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New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Expenditure specific to certain entities

DV 4: Carry forward of expenditure

You could also call this:

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

If you’re part of a member superannuation fund, this law explains how you can deal with extra expenses that your master superannuation fund couldn’t deduct. This happens when the master fund has more expenses than it’s allowed to deduct.

You can choose to carry these extra expenses forward to the next year instead of deducting them yourself. To do this, you need to have money invested in the master fund at the right time and keep choosing this option.

Each year, you add any new expenses to the leftover ones from before. You then work out the most you’re allowed to deduct. If the total expenses are less than or equal to this amount, you can treat them as if the master fund spent them to earn money that year. If the total is more than the allowed amount, you carry the extra forward to the next year and do it all again.

The master fund can deduct these expenses, but only up to the maximum amount allowed. Any expenses the master fund deducts are treated as if your fund didn’t spend them. The oldest expenses get deducted first.

This rule adds to the general permission for deductions and overrides the capital limitation, but other general limitations still apply. It also overrides the general permission in some cases.

Remember, this doesn’t apply if the master superannuation fund is a multi-rate PIE (a type of investment entity).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514144.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Savings and retirement
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DV 3: Formula for calculating maximum deduction, or

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

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DV 4B: Carry forward of expenditure by member funds investing in portfolio investment entities, or

“Carrying forward extra expenses for member funds investing in special investment funds”

Part D Deductions
Expenditure specific to certain entities

DV 4Carry forward of expenditure

  1. This section applies when—

  2. the expenditure treated as being incurred by the master superannuation fund, under section DV 2(3), is more than the maximum amount for which it is allowed a deduction, as calculated under section DV 3, so there is surplus expenditure; and
    1. the member superannuation fund chooses to deal with the surplus expenditure under this section, rather than deducting it itself; and
      1. the member superannuation fund has funds invested in the master superannuation fund at the time referred to in section DV 2(1)(b) and while its election under section DV 2(3) continues and while it deals with the surplus expenditure under this section.

        1. This section does not apply to a transfer of expenditure to a master superannuation fund that is a multi-rate PIE.

        2. Repealed

        3. The member superannuation fund carries the surplus expenditure forward to the next income year and takes the following steps:

        4. it gets the combined expenditure by adding the surplus expenditure to the expenditure, if any, incurred by it in the income year that it chooses to treat as being incurred by the master superannuation fund:
          1. it calculates the maximum deduction for the income year, using the formula in section DV 3:
            1. if the combined expenditure is the same as or less than the maximum deduction, it—
              1. treats the surplus expenditure as expenditure incurred by the master superannuation fund in deriving assessable income in the income year; and
                1. applies subsections (5) to (8):
                2. if the combined expenditure is more than the maximum deduction, it—
                  1. carries forward the new surplus expenditure to the next income year; and
                    1. applies subsection (4).

                    2. The member superannuation fund repeats the steps in subsection (3) for the following income years until all surplus expenditure is deducted.

                    3. Expenditure treated under subsection (3)(c)(i) as incurred by the master superannuation fund in deriving income is allowed as a deduction in the income year in which it is so treated. The amount of the deduction is limited by subsection (6).

                    4. The maximum amount of a deduction under subsection (5) is the maximum deduction for the income year, calculated using the formula in section DV 3.

                    5. Expenditure for which the master superannuation fund is allowed a deduction is treated as not being incurred by the member superannuation fund.

                    6. Expenditure for which the master superannuation fund is allowed a deduction must be deducted in sequence according to the income year in which the member superannuation fund incurred it.

                    7. The link between this section and subpart DA (General rules) is as follows:

                    8. subsection (5) supplements the general permission and overrides the capital limitation; the other general limitations still apply:
                      1. subsection (7) overrides the general permission.

                        Compare
                        Notes
                        • Section DV 4(1B) heading: substituted, on (applying for the 2010–11 and later income years), by section 103(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section DV 4(1B): substituted, on (applying for the 2010–11 and later income years), by section 103(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section DV 4(2) heading: repealed, on , by section 56 of the KiwiSaver Amendment Act 2011 (2011 No 8).
                        • Section DV 4(2): repealed, on , by section 56 of the KiwiSaver Amendment Act 2011 (2011 No 8).
                        • Section DV 4 list of defined terms multi-rate PIE: inserted, on , by section 103(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section DV 4 list of defined terms portfolio tax rate entity: repealed, on , by section 103(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).