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Income Tax Act 2007

Deductions - Government grants, funding, and compensation

DF 1: Government grants to businesses

You could also call this:

“How government grants affect business tax deductions”

This law is about government grants to businesses. Here’s what you need to know:

When a local authority, public authority, or public purpose Crown-controlled company gives money to a business, it might be called a grant, subsidy, or grant-related suspensory loan. This law applies to these types of payments.

However, it doesn’t apply to regular loans, small business cashflow scheme loans, or research and development loan scheme payments. It also doesn’t apply if the business chooses to use a different tax rule (section CX 47(4)).

If you get one of these payments, you can’t claim a tax deduction for expenses that the payment covers. This means you can’t deduct the same amount twice.

If you use the payment to buy, build, install, or extend something that loses value over time (like equipment), you need to reduce the cost of that item by the amount of the payment when working out your tax deductions.

The tax office can change your tax assessment at any time to make sure this rule is followed, even if the usual time limit for changes has passed.

This rule overrides the general permission for tax deductions.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513884.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part D Deductions
Government grants, funding, and compensation

DF 1Government grants to businesses

  1. This section applies when—

  2. a local authority, a public authority, or a public purpose Crown-controlled company makes a payment to a person for a business that the person carries on; and
    1. the payment—
      1. is in the nature of a grant or subsidy to the person; or
        1. is a grant-related suspensory loan to the person; and
        2. the payment is not in the nature of an advance or loan other than a grant-related suspensory loan; and
          1. the payment is not an amount of a loan under the small business cashflow scheme under section 7AA of the Tax Administration Act 1994; and
            1. the payment is not an amount of a loan made under the research and development loan scheme; and
              1. the person does not make an election that section CX 47(4) (Government grants to businesses) apply to the payment.

                1. This section does not apply to the extent to which a payment described in subsection (1) is—

                2. the payment of an R&D loss tax credit and the person’s expenditure is attributable to that payment:
                  1. an RDTI transition support payment and the person’s expenditure is attributable to that payment.

                    1. Subsection (2) applies when, in the absence of this section, the person would be allowed a deduction for expenditure by the person to which the payment by the local authority, public authority, or public purpose Crown-controlled company corresponds.

                    2. The person is denied, to the extent of the amount of the payment, the deduction that they would have been allowed in the absence of this section.

                    3. Subsection (4) applies when—

                    4. expenditure by the person in the acquisition, construction, installation, or extension of an item of depreciable property is expenditure to which the payment by the local authority, public authority, or public purpose Crown-controlled company corresponds; and
                      1. in the absence of this section, the person would be allowed a deduction for an amount of depreciation loss for the item of depreciable property.

                        1. For the purpose of quantifying the amount of depreciation loss, the amount of the expenditure is reduced by the amount of the payment.

                        2. Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.

                        3. Repealed

                        4. This section overrides the general permission.

                        Compare
                        Notes
                        • Section DF 1(1) heading: substituted (with effect on 1 October 2010), on , by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section DF 1(1): substituted (with effect on 1 October 2010), on , by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section DF 1(1)(a): amended (with effect on 18 March 2019), on , by section 40(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                        • Section DF 1(1)(cb): inserted, on , by section 5(1) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
                        • Section DF 1(1)(cc): inserted (with effect on 1 July 2020), on , by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act (No 2) 2020 (2020 No 58).
                        • Section DF 1(1BA) heading: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on , by section 100(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                        • Section DF 1(1BA): replaced (with effect on 1 April 2019), on , by section 69(1) (and see section 69(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                        • Section DF 1(1B) heading: inserted (with effect on 1 October 2010), on , by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section DF 1(1B): inserted (with effect on 1 October 2010), on , by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section DF 1(1B): amended (with effect on 18 March 2019), on , by section 40(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                        • Section DF 1(3): substituted (with effect on 1 October 2010), on , by section 42(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section DF 1(3)(a): amended (with effect on 18 March 2019), on , by section 40(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                        • Section DF 1(6) heading: repealed (with effect on 1 October 2009), on , pursuant to section 87(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section DF 1(6): repealed (with effect on 1 October 2009), on , by section 87(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section DF 1 list of defined terms large budget screen production grant: repealed (with effect on 1 October 2009), on , by section 87(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section DF 1 list of defined terms public purpose Crown-controlled company: inserted (with effect on 18 March 2019), on , by section 40(4) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                        • Section DF 1 list of defined terms R&D loss tax credit: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on , by section 100(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                        • Section DF 1 list of defined terms research and development loan scheme: inserted (with effect on 1 July 2020), on , by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act (No 2) 2020 (2020 No 58).
                        • Section DF 1 list of defined terms small business cashflow scheme: inserted, on , by section 5(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).