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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 1 or more of the following:
(i)
substantially the same as income tax:
(ii)
based on Articles 2.1 to 2.3 of the global anti-base erosion model rules:
(iii)
based on Articles 2.4 to 2.6 of those model rules:
(iv)
a qualified domestic minimum top-up tax, as defined in Article 10.1.1 of those model rules:
(v)
substantially the same as multinational top-up tax payable because of the application of the modifications to Article 2.1 of the global anti-base erosion model rules set out in schedule 25B, item 1B (Items modifying global anti-base erosion model rules):
(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, global anti-base erosion model rules, income tax, multinational top-up tax, New Zealand, NRWT, pay, PAYE, RWT, tax
Compare: 2004 No 35 s DB 1
Section DB 1(1)(b): replaced (with effect on 1 January 2024), on 28 March 2024, by section 35(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DB 1(1)(b)(v): replaced, on 1 January 2026, by section 35(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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).
Section DB 1 list of defined terms global anti-base erosion model rules: inserted (with effect on 1 January 2024), on 28 March 2024, by section 35(3) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DB 1 list of defined terms multinational top-up tax: inserted, on 1 January 2026, by section 35(4) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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:
(ab)
a flat-rate credit, as defined in section 2(1) of the Goods and Services Tax Act 1985:
(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.
Treatment of flat-rate credit
(2B)
For the purposes of subsections (1) and (2), an underlying supplier referred to in section 8C of the Goods and Services Tax Act 1985 who is not a registered person is treated as if they were a registered person for the purposes of this section in relation to a deduction for expenditure to the extent to which the expenditure is attributable to a supply of listed services. However, this subsection does not apply if the underlying supplier has received a flat-rate credit, as defined in section 2(1) of that Act, in an income year and has chosen as described in section CH 5B (Adjustments for certain flat-rate credits under platform economy rules) to include the amount of the credit in their income for the income year.
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, income year, input tax, output tax, pay, registered person, services, supplement
Compare: 2004 No 35 s DB 2
Section DB 2(1)(ab): inserted (with effect on 1 April 2024), on 29 March 2025, by section 38(1) (and see section 38(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
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 (2B) heading: inserted, on 1 April 2024, by section 36 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DB (2B): inserted, on 1 April 2024, by section 36 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section DB 2(2B): amended (with effect on 1 April 2024), on 29 March 2025, by section 38(2) (and see section 38(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
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 income year: inserted (with effect on 1 April 2024), on 29 March 2025, by section 38(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
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[Repealed]
(6C)
[Repealed]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: repealed, on 1 April 2025, pursuant to section 36 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DB 7(6C): repealed, on 1 April 2025, by section 36 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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[Repealed]
(6C)
[Repealed]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: repealed, on 1 April 2025, pursuant to section 37 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DB 8(6C): repealed, on 1 April 2025, by section 37 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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
[Repealed]Section DB 23C: repealed, on 1 July 2024, by section 127 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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 (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, on 1 July 2024, by section 127 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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 value of the expenditure for the income year:
(c)
if an improvement to land described in schedule 19, part A, 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 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.
Schedule 12 rates
(5)
The rate for expenditure if the requirements of subsection (4)(b) are met is—
(a)
the 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 equivalent method:
(b)
the rate set out in schedule 12, column 1 that corresponds to the rate under paragraph (a) if the person chooses to use the diminishing value equivalent method.
Value
(6)
Value is—
(a)
the amount of the expenditure incurred if the person chooses to use the straight-line equivalent method:
(b)
the diminished value of the expenditure for the income year if the person chooses to use the diminishing value equivalent method.
Formula for rate for expenditure with assumed life
(7)
The formula for the rate referred to in subsection (5)(a) 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 years in the period of the resource consent that include or follow the time at which the expenditure is incurred.
Adjusted value
(9)
In this section, adjusted value means, where the person chooses to use the straight-line equivalent method, the amount calculated using the formula—
amount of expenditure − deductions allowed + income derived.
Definition of items in formula
(10)
In the formula in subsection (9),—
(a)
amount of expenditure is the total amount of the expenditure incurred:
(b)
deductions allowed is the total amount of the expenditure allowed as a deduction in previous income years:
(c)
income derived is the total amount of income derived under section CB 28(8) (Environmental restoration accounts) in relation to the expenditure.
Diminishing value equivalent method
(11)
In this section, diminishing value equivalent method means the method of calculating an amount of deduction under this section by subtracting, in each income year, a constant percentage of the diminished value of the expenditure from the diminished value of the expenditure.
Straight-line equivalent method
(12)
In this section, straight-line equivalent method means the method of calculating an amount of deduction under this section by subtracting, in each income year, a constant percentage of the amount of the expenditure incurred from the adjusted value of the expenditure.
Link with subpart DA
(13)
This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: adjusted value, amount, business, capital limitation, deduction, diminished value, diminishing value equivalent method, general limitation, general permission, income, income year, New Zealand, revenue account property, straight-line equivalent method
Section DB 46: replaced (with effect on 1 April 2008), on 28 March 2024, by section 38(1) (and see section 38(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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 (Certain 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
Compare: 2004 No 35 ss GD 7, GD 10
Section DB 59(2)(a): amended, on 1 April 2024, by section 39 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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).
DB 65B Allowance for embedded fit-out of certain commercial buildings
When this section applies
(1)
This section applies when—
(a)
a person owns a commercial building and the building is depreciable property with an annual rate of 0% in an income year; and
(b)
the building was acquired in the 2010–11 or an earlier income year; and
(c)
the person has never had a deduction for commercial fit-out that was acquired at the same time as the building and relates to the building other than under—
(i)
this section:
(ii)
section DB 65, as in force before its repeal by section 4 of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020.
Deduction for commercial fit-out
(2)
Except as provided in subsection (4), the person is treated as having a loss for the income year equal to the amount calculated using the formula—
starting pool × 0.015 × whole months ÷ 12.
Calculation of starting pool
(3)
Starting pool is the amount given by the formula—
(0.15 × building atv) − fit-out atv.
Deduction limited to value of starting pool
(4)
Despite subsection (2), if the amount given by the formula in subsection (2) is more than the amount given by the formula in subsection (5), then the person is treated as having a loss for the income year equal to the amount given by the formula in subsection (5).
Calculation of deduction limit
(5)
For the purposes of subsection (4), the formula is—
starting pool − historical fit-out deductions − fit-out deductions − imputed deductions.
Imputed deductions
(6)
The amount of the imputed deductions is—
starting pool × 0.015 × 4.
Definition of items in formulas
(7)
In the formulas in subsections (2), (3), (5), and (6), as applicable, —
(a)
starting pool is the amount given by the formula in subsection (3):
(b)
whole months is the number of whole months in the income year in which the building is used, or is available for use, by the person in deriving assessable income or carrying on a business for the purpose of deriving assessable income:
(c)
building atv is the adjusted tax value of the building that results for the 2010–11 income year after all relevant amounts for that income year have been subtracted under subpart EE (Depreciation):
(d)
fit-out atv is the total adjusted tax value of all items of commercial fit-out that results for the 2010–11 income year after all relevant amounts for that income year have been subtracted under subpart EE if—
(i)
the items of commercial fit-out relate to the building and were acquired after the building was acquired; and
(ii)
the person has had a deduction for an amount of depreciation loss for the items of commercial fit-out:
(e)
historical fit-out deductions is the total amount of a person’s deductions allowed under section DB 65, as in force before its repeal by section 4 of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020, for income years before the 2020–21 income year:
(f)
fit-out deductions is the total amount of deductions the person has claimed under this section for all income years:
(g)
imputed deductions is the amount given by the formula in subsection (6), being the total amount of deductions the person would have received for the 2020–21 to 2023–24 income years if this section applied from the beginning of the 2020–21 income year to the end of the 2023–24 income year.
Treatment of amounts under specific and general rules for deductions
(8)
The capital limitation does not apply to a loss under this section merely because the item of property is itself of a capital nature.
Defined in this Act: adjusted tax value, amount, assessable income, capital limitation, commercial building, commercial fit-out, deduction, depreciable property, depreciation loss, income year
Section DB 65B: inserted, on 1 April 2024, by section 40(1) (and see section 40(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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).
Deemed payments for services
Heading: inserted (with effect on 1 December 2024), on 29 March 2025, by section 39 of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
DB 69 Amount of resale royalty retained by collection agency
When this section applies
(1)
This section applies to a person—
(a)
who receives a resale royalty under section 18 of the Resale Right for Visual Artists Act 2023; and
(b)
to whom section CC 9B (Resale royalties) applies.
Deduction
(2)
The person is allowed a deduction for the amount of the resale royalty retained by the collection agency under section 20 of the Resale Right for Visual Artists Act 2023.
Link with subpart DA
(3)
This section supplements the general permission.
Defined in this Act: amount, collection agency, deduction, general permission, resale royalty, supplement
Section DB 69: inserted (with effect on 1 December 2024), on 29 March 2025, by section 39 of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Emergency events
Heading: inserted, on 1 April 2025, by section 40 of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
DB 70 Deduction for interruption expenditure due to emergency event
Deduction
(1)
A person is allowed a deduction for expenditure incurred while their income-earning activity is interrupted by an emergency event if they meet the requirements of section FP 13 (Treatment of expenditure when income-earning activity interrupted).
Link with subpart DA
(2)
This section supplements the general permission.
Defined in this Act: deduction, emergency event, general permission, supplement
Section DB 70: inserted, on 1 April 2025, by section 40 of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section DB 70: editorial change made to insert section DB 70 in its appropriate numerical order by the PCO, on 2 May 2025, under sections 86(1) and 87(l)(iv) of the Legislation Act 2019 (2019 No 58).
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.
Relationship with section HG 2
(3B)
Section HG 2 (Partnerships are transparent) does not apply for the purposes of this section.
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
Section DC 3(3B) heading: inserted (with effect on 1 April 2008), on 29 March 2025, by section 41(1) (and see section 41(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section DC 3(3B): inserted (with effect on 1 April 2008), on 29 March 2025, by section 41(1) (and see section 41(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
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).
Relationship with section HG 2
(4B)
Section HG 2 (Partnerships are transparent) does not apply for the purposes of this section.
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
Section DC 4(4B) heading: inserted (with effect on 1 April 2008), on 29 March 2025, by section 42(1) (and see section 42(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section DC 4(4B): inserted (with effect on 1 April 2008), on 29 March 2025, by section 42(1) (and see section 42(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
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 use and partly for other uses.
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(1): amended (with effect on 1 April 2008), on 30 March 2026, by section 32(1) (and see section 32(2) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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 use.
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).
Section DE 2B(1)(c): amended (with effect on 1 April 2017), on 30 March 2026, by section 33(1) (and see section 33(2) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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 the motor vehicle for business use. 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
Section DE 5: amended (with effect on 1 April 2008), on 30 March 2026, by section 34(1) (and see section 34(2) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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 use 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
Section DE 7(1): amended (with effect on 1 April 2008), on 30 March 2026, by section 35(1) (and see section 35(2) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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 of a motor vehicle recorded in a logbook does not, or does no longer, represent the average business use of the motor vehicle 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 business use of the motor vehicle 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
Section DE 9(1): amended (with effect on 1 April 2008), on 30 March 2026, by section 36(1) (and see section 36(4) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DE 9(1): amended (with effect on 1 April 2008), on 30 March 2026, by section 36(2) (and see section 36(4) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DE 9(2)(a): amended (with effect on 1 April 2008), on 30 March 2026, by section 36(3) (and see section 36(4) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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 business use of the motor vehicle, 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 30 March 2026, by section 37(1) (and see section 37(2) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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 use 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
Section DE 11(a): amended (with effect on 1 April 2008), on 30 March 2026, by section 38(1) (and see section 38(2) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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 use and other uses, 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(2): amended (with effect on 1 April 2008, until the replacement of section DE 12 on 1 April 2017), on 30 March 2026, by section 39(1) (and see section 39(3) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DE 12(3)(b): amended (with effect on 1 April 2017), on 30 March 2026, by section 39(2) (and see section 39(4) for application) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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[Repealed]
(3B)
[Repealed]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: repealed, on 1 April 2025, pursuant to section 41 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 2(3B): repealed, on 1 April 2025, by section 41 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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)
[Repealed]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, company, deduction, financial arrangement, interest, interest expenditure, 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): repealed, on 1 April 2025, by section 42(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 5 list of defined terms beneficiary: repealed, on 1 April 2025, by section 42(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 5 list of defined terms disallowed residential property: repealed, on 1 April 2025, by section 42(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 5 list of defined terms interposed residential property holder: repealed, on 1 April 2025, by section 42(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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[Repealed]
(1B)
[Repealed]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, company, deduction, group of companies, income year, interest expenditure, 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: repealed, on 1 April 2025, pursuant to section 43(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 10(1B): repealed, on 1 April 2025, by section 43(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 10 list of defined terms beneficiary: repealed, on 1 April 2025, by section 43(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 10 list of defined terms disallowed residential property: repealed, on 1 April 2025, by section 43(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 10 list of defined terms interposed residential property holder: repealed, on 1 April 2025, by section 43(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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[Repealed]
(4)
[Repealed]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: repealed, on 1 April 2025, pursuant to section 44 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section DG 14(4): repealed, on 1 April 2025, by section 44 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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
[Repealed]Subpart DH: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Contents
DH 1 Interest related to certain land
[Repealed]Section DH 1: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 2 When this subpart applies
[Repealed]Section DH 2: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 3 When this subpart applies: companies
[Repealed]Section DH 3: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 4 When this subpart does not apply: exemptions for new builds, development, social or emergency or transitional housing, and council housing
[Repealed]Section DH 4: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 5 Key terms
[Repealed]Section DH 5: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 6 Interposed residential property percentage
[Repealed]Section DH 6: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 7 Grandparented residential interest
[Repealed]Section DH 7: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 8 Deduction not allowed
[Repealed]Section DH 8: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
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
[Repealed]Section DH 10: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 11 Denied amounts: treatment upon disposal of disallowed residential property
[Repealed]Section DH 11: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
DH 12 Valuation
[Repealed]Section DH 12: repealed, on 1 April 2025, by section 48 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Subpart DI—New investment assets
Subpart DI: inserted (with effect on 22 May 2025), on 29 May 2025, by section 5 of the Taxation (Budget Measures) Act 2025 (2025 No 26).
Contents
DI 1 New investment assets
Purpose
(1)
The main purpose of this subpart is to allow a person a deduction in relation to expenditure on a new investment asset, effectively accelerating depreciation or amortisation, as applicable, for that asset.
Outline
(2)
In this subpart,—
(a)
section DI 2 provides rules for when this subpart applies and does not apply:
(b)
section DI 3 provides the meaning of new asset transferee:
(c)
section DI 4 provides the meaning of new investment asset:
(cb)
section DI 4B provides for the treatment of certain items as assets:
(d)
section DI 5 allows deductions for expenditure on new investment assets:
(e)
section DI 6 provides relationships between this subpart and other provisions of the Act for a person allowed a deduction for a new investment asset and also for certain other people, for example, new asset transferees. Section DI 6 removes, where appropriate, the amount of a deduction for a new investment asset from the calculation of other deductions, tax cost bases, and associated calculations for the asset under relevant depreciation and amortisation provisions, so as to ensure that those other deductions are calculated post-new investment asset deduction. Section DI 6 contains examples of its application.
Defined in this Act: deduction, new asset transferee, new investment asset
Section DI 1: inserted (with effect on 22 May 2025), on 29 May 2025, by section 5 of the Taxation (Budget Measures) Act 2025 (2025 No 26).
Section DI 1(2)(cb): inserted (with effect on 22 May 2025), on 30 March 2026, by section 40 of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
DI 2 When this subpart applies and does not apply
When this subpart applies
(1)
This subpart applies for a person and a new investment asset acquired by them if, subject to subsection (1B), the following conditions are met:
(a)
if the asset is depreciable property, it first becomes available for use in New Zealand by the person on or after 22 May 2025; and
(b)
if the asset is not depreciable property, the person incurs expenditure in relation to it on or after 22 May 2025; and
(c)
the asset has never previously been used or available for use in New Zealand by any person for any purpose; and
(d)
the person has chosen to apply this subpart to the asset in a return of income for the income year.
Asset not used or available for use
(1B)
For the purposes of subsection (1), an asset is not considered to have been used or available for use if the asset has been—
(a)
held only as trading stock:
(b)
used only in a manner necessary to prepare the asset for sale or exchange.
When this subpart does not apply
(2)
This subpart does not apply to expenditure the person incurs before 22 May 2025 in relation to a new investment asset that is not depreciable property.
Defined in this Act: depreciable property, income year, new investment asset, New Zealand, return of income, trading stock
Section DI 2: inserted (with effect on 22 May 2025), on 29 May 2025, by section 5 of the Taxation (Budget Measures) Act 2025 (2025 No 26).
Section DI 2(1): replaced (with effect on 22 May 2025), on 30 March 2026, by section 41(1) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 2(1B) heading: inserted (with effect on 22 May 2025), on 30 March 2026, by section 41(1) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 2(1B): inserted (with effect on 22 May 2025), on 30 March 2026, by section 41(1) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 2(2): amended (with effect on 22 May 2025), on 30 March 2026, by section 41(2) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 2 list of defined terms new investment asset: inserted (with effect on 22 May 2025), on 30 March 2026, by section 41(3) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
DI 3 Meaning of new asset transferee
New asset transferee means a person who—
(a)
acquires an asset by way of transfer from another person (person A) who has previously chosen to apply this subpart and been allowed a deduction under section DI 5 for the asset; and
(b)
is treated as having been allowed the pre-transfer deductions that person A is allowed for amounts of depreciation loss under another provision of this Act, including—
(i)
section FB 21 (Depreciable property):
(ii)
section FM 15(7) (Amortising property and revenue account property):
(iii)
section FO 16(4) (Amortising property).
Defined in this Act: amount, deduction, depreciation loss
Section DI 3: replaced (with effect on 22 May 2025), on 30 March 2026, by section 42 of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
DI 4 Meaning of new investment asset
New investment asset—
(a)
means, for a person, an asset they acquire and own if the asset is—
(i)
depreciable property for which the person has a depreciation loss, including a zero amount of depreciation loss (for example, some commercial buildings):
(ii)
an improvement for which the person is allowed a deduction under section DO 4 (Improvements to farm land):
(iii)
a planting for which the person is allowed a deduction under section DO 5 (Expenditure on land: planting of listed horticultural plants):
(iv)
an improvement for which the person is allowed a deduction under section DO 12 (Improvements to aquacultural business):
(v)
an improvement for which the person is allowed a deduction under section DP 3 (Improvements to forestry land):
(vi)
an asset that is acquired with petroleum development expenditure:
(vii)
an asset that is acquired with mining development expenditure:
(viii)
an alteration, extension, or repair of an asset of the type in any of subparagraphs (i) to (vii) that increases its capital value:
(b)
does not include an asset if and to the extent to which it is—
(i)
a dwelling:
(ii)
fixed life intangible property:
(iii)
a petroleum privilege or a petroleum permit:
(iv)
a mining right or a mining permit.
Defined in this Act: acquire, commercial building, depreciable property, depreciation loss, dwelling, fixed life intangible property, mining development expenditure, mining permit, petroleum development expenditure, petroleum permit
Section DI 4: inserted (with effect on 22 May 2025), on 29 May 2025, by section 5 of the Taxation (Budget Measures) Act 2025 (2025 No 26).
Section DI 4(a)(viii): replaced (with effect on 22 May 2025), on 30 March 2026, by section 43(1) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 4 list of defined terms acquire: inserted (with effect on 22 May 2025), on 30 March 2026, by section 43(2) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 4 list of defined terms improvement: repealed (with effect on 22 May 2025), on 30 March 2026, by section 43(2) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
DI 4B Treatment of certain items as assets
For the purposes of this subpart,—
(a)
an improvement for which a person is allowed a deduction under section DO 4, DO 12, or DP 3 (which relate to improvements to farm land, aquacultural business, or forestry land) is treated as an asset the person acquires and owns:
(b)
all petroleum development expenditure incurred by a person is treated as giving rise to an asset acquired and owned by the person:
(c)
all mining development expenditure incurred by a person is treated as giving rise to an asset acquired and owned by the person:
(d)
an alteration, extension, or repair of an asset of the type in any of section DI 4(a)(i) to (vii) by a person is treated as an asset the person acquires and owns that is separate from the asset it alters, extends, or repairs.
Defined in this Act: deduction, mining development expenditure, petroleum development expenditure
Section DI 4B: inserted (with effect on 22 May 2025), on 30 March 2026, by section 44 of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
DI 5 New investment asset deduction
Deduction
(1)
For the income year in which an asset becomes a new investment asset, a person is allowed a deduction for the amount calculated using the following formula:
0.2 × (expenditure − contribution).
Definition of items in formula
(2)
In the formula,—
(a)
expenditure is the amount of expenditure the person incurs in acquiring the asset, excluding expenditure to which this subpart does not apply (see section DI 2(2)):
(b)
contribution is the total amount of the following:
(i)
capital contributions for the asset if section DB 64 (Capital contributions) applies:
(ii)
the payment amount that section DF 1(3) (Government grants to businesses) applies to, for the asset.
Link with subject matter
(3)
The person is allowed the deduction under this section despite section DF 1(2).
Link with subpart DA
(4)
Subsection (1) overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, capital contribution, capital limitation, deduction, general limitation, general permission, income year, new investment asset
Section DI 5: inserted (with effect on 22 May 2025), on 29 May 2025, by section 5 of the Taxation (Budget Measures) Act 2025 (2025 No 26).
Section DI 5(1): amended (with effect on 22 May 2025), on 30 March 2026, by section 45 of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
DI 6 Relationship to cost, calculations, etc, in other provisions
Other amounts reduced by amount of section DI 5 deduction
(1)
For a person (person A) allowed a deduction under section DI 5 for expenditure incurred in acquiring a new investment asset, and for a person that is a new asset transferee in relation to person A and the asset,—
(a)
the asset’s adjusted tax value, base value, cost, or value, as applicable, is reduced by the amount of person A’s deduction for the purposes of quantifying the amount of depreciation loss under subpart EE (Depreciation) for the asset:
(b)
the relevant diminished value, expenditure, cost, value, or consideration, as applicable, is reduced by the amount of person A’s deduction for the purposes of quantifying the amount of a deduction under subparts DO (Farming and aquacultural business expenditure), DP (Forestry expenditure), DT (Petroleum mining expenditure), and DU (Mineral mining expenditure) for the asset.
Available amount of section DI 5 deduction
(2)
For the purposes of subsection (1), if the amount of person A’s deduction is less than the amount (the available deduction amount) they would have been allowed if they had used the asset wholly in deriving assessable income or carrying on a business for the purpose of deriving assessable income, the applicable amount referred to in subsection (1) is reduced by the available deduction amount for the purposes of quantifying the amount of depreciation loss under subpart EE or the amount of a deduction under subpart DO, DP, DT, or DU, as applicable.
Example 1
ABC company purchases a new investment asset (Asset A) for $10,000 on 1 October 2025. Asset A is depreciable property and has a DV rate of 10%. Asset A is used for 6 months in the income year ending 31 March 2026. In the 2025–26 income year, ABC company is allowed the following deduction for the new investment asset under section DI 5:
0.2 × $10,000 = $2,000.
Section DI 6(1)(a) ensures that the cost base for the asset for depreciation purposes is reduced by the amount of the deduction under section DI 5, that is, $10,000 − $2,000 = $8,000. Depreciation for the asset is then calculated for the 2025–26 income year as follows:
10% × 6/12 × $8,000 = $400.
The total deduction for Asset A in the 2025–26 income year is $2,400. The adjusted tax value of the asset for the 2026–27 income year will be $7,600 ($8,000 − $400).
Example 2
ABC company transfers Asset A to an associate (associate B) at the end of the 2025–26 income year. Under a provision of this Act, associate B steps into the shoes of ABC company (for example, section FM 15(2)). The original acquisition cost of $10,000 is reduced for associate B, for depreciation purposes, to $9,600 by operation of section DI 6. Depreciation deductions of $400 are effectively transferred (see section FM 15(7)). Section DI 6(a) in effect also transfers the $2,000 new investment asset deduction claimed by ABC company to associate B for the purposes of the item new investment asset amount in section EE 48(1B) and (1C). When associate B disposes of Asset A for $9,600, associate B has clawback income of $2,000 under section EE 48.
Defined in this Act: adjusted tax value, amount, assessable income, consolidated group, deduction, depreciation loss, depreciation recovery income, diminished value, dispose, income year, new asset transferee, new investment asset
Section DI 6: inserted (with effect on 22 May 2025), on 29 May 2025, by section 5 of the Taxation (Budget Measures) Act 2025 (2025 No 26).
Section DI 6(1) heading: inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(1) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6(1): amended (with effect on 22 May 2025), on 30 March 2026, by section 46(2) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6(2) heading: inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(3) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6(2): inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(3) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6 Example 1: replaced (with effect on 22 May 2025), on 30 March 2026, by section 46(4) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6 Example 2: replaced (with effect on 22 May 2025), on 30 March 2026, by section 46(4) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6 list of defined terms assessable income: inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(5) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6 list of defined terms consolidated group: inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(5) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6 list of defined terms depreciation recovery income: inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(5) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6 list of defined terms dispose: inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(5) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DI 6 list of defined terms income year: inserted (with effect on 22 May 2025), on 30 March 2026, by section 46(5) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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.
Ring-fencing rule for loss calculated under revenue account method
(2B)
The deduction for a FIF loss calculated under the revenue account method is subject to the ring-fencing rule in section DN 8B.
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, revenue account method, 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(2B) heading: inserted (with effect on 1 April 2025), on 30 March 2026, by section 47(1) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
Section DN 5(2B): inserted (with effect on 1 April 2025), on 30 March 2026, by section 47(1) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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).
Section DN 5 list of defined terms revenue account method: inserted (with effect on 1 April 2025), on 30 March 2026, by section 47(2) of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026 (2026 No 8).
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):
(viib)
the exemption for shares in a grey list company acquired under a venture investment agreement in section EX 37B (Share in grey list company acquired under venture investment agreement):
(viii)
the exemption for an employee share scheme of a grey list company in section EX 38 (Exemptions for employee share schemes):
(ix)
[Repealed](x)
[Repealed](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](xiva)
the exemption for an interest in a foreign superannuation scheme that is not a FIF superannuation interest in section EX 42B (Interests in foreign superannuation scheme other than FIF superannuation interests):
(xiv)
the annuity or pension exemption in section EX 43 (Non-resident’s pension or annuity exception):
(xivb)
the exemption for share users in returning share transfers in section EX 43B (Exemption for share users in returning share transfers):
(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