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Income Tax Act 2007

Deductions - Specific rules for expenditure types

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

You could also call this:

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

If you are a shareholder in a qualifying company, you can deduct interest payments from your income. However, this deduction is reduced by any non-cash dividends you or someone connected to you gets from the company in that year. This doesn’t include taxable bonus issues.

When figuring out how much you can deduct, you need to know that some money the company gives you (called distributions) isn’t treated as exempt income, even though it usually would be. These distributions also aren’t counted as dividends.

If someone connected to you is also connected to other shareholders in the company, the non-cash dividends are split among all the connected shareholders based on how much of the company each person effectively owns.

Sometimes, when a qualifying company gives you something of value (not cash), it’s counted as a dividend. In this case, it’s treated as if it was paid to you at the end of the quarter when its value is worked out.

These rules override the usual permission to deduct expenses and the rules about exempt income.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513592.

Topics:
Money and consumer rights > Taxes
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DB 8: Interest: money borrowed to acquire shares in group companies, or

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

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DB 10: Interest or expenditure connected to profit-related debentures, or

“Rules for companies that can't claim expenses related to profit-linked loans”

Part D Deductions
Specific rules for expenditure types

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

  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.

  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.

  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.

  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.

  5. This section overrides—

  6. the general permission; and
    1. the exempt income limitation.

      Compare
      • 2004 No 35 s HG 9(3)–(5)