Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Expenditure specific to certain entities

DV 3: Formula for calculating maximum deduction

You could also call this:

“How to work out the most you can take off your taxes”

When you want to figure out the biggest amount you can deduct, you need to use a special formula. This formula helps you work out how much money you can take off your taxes.

The formula is simple: you take your taxable income and subtract your non-resident passive income.

Your taxable income is the money you would have to pay tax on in the tax year when you spend the money. But when you’re working this out, you need to pretend that some special rules (sections DV 2 to DV 4) don’t exist.

Non-resident passive income is money that comes from outside New Zealand. It’s the kind of income mentioned in section RF 2(5) of the tax rules. You need to add up all of this type of income that you got in the same year you spent the money.

This formula is used by master superannuation funds, which are special kinds of retirement savings accounts. It helps them work out how much they can deduct from their taxes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514139.

Topics:
Money and consumer rights > Taxes
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DV 2: Transfer of expenditure to master fund, or

“Shifting certain fund costs to a larger investment fund”

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DV 4: Carry forward of expenditure, or

“How to handle excess expenses from your master superannuation fund”

Part D Deductions
Expenditure specific to certain entities

DV 3Formula for calculating maximum deduction

  1. The formula referred to in section DV 2(8) is—

    taxable income − non-resident passive income.

    Where:

    • The items in the formula are defined in subsections (3) and (4).

    • Taxable income is the amount that would be the master superannuation fund’s taxable income in the tax year in which the expenditure is incurred in the absence of sections DV 2 to DV 4.

    • Non-resident passive income is the total of any amounts of non-resident passive income of any of the kinds to which section RF 2(5) (Non-resident passive income) applies derived by the master superannuation fund in the corresponding income year in which the expenditure is incurred.

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