 December 1991
(2)
A transferee under a farm-out arrangement is allowed a deduction of excess expenditure incurred on or after 16 December 1991 in a farm-out arrangement entered into before 16 December 1991 if the expenditure has the character of exploratory well expenditure, petroleum exploration expenditure, or petroleum development expenditure. The deduction is allowed under section DT 1 or DT 5 to DT 7 (which relate to petroleum development expenditure) and quantified and allocated under whichever of sections EJ 12 to EJ 16 (which relate to petroleum mining) applies.
Reduction of deductions
(3)
A transferor under a farm-out arrangement entered into before 16 December 1991 must reduce, but is denied as a deduction, the deductions described in subsection (4) by the amount determined under subsection (5).
Deductions to which subsection (3) applies
(4)
The deductions to which subsection (3) applies are deductions for expenditure incurred before, on, or after 16 December 1991 that—
(a)
are not deductions of a kind referred to in subsection (5)(a) to (c); and
(b)
are attributable to—
(i)
the petroleum permit to which the farm-out arrangement relates; and
(ii)
a licence-specific asset or permit-specific asset held for conducting petroleum mining operations under the petroleum permit.
Amount of reduction
(5)
The amount of the reduction under subsection (3), in an income year, is the same amount as would have been determined under section 214I(2) and (3) of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992, as if references in section 214I(2) and (3) to deferred deductions were references to any deductions, deferred or not, attributable to the relevant permit or asset, except deductions for—
(a)
residual expenditure; and
(b)
expenditure incurred on or before the date on which the application for an existing privilege that is a prospecting licence under Part 1 of the Petroleum Act 1937 or a prospecting permit for petroleum was submitted for the relevant licence area; and
(c)
expenditure that is neither petroleum exploration expenditure nor petroleum development expenditure.
Some definitions
(6)
In subsections (2) to (5), excess expenditure, farm-out arrangement, licence-specific assets, permit-specific asset, transferee, and transferor have the same meanings as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.
Link with subpart DA
(7)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, excess expenditure, existing privilege, exploratory well expenditure, farm-out arrangement, general limitation, general permission, income year, licence-specific assets, permit-specific asset, petroleum, petroleum development expenditure, petroleum exploration expenditure, petroleum mining operations, petroleum permit, prospecting permit, residual expenditure, supplement, transferee, transferor
Compare: 2004 No 35 s DZ 5
Section DZ 5(5): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 113(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DZ 5(5)(b): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 113(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DZ 6 Partnership interests and disposal of part of asset before 16 December 1991
In sections DZ 3 to DZ 5, unless the context requires otherwise,—
(a)
a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership:
(b)
references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: dispose, income, petroleum permit
Compare: 2004 No 35 s DZ 6
DZ 7 Petroleum mining operations outside New Zealand before 16 December 1991
Sections DZ 3 to DZ 6 apply, with any necessary modifications, to a petroleum miner undertaking petroleum mining operations that are—
(a)
outside New Zealand and undertaken through a branch or a controlled foreign company; and
(b)
substantially the same as the petroleum mining activities governed by this Act.
Defined in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations
Compare: 2004 No 35 s DZ 7
DZ 8 Acquiring patent rights before 1 April 1993
When this section applies
(1)
This section applies when a person acquires patent rights before 1 April 1993 and uses them in deriving their income. In this section, if the person dies after incurring expenditure on acquiring the rights, references to the person include their personal representative, a trustee of their estate, and a beneficiary of their estate.
Deduction
(2)
The person is allowed a deduction of the amount quantified in section EZ 7(2) (Acquiring patent rights before 1 April 1993).
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission, income, patent rights, supplement, trustee
Compare: 2004 No 35 s DZ 8
Section DZ 8 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DZ 8(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section DZ 8(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
DZ 9 Premium paid on land leased before 1 April 1993
When this section applies
(1)
This section applies when a person (person A) leases land that they use in deriving their income and a grant or renewal of the lease occurs before 1 April 1993.
Deduction
(2)
Person A is allowed a deduction of the amount quantified in section EZ 8(2) (Premium paid on land leased before 1 April 1993).
Link with subpart DA
(3)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: amount, deduction, general limitation, general permission, income, lease, premium, supplement
Compare: 2004 No 35 s DZ 9
DZ 10 General insurance with risk period straddling 1 July 1993
When this section applies
(1)
This section applies when—
(a)
a company carries on a business of providing general insurance or guarantees against loss, damage, or risk, immediately before and on 1 July 1993; and
(b)
the company, as insurer, enters into an insurance contract for the general insurance in the course of carrying on the business outside New Zealand; and
(c)
the contract covers a period of risk starting before 1 July 1993 and ending after 1 July 1993.
No deduction (with exception)
(2)
The company is denied a deduction for an amount payable under the contract unless the event giving rise to the payment occurs on or after 1 July 1993.
Link with subpart DA
(3)
This section overrides the general permission.
Defined in this Act: amount, business, company, deduction, general insurance, general permission, insurance contract, New Zealand, pay
Compare: 2004 No 35 s DZ 10
DZ 11 Film reimbursement scheme on or before 30 June 2001
Film reimbursement scheme
(1)
Section DS 3 (Clawback of deductions for film reimbursement schemes) does not apply to a deduction for expenditure that relates to a film and is incurred by a person (person A) under a film reimbursement scheme if—
(a)
the scheme is entered into on or before 30 June 2001; and
(b)
the film has, under section EJ 6 (Certification of New Zealand films),—
(i)
a final certificate that it is a New Zealand film; or
(ii)
a provisional certificate, not obtained by the provision of materially incorrect information to the New Zealand Film Commission, that it is a New Zealand film; and
(c)
the film had not been completed before 7 July 1999; and
(d)
before 7 July 1999,—
(i)
1 or more contracts had been entered into for the supply of goods or services in New Zealand in relation to the film; and
(ii)
at least $1,000,000 of expenditure had been incurred under the contract or contracts; and
(e)
on or before 1 November 1999, a person who entered into a contract referred to in paragraph (d)(i) gave notice to the Commissioner that the requirements of paragraphs (c) and (d) were met; and
(f)
the expenditure for which persons are allowed a deduction under section DS 1 (Acquiring film rights) or DS 2 (Film production expenditure) is no more than 140% of the physical cost of production of the film; and
(g)
without limiting the application of section BG 1 (Tax avoidance), on the date the film reimbursement scheme is entered into, there is an expectation based on reasonable commercial assumptions that the income to be derived by person A as a result of the expenditure will be at least equal to the sum of—
(i)
all expenditure incurred by person A under the scheme; and
(ii)
a return on each amount of expenditure that is equivalent to the return on 5 year government stock measured on the date that the scheme is entered into; and
(h)
if the expenditure is incurred on depreciable intangible property of a kind listed in schedule 14 (Depreciable intangible property), the expenditure is an amount paid to person B in the circumstances described in subsection (2).
Circumstances for purposes of subsection (1)(h)
(2)
For the purposes of subsection (1)(h), the circumstances are that—
(a)
the amount paid is income of person B; or
(b)
at all times in the tax year in which the payment is made, person B—
(i)
is resident in a country or territory specified in schedule 24, part A (International tax rules: grey list countries); and
(ii)
is liable to income tax in that country or territory by reason of domicile, residence, place of incorporation, or place of management in that country or territory; and
(iii)
has calculated its income that is liable to income tax in that country or territory without applying a feature of the taxation law of the country or territory specified in schedule 24, part B.
Some definitions
(3)
In this section,—
government stock means stock issued under Part 6 of the Public Finance Act 1989
physical cost of production means the expenditure incurred in producing a film, whether incurred in New Zealand or elsewhere, other than expenditure incurred—
(a)
in marketing or selling the film; and
(b)
on depreciable intangible property of a kind listed in schedule 14.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: amount, Commissioner, completed, deduction, depreciable intangible property, film, film reimbursement scheme, general permission, government stock, income, income tax, New Zealand, notice, pay, physical cost of production, tax year, year
Compare: 2004 No 35 s DZ 11
DZ 12 Mineral mining: 1954–2005
[Repealed]Section DZ 12: repealed, on 1 April 2014, by section 43 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
DZ 13 Enhancements to land unamortised at end of 2004–05 year
When this section applies
(1)
This section applies when—
(a)
a person is allowed a deduction under section DO 4(1) of the Income Tax Act 1994, of an amount set out in section DO 4(3)(a) or (c) of that Act, for expenditure incurred in carrying on a farming or agricultural business on land in New Zealand; and
(b)
at the end of the 2004–05 income year, part of the expenditure (the unamortised balance) remains to be allowed as a deduction in later income years.
Deduction
(2)
The person is allowed a deduction for the unamortised balance of expenditure in the income year in which the expenditure is of benefit to the business.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, income year, supplement
Compare: 2004 No 35 s DZ 13
DZ 14 Deductions under specified leases
When this section applies
(1)
This section applies for the purposes of sections FZ 2 and FZ 4 (which relate to specified leases).
Lessor
(2)
In an income year in which a lessor leases a personal property lease asset to a lessee under a specified lease, the lessor is denied a deduction for an amount of depreciation loss for the asset.
Lessee
(3)
A lessee under a specified lease is denied a deduction for expenditure incurred by them under the lease except to the extent to which the expenditure—
(a)
would be allowed as a deduction to the lessee under section BD 2 (Deductions); and
(b)
is no more than the sum of the amounts calculated under section FZ 3(2)(a) (Income of lessor under specified lease) for the initial period, if any, and each instalment period that ends in the income year.
Link with subpart DA
(4)
This section overrides the general permission.
Defined in this Act: amount, deduction, depreciation loss, general permission, income year, initial period, instalment period, lessee, lessor, personal property lease asset, specified lease
DZ 15 Patent applications before 1 April 2005
When this section applies
(1)
This section applies when—
(a)
a patent is granted to a person in their 2005–06 income year or a later income year; and
(b)
the patent is granted in relation to a patent application owned by the person; and
(c)
the patent application, with a complete specification, was first lodged with the Intellectual Property Office of New Zealand or a similar office in another jurisdiction before 1 April 2005; and
(d)
a deduction for expenditure on the patent application is denied under another provision.
Calculation of deduction
(2)
The person is allowed, in the income year in which the patent is granted, a deduction for expenditure on the patent application in any income year, calculated using the formula—
(months of ownership ÷ 240) × cost.
Definition of items in formula
(3)
In the formula,—
(a)
months of ownership is the number of whole calendar months for which the person owns the patent application:
(b)
cost is the cost to the person of the patent application.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, income year
Compare: 2004 No 35 s DZ 14
DZ 16 Geothermal wells between 31 March 2003 and 17 May 2006
When this section applies
(1)
This section applies to a person’s geothermal well when—
(a)
the well’s geothermal energy proving period ends between 31 March 2003 and 17 May 2006; and
(b)
the well is—
(i)
both started and completed between 31 March 2003 and 17 May 2006:
(ii)
acquired between 31 March 2003 and 17 May 2006; and
(c)
a deduction for expenditure on the well is denied under another provision.
Deduction
(2)
In the income year in which the well’s geothermal energy proving period ends, the person is allowed a deduction for expenditure incurred on the well.
Link with subpart DA
(3)
This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.
Defined in this Act: capital limitation, deduction, general limitation, general permission, geothermal energy proving period, geothermal well, income year, supplement
Compare: 2004 No 35 s DZ 15
DZ 17 Expenditure on improvements to aquacultural business before 1995–96 income year
When this section applies
(1)
This section applies in an income year when a person incurs expenditure—
(a)
before the 1995–96 income year in making an improvement for the purposes of an aquacultural business; and
(b)
for which they would be allowed under section DO 12 (Improvements to aquacultural business) a deduction in the income year if the expenditure had been incurred in the 1995–96 income year or a later income year.
Deduction
(2)
The person is allowed a deduction in the income year of an amount calculated using the formula—
125% × schedule percentage × diminished value.
Definition of items in formula
(3)
In the formula,—
(a)
schedule percentage is the percentage set out opposite the description of the improvement in schedule 20, parts B to F, column 2 (Expenditure on farming, horticultural, aquacultural, and forestry improvements):
(b)
diminished value is the diminished value of the improvement.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year
Compare: 2004 No 35 s DZ 16
DZ 18 Expenditure on improvements to forestry land before 1995–96 income year
When this section applies
(1)
This section applies in an income year when a person incurs expenditure—
(a)
before the 1995–96 income year in making an improvement on land; and
(b)
for which they would be allowed under section DP 3 (Improvements to forestry land) a deduction in the income year if the expenditure had been incurred in the 1995–96 income year or a later income year.
Deduction
(2)
The person is allowed a deduction in the income year of an amount calculated using the formula—
125% × schedule percentage × diminished value.
Definition of items in formula
(3)
In the formula,—
(a)
schedule percentage is the percentage set out opposite the description of the improvement in schedule 20, part G, column 2 (Expenditure on farming, horticultural, aquacultural, and forestry improvements):
(b)
diminished value is the diminished value of the improvement.
Link with subpart DA
(4)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital limitation, deduction, diminished value, general limitation, general permission, income year, land
Compare: 2004 No 35 s DZ 17
DZ 19 Attributed CFC loss carried back under section EZ 32C
[Repealed]Section DZ 19: repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 28(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DZ 20 Expenditure incurred while income-earning activity interrupted by Canterbury earthquake
When this section applies
(1)
This section applies for a person and an income year (the current year) before the 2024–25 income year when—
(a)
the person has an income-earning activity in greater Christchurch (as defined in section 4 of the Canterbury Earthquake Recovery Act 2011) immediately before a Canterbury earthquake (as defined in that section); and
(b)
the activity is interrupted for a period (the period of interruption) as a result of the Canterbury earthquake; and
(c)
in the current year, during the period of interruption, the person incurs expenditure or loss (the interruption expenditure) in meeting an obligation relating to the income-earning activity; and
(d)
the interruption expenditure does not meet the requirements of the general permission for the person and the income-earning activity but would do so but for the interruption; and
(e)
the person resumes the income-earning activity in an income year (the resumption year) before the 2024–25 income year.
Deduction for interruption expenditure
(2)
The person is allowed a deduction for the interruption expenditure.
Timing of deduction
(3)
The deduction is allocated to the resumption year.
Link with subpart DA
(4)
This section supplements the general permission; the general limitations still apply.
Defined in this Act: deduction, general limitation, general permission, income, income year, loss
Section DZ 20: replaced, on 1 April 2016 (applying for the 2016–17 and later income years), by section 44(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section DZ 20(1): amended (with effect on 1 April 2016), on 18 March 2019, by section 157 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section DZ 20(1)(e): amended (with effect on 1 April 2016), on 18 March 2019, by section 157 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
DZ 21 Transfer in 2013–14 income year of assets to which subpart DG applies
When this section applies
(1)
This section applies when—
(a)
a company has on 31 March 2013 an asset described in section DG 3 (Meaning of asset for this subpart); and
(b)
the asset is transferred before the end of the company’s 2013–14 income year to—
(i)
1 or more of the company’s shareholders in proportion to their shareholding:
(ii)
1 or more of the shareholders of a shareholder in proportion to their shareholding; and
(c)
the company chooses to apply this section.
Disposal by transferor
(2)
For the purposes of section CG 1 (Amount of depreciation recovery income) and subpart EE (Depreciation),—
(a)
the company is treated as disposing of the asset for an amount equal to the adjusted tax value of the asset on the day of the transfer; and
(b)
the shareholder is treated as having—
(i)
acquired the asset on the date on which the company acquired it for an amount equal to the amount the company paid to acquire it; and
(ii)
used the asset for the purposes for which the company used it; and
(iii)
used the depreciation method used by the company in relation to the asset; and
(iv)
been allowed a deduction for an amount of depreciation loss that the company has been allowed since the company’s acquisition of the asset.
Allocation to shareholders
(3)
For the purposes of subsection (2), if more than 1 shareholder referred to in subsection (1)(b) acquires the asset, their share of the cost of the asset and the amount of depreciation loss is based on the proportion of their voting interests in the company.
Example
On 31 March 2013, Boat Co has a boat with an acquisition cost of $85,000. The boat meets the various requirements set out in subpart DG. All the shares in BoatCo are owned by Michelle. The boat has a market value of $75,000, and an adjusted tax value of $55,000. BoatCo transfers the boat to Michelle without payment (which is treated as a dividend of $75,000). For depreciation purposes, BoatCo is treated as disposing of the boat for $55,000, and Michelle is treated as acquiring it for $85,000, and having been allowed a deduction of $30,000 for depreciation loss in past income years.
Defined in this Act: adjusted tax value, amount, asset, company, deduction, depreciation loss, income year, pay, shareholder, voting interest
Section DZ 21: inserted (with effect on 1 April 2013), on 17 July 2013, by section 37 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DZ 21 heading: replaced (with effect on 1 April 2013 and applying for the 2013–14 and later income years but not applying in relation to an asset when a shareholder who acquires the asset disposes of it before the date of introduction of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill), on 30 June 2014, by section 58(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21(2) heading: replaced (with effect on 1 April 2013 and applying for the 2013–14 and later income years but not applying in relation to an asset when a shareholder who acquires the asset disposes of it before the date of introduction of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill), on 30 June 2014, by section 58(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21(2): replaced (with effect on 1 April 2013 and applying for the 2013–14 and later income years but not applying in relation to an asset when a shareholder who acquires the asset disposes of it before the date of introduction of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill), on 30 June 2014, by section 58(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21(3) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years but not applying in relation to an asset when a shareholder who acquires the asset disposes of it before the date of introduction of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill), on 30 June 2014, by section 58(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21(3): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years but not applying in relation to an asset when a shareholder who acquires the asset disposes of it before the date of introduction of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill), on 30 June 2014, by section 58(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21 example: amended (with effect on 1 April 2013), on 30 June 2014, by section 59 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21 list of defined terms deduction: inserted (with effect on 1 April 2013), on 30 June 2014, by section 58(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21 list of defined terms depreciation loss: inserted (with effect on 1 April 2013), on 30 June 2014, by section 58(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21 list of defined terms pay: inserted (with effect on 1 April 2013), on 30 June 2014, by section 58(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section DZ 21 list of defined terms voting interest: inserted (with effect on 1 April 2013), on 30 June 2014, by section 58(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
DZ 22 Aircraft maintenance: aircraft engines acquired before 2017–18 income year
When this section applies
(1)
This section applies when—
(a)
a person, before the 2017–18 income year, acquires an aircraft engine or an aircraft including an unpriced aircraft engine; and
(b)
the person is required to perform aircraft engine overhauls of the aircraft engine when operating the aircraft; and
(c)
the adjusted tax value of the aircraft engine or aircraft is reduced at the beginning of the 2017–18 income year by an amount under section EZ 23BA (Aircraft acquired before 2017–18 income year: adjusted tax value, base value, reduced; total deductions increased); and
(d)
the person does not make an election under section EJ 26 (Allocation of expenditure on aircraft engine overhauls: election by operator of single aircraft) for the 2017–18 income year.
Deduction if aircraft engine overhaul since acquisition
(2)
If the person has performed an aircraft engine overhaul of the aircraft engine before the beginning of the 2017–18 income year, the person has a deduction for the 2017–18 income year of an amount equal to the amount of the reduction referred to in subsection (1)(c).
Deduction in absence of aircraft engine overhaul since acquisition
(3)
If the person has not performed an aircraft engine overhaul of the aircraft engine before the beginning of the 2017–18 income year, the person has a deduction,—
(a)
for the 2017–18 income year, of an amount equal to the amount of the reduction referred to in subsection (1)(c), reduced by an amount that, as a proportion of the reduction, corresponds to the proportion of the scheduled overhaul period for the aircraft engine that is unexpired at the end of the 2017–18 income year:
(b)
for an income year later than the 2017–18 income year, of an amount that, as a proportion of the reduction referred to in subsection (1)(c), corresponds to the proportion of the scheduled overhaul period of the aircraft engine that is included in the income year.
Defined in this Act: adjusted tax value, aircraft engine, aircraft engine overhaul, deduction, income year, scheduled overhaul period, unpriced aircraft engine
Section DZ 22: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 53(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
DZ 23 Aircraft maintenance: tax accounting provisions for expenditure incurred after 2016–17 income year
When this section applies
(1)
This section applies when a person has at the beginning of the 2017–18 income year an amount (the anticipated deduction) of a tax accounting provision, for expenditure on aircraft maintenance, that is included as a deduction in the calculation of the person’s taxable income for an earlier income year although the amount is not a deduction allowed by this Act for the earlier income year.
Expenditure on aircraft maintenance other than aircraft engine overhauls
(2)
For the earliest income year, after the 2016–17 income year, in which the person incurs expenditure on the maintenance of an aircraft other than an aircraft engine overhaul, the person—
(a)
is not allowed a deduction for the expenditure to the extent to which the expenditure in the income year is offset by an anticipated deduction for expenditure on such maintenance; and
(b)
if the anticipated deduction for such expenditure exceeds the amount of the expenditure in the income year, derives income under section CZ 34 (Income arising from tax accounting provision for aircraft engine overhauls) equal to the amount of the excess.
Expenditure on aircraft engine overhauls
(3)
For income years after the 2016–17 income year in which the person incurs expenditure on an aircraft engine overhaul, beginning with the earliest such income year,—
(a)
the person is not allowed a deduction for the expenditure to the extent to which the expenditure in the income year is offset by an anticipated deduction for expenditure on an aircraft engine overhaul; and
(b)
if the anticipated deduction exceeds the amount of the expenditure in the income year, the excess is carried forward as an anticipated deduction to the next income year in which the person incurs expenditure on an aircraft engine overhaul; and
(c)
paragraphs (a) and (b) apply as required to income years until the amount of the anticipated deduction at the beginning of the 2017–18 income year is offset completely.
Defined in this Act: aircraft engine overhaul, deduction, income, income year, taxable income
Section DZ 23: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 53(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
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Versions
Income Tax Act 2007
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