Income Tax Act 2007

Deductions - Expenditure related to use of certain assets

DG 10: Interest expenditure rules

You could also call this:

"Rules about claiming interest expenses for businesses"

You need to follow some rules about interest expenditure. These rules are in sections DG 11 to DG 14. They help companies work out how much interest they can claim. You ignore interest on residential property when working out interest expenditure. You also ignore the debt related to this interest. A company is treated as part of a group for interest expenditure rules. But if no one in the group uses an asset for private use, the rules might not apply. Some sections do not apply to shareholders with less than 50% interest in a company. These sections are DG 13 and DG 14. Interest expenditure rules apply to qualifying companies in a certain way. They help work out the amount of net asset balance and deductions. For some rules, a shareholder includes a person associated with them. But this does not apply if the associated person is also a shareholder. You can find more information under section 30D of the Tax Administration Act 1994.

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DG 9: Apportionment formula, or

"How to calculate the tax-deductible portion of an asset's expenses"

DG 11: Interest expenditure: close companies, or

"Rules for close companies deducting interest expenses on certain assets"

Part DDeductions
Expenditure related to use of certain assets

DG 10Interest expenditure rules

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.
Despite this section and sections DG 11, DG 12, and DG 13, for the purposes of applying those sections,—
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
the debt to which the interest described in paragraph (a) relates is ignored; and
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:
2. the amount of the company’s debt under which the company incurs interest in relation to the asset.

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—
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:
no tax losses have been made available under subpart IC (Grouping tax losses) between company A and other companies in the group.

Section DG 13 does not apply to a corporate shareholder if—
the shareholder has a direct or indirect interest of less than 50% in the company that has the asset; and
the shareholder has not enjoyed any private use of the asset.

Section DG 14 does not apply to a shareholder if—
the shareholder has a direct or indirect interest of less than 50% in the company that has the asset; and
the shareholder has not enjoyed any private use of the asset.

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

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 17 July 2013, 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 30 March 2022, 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 30 March 2022, 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 30 March 2022, 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 30 March 2022, 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 30 March 2022, by section 72(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).