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Income Tax Act 2007

Core provisions - Income, deductions, and timing

BD 4: Allocation of deductions to particular income years

You could also call this:

“How to assign your expenses to the correct tax year”

You need to assign every deduction to a specific income year. Usually, you assign a deduction to the income year when you spent the money or had the loss. However, some parts of the law might tell you to assign it differently.

When you’re figuring out when you spent money or had a loss, you need to think about what the courts have said. Some people have to record their spending or losses as they build up over time. Others can record them when they actually pay the money. The courts have also explained what it means to ‘incur’ an expense or loss.

Part E of the law has some special rules that can change how you assign deductions. It might also affect how much your deductions are worth.

If you spend money or have a loss that leads to more than one deduction, you can’t claim more in total than what you actually spent or lost.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512373.

Topics:
Money and consumer rights > Taxes
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“Rules for assigning income to specific tax years”

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“Rules for deducting tax from different types of income and benefits”

Part B Core provisions
Income, deductions, and timing

BD 4Allocation of deductions to particular income years

  1. Every deduction must be allocated to an income year under this section.

  2. A deduction for an amount of expenditure or loss is allocated to the income year in which the expenditure or loss is incurred, unless a provision in any of Parts D to I provides for allocation on another basis.

  3. When the time of incurrence of an amount of expenditure or loss is being determined, regard must be had to case law, which—

  4. requires some people to recognise expenditure or loss on an accrual basis; and
    1. requires other people to recognise expenditure or loss on a cash basis; and
      1. more generally, defines the concept of incurrence.

        1. Part E (Timing and quantifying rules) contains a number of provisions that—

        2. specifically modify the allocation of deductions or have the effect of modifying the allocation of deductions; or
          1. allocate deductions as part of the process of quantifying them.

            1. If an expenditure or loss gives rise to more than 1 deduction, the deductions are allocated to income years to the extent that their total is no more than the amount of the expenditure or loss.

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