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HB 11: Limitation on deductions by persons with interests in look-through companies
or “Limits on tax deductions for look-through company owners”
You could also call this:

“Carrying forward unclaimed deductions for look-through company owners”

If you can’t claim a deduction for your look-through company in one year, you might be able to claim it the next year. This is called carrying forward your deduction.

You can carry forward your deduction to the next year unless your company stops being a look-through company or you stop having an interest in it.

If you can’t claim your deduction because your company stopped being a look-through company or you stopped having an interest in it, you might still be able to claim it later. You can claim it in the first year that you get your interest back or the company becomes a look-through company again. But, the amount you can claim will be reduced by any deductions you’ve already claimed.

Even if your company stops being a look-through company or you stop having an interest in it, you can still claim a deduction up to the amount of dividends you received from the company that year.

In future years, you can keep claiming deductions up to the amount of dividends you receive, minus any deductions you’ve already claimed.

Any deductions you claim under these rules still have to follow the rules in section HB 11.

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Next up: HB 13: LTC elections

or “How to choose for your company to become a look-through company for tax purposes”
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Part H Taxation of certain entities
Look-through companies

HB 12Limitation on deductions by owners of look-through companies: carry-forward

  1. This section applies when, for an income year, a person is denied a deduction under section HB 11.

  2. The person is allowed a deduction, for an amount for which the person is denied a deduction under section HB 11, for the income year (the later year) after the income year for which it is denied under section HB 11, unless—

  3. the look-through company ceases to be a look-through company in the later year:
    1. the person ceases to have an effective look-through interest in the later year.

      1. If a person would have been allowed a deduction for an amount but for the application of subsection (2)(a) or (b) for the later year, they are allowed a deduction for the amount for the first income year after the later year in which either they resume an effective look-through interest for the look-through company, or the relevant company resumes being a look-through company. However, the amount of that deduction is reduced by the total amount allowed as a deduction under subsections (4) and (5).

      2. Despite subsection (2), the person is allowed a deduction for the later year for an amount (the protected amount) for which they would have been allowed a deduction but for the application of subsection (2)(a) or (b) for the later year to the extent to which the protected amount is equal to or lesser than the dividends received by the person from the company for the later year.

      3. For an income year after the later year, an amount equal to the protected amount reduced by the total of deductions allowed in income years before the income year under subsection (4) and this subsection, is allowed as a deduction for the person to the extent to which the amount is equal to or less than the dividends received by the person from the company for the income year.

      4. A deduction allowed under this section, other than under subsection (4) or (5), is subject to section HB 11, to the extent to which that section applies to the deduction and the relevant person.

      Notes
      • Section HB 12: inserted, on (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).