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DG 9: Apportionment formula
or “How to calculate the tax-deductible portion of an asset's expenses”
You could also call this:

“Rules for managing interest expenses on certain company assets”

This section explains how interest expenses are treated for companies with certain assets. You need to follow these rules:

When a company has an asset covered by this part of the law, they need to split up their interest expenses. This also applies to other companies in the same group and to shareholders. Companies must provide information about this to the government.

If the asset is a residential property that’s not allowed under the rules, or if it’s related to buying a share in a company that holds such property, you don’t count the interest or debt for these calculations.

For a close company with a disallowed residential property, they need to reduce the value of the asset by either its full value or the amount of debt they have for it, whichever is less.

If a company is part of a group just for this part of the law, they don’t have to follow these rules if no shareholder has used the asset privately and the company hasn’t shared any tax losses with other companies in the group.

The rules don’t apply to corporate shareholders or other shareholders if they own less than 50% of the company and haven’t used the asset privately.

For qualifying companies, they need to calculate their net asset balance as if section DG 11(3) applied to them. Then sections DG 12 to DG 14 are used to work out how much of a deduction the company, other companies, or shareholders can claim.

When the rules talk about shareholders, they also mean people associated with shareholders, unless those people are shareholders themselves.

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Next up: DG 11: Interest expenditure: close companies

or “Rules for close companies deducting interest expenses on certain assets”
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Part D Deductions
Expenditure related to use of certain assets

DG 10Interest expenditure rules

  1. Sections DG 11 to DG 14 provide for the apportionment of interest expenditure incurred by a company that has an asset to which this subpart applies, and by other companies that are in the same group of companies as the company, and by shareholders. Companies must provide information disclosure statements under section 30D of the Tax Administration Act 1994 to enable the calculations to be made.

  2. Despite this section and sections DG 11, DG 12, and DG 13, for the purposes of applying those sections,—

  3. interest incurred in relation to disallowed residential property or to acquire an ownership interest in, or become a beneficiary of, an interposed residential property holder is ignored; and
    1. the debt to which the interest described in paragraph (a) relates is ignored; and
      1. a close company must, for an asset that is disallowed residential property, exclude from the asset value determined for the asset the lesser of—
        1. the asset value that would be determined for the asset if this paragraph did not apply to the asset:
          1. the amount of the company’s debt under which the company incurs interest in relation to the asset.

          2. A company (company A) that is treated as part of a wholly-owned group under this subpart, but is not part of a wholly-owned group for the other purposes of this Act, is excluded from the interest expenditure rules in sections DG 11 to DG 14 for an income year if—

          3. no private use of an asset of a company in the group has been made in the income year by a shareholder of company A:
            1. no tax losses have been made available under subpart IC (Grouping tax losses) between company A and other companies in the group.

              1. Section DG 13 does not apply to a corporate shareholder if—

              2. the shareholder has a direct or indirect interest of less than 50% in the company that has the asset; and
                1. the shareholder has not enjoyed any private use of the asset.

                  1. Section DG 14 does not apply to a shareholder if—

                  2. the shareholder has a direct or indirect interest of less than 50% in the company that has the asset; and
                    1. the shareholder has not enjoyed any private use of the asset.

                      1. The interest expenditure rules apply to a qualifying company in the following way:

                      2. the company is treated as if section DG 11(3) applied to it in order to calculate the amount of the company's net asset balance; and
                        1. sections DG 12 to DG 14 then apply to determine the amount of the deduction to which the company, another company, or a shareholder is entitled.

                          1. For the purposes of subsections (2), (3), and (4), a reference to a shareholder includes a person associated with the shareholder, unless the associated person is also a shareholder.

                          Notes
                          • Section DG 10: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on , by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                          • Section DG 10(1B) heading: inserted (with effect on 27 March 2021), on , by section 72(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                          • Section DG 10(1B): inserted (with effect on 27 March 2021), on , by section 72(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                          • Section DG 10 list of defined terms beneficiary: inserted (with effect on 27 March 2021), on , by section 72(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                          • Section DG 10 list of defined terms disallowed residential property: inserted (with effect on 27 March 2021), on , by section 72(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                          • Section DG 10 list of defined terms interposed residential property holder: inserted (with effect on 27 March 2021), on , by section 72(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).