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New Zealand law explained for everyone

Income Tax Act 2007

Deductions - General rules

DA 2: General limitations

You could also call this:

“Rules that limit when you can claim tax deductions”

You can’t get a deduction for some types of spending or losses. These are called limitations. Here are the main ones you need to know about:

The capital limitation means you can’t get a deduction for money spent on capital items. Capital items are things that last a long time and are used to make money, like buildings or machinery.

The private limitation stops you from getting a deduction for personal or family expenses. This means you can’t claim for things like your home groceries or family holidays.

The exempt income limitation means you can’t get a deduction for money you spend to earn income that isn’t taxed. If you don’t pay tax on some money you earn, you can’t claim deductions for the costs of earning it.

The employment limitation means you can’t get a deduction for costs related to your job as an employee. This is because employees usually can’t claim work expenses.

The withholding tax limitation means you can’t get a deduction for expenses related to earning certain kinds of income from overseas. This applies to some types of income that have tax taken out before you get the money.

The non-residents’ foreign-sourced income limitation means you can’t get a deduction for costs related to income that non-residents earn from outside New Zealand.

These rules are very important. Even if you would normally be allowed a deduction, these limitations can stop you from claiming it.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513558.

Topics:
Money and consumer rights > Taxes
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DA 1: General permission, or

“General rule for deducting expenses and losses from income”

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DA 3: Effect of specific rules on general rules, or

“Special rules can change how general deduction rules work”

Part D Deductions
General rules

DA 2General limitations

  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.

  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.

  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.

  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.

  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.

  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.

  7. Each of the general limitations in this section overrides the general permission.

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