HB 12 Limitation on deductions by owners of look-through companies: carry-forward
When this section applies

(1)

This section applies when, for an income year, a person is denied a deduction under section HB 11.

Carry-forward: conditional on continued existence of look-through company and holding of effective look-through interest

(2)

The person is allowed a deduction, for an amount for which the person is denied a deduction under section HB 11, for the income year (the later year) after the income year for which it is denied under section HB 11, unless—

(a)

the look-through company ceases to be a look-through company in the later year:

(b)

the person ceases to have an effective look-through interest in the later year.

Carry-forward: resumption

(3)

If a person would have been allowed a deduction for an amount but for the application of subsection (2)(a) or (b) for the later year, they are allowed a deduction for the amount for the first income year after the later year in which either they resume an effective look-through interest for the look-through company, or the relevant company resumes being a look-through company. However, the amount of that deduction is reduced by the total amount allowed as a deduction under subsections (4) and (5).

Exception for deductions against continuing company dividends

(4)

Despite subsection (2), the person is allowed a deduction for the later year for an amount (the protected amount) for which they would have been allowed a deduction but for the application of subsection (2)(a) or (b) for the later year to the extent to which the protected amount is equal to or lesser than the dividends received by the person from the company for the later year.

Further deductions against continuing company dividends

(5)

For an income year after the later year, an amount equal to the protected amount reduced by the total of deductions allowed in income years before the income year under subsection (4) and this subsection, is allowed as a deduction for the person to the extent to which the amount is equal to or less than the dividends received by the person from the company for the income year.

Relationship with subject matter

(6)

A deduction allowed under this section, other than under subsection (4) or (5), is subject to section HB 11, to the extent to which that section applies to the deduction and the relevant person.

Defined in this Act: amount, deduction, dividend, effective look-through interest, income year, look-through company

Section HB 12: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).