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New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Specific rules for expenditure types

DB 8: Interest: money borrowed to acquire shares in group companies

You could also call this:

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

If you’re a company, you can deduct interest from your taxes when you borrow money to buy shares in another company that’s part of your group. This applies even if the other company no longer exists because it merged with another company in your group. However, there are some rules you need to follow:

You can only do this if both companies are still in the same group at the end of the tax year. If the other company merged with another company in your group, you can still deduct the interest in the year the merger happened and in future years.

If you’re part of a consolidated group of companies, you might be able to deduct this interest even if it would usually be denied. You can find more information about this in Section FM 12.

There are some special rules that might change how this works:

  • If you’re a close company and you’ve chosen to use the motor vehicle expenditure rules instead of the FBT rules, those rules will apply instead of this one for any motor vehicle expenses.
  • There are also special rules for expenses related to using certain assets and for interest related to some types of land. These rules might change how you can deduct interest.

This rule helps you deduct more from your taxes, but it doesn’t apply to income that’s already tax-free or to taxes that are withheld. Other general tax rules 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=DLM1513590.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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DB 7: Interest: most companies need no nexus with income, or

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

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DB 9: Interest incurred on money borrowed to acquire shares in qualifying companies, or

“Tax deductions for interest on loans to buy shares in certain companies”

Part D Deductions
Specific rules for expenditure types

DB 8Interest: money borrowed to acquire shares in group companies

  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.

  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.

  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.

  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.

  5. Subsection (3) applies in the income year in which the resident’s restricted amalgamation occurs and in later income years.

  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.

  7. 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).

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

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

  10. Repealed

  11. 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.

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Notes
  • Section DB 8(6BA) heading: inserted, on (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 (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 , 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 , by section 26(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
  • Section DB 8(6C) heading: inserted (with effect on 27 March 2021), on , by section 64 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
  • Section DB 8(6C): inserted (with effect on 27 March 2021), on , by section 64 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
  • Section DB 8(7) heading: repealed (with effect on 30 June 2009), on , 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 , 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 (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 (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).