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Income Tax Act 2007

Deductions - Specific rules for expenditure types

DB 7: Interest: most companies need no nexus with income

You could also call this:

“Companies can usually deduct interest costs without needing a direct link to income”

You can deduct interest costs if you are a company. However, this doesn’t apply if you’re a qualifying company.

If your company or a company in your group earns exempt income, you can still deduct interest. But this only works if the exempt income is from dividends, selling your own shares, life reinsurance claims from overseas, or stake money related to breeding.

If you’re a company from another country, you can only deduct interest for business you do through a fixed place in New Zealand.

You can’t use this rule to deduct interest if another rule says you can’t deduct it.

If you’re part of a consolidated group of companies, you might be able to deduct interest even if this rule says you can’t.

If you’re a close company and you’ve chosen to use the motor vehicle expenditure rules instead of the FBT rules, those rules override this one for related expenses.

There are also special rules that override this one for expenses related to certain assets and for interest on some types of land.

This rule adds to the general permission for deductions and overrides some limitations, but other general limitations still apply.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513586.

Topics:
Money and consumer rights > Taxes
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DB 6: Interest: not capital expenditure, or

“Interest payments can be claimed as a deduction, even if related to capital spending”

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“Interest deduction for companies borrowing to buy shares in group companies”

Part D Deductions
Specific rules for expenditure types

DB 7Interest: most companies need no nexus with income

  1. A company is allowed a deduction for interest incurred.

  2. Subsection (1) does not apply to a qualifying company.

  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:

  4. dividends:
    1. income exempted under section CW 58 (Disposal of companies’ own shares):
      1. income exempted under section CW 59C (Life reinsurance claims from reinsurer outside New Zealand):
        1. income exempted under section CW 60 (Stake money) and ancillary to the company’s business of breeding.

          1. 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.

          2. Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.

          3. 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.

          4. 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).

          5. Subpart DG (Expenditure related to use of certain assets) overrides this section for expenditure to which that subpart relates.

          6. Subpart DH (Interest incurred in relation to certain land) overrides this section for interest to which that subpart relates.

          7. Repealed

          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.

          Compare
          Notes
          • 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 , 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 , 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 , 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 , by section 9 of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
          • Section DB 7(6BA) heading: inserted, on (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 (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 , 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 , by section 25(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
          • Section DB 7(6C) heading: inserted (with effect on 27 March 2021), on , by section 63 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
          • Section DB 7(6C): inserted (with effect on 27 March 2021), on , by section 63 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
          • Section DB 7(7) heading: repealed (with effect on 30 June 2009), on , 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 , 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 (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 (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).