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Income Tax Act 2007

Deductions - Expenditure related to use of certain assets

DG 10: Interest expenditure rules

You could also call this:

“Rules for claiming interest on loans as a tax deduction”

When a company borrows money to buy something, it can claim the interest on the loan as a deduction. You need to follow some rules to work out how much interest you can claim. These rules are in sections DG 11 to DG 14.

If you are part of a group of companies, you must tell the tax department about it under section 30D of the Tax Administration Act 1994. This is so you can work out how much interest you can claim. You do this by following the rules in sections DG 11 to DG 14.

There are some exceptions to these rules. If you own less than 50% of a company, or you have not used the company’s assets for personal things, then some of the rules do not apply to you. You can find more information about this in section DG 13 and section DG 14.

If you are a shareholder, you might be able to claim some interest as a deduction. But you need to follow the rules in sections DG 12 to DG 14 to work out how much you can claim. You also need to consider if you have used the company’s assets for personal things, or if you have given any tax losses to other companies in your group.

When working out how much interest you can claim, you need to consider who is a shareholder. A shareholder includes a person associated with the shareholder, unless the associated person is also a shareholder. You can find more information about how to work out who is a shareholder in subpart IC.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM5494529.

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

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. Repealed

  3. 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—

  4. 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: repealed, on , pursuant to section 43(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                  • Section DG 10(1B): repealed, on , by section 43(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                  • Section DG 10 list of defined terms beneficiary: repealed, on , by section 43(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                  • Section DG 10 list of defined terms disallowed residential property: repealed, on , by section 43(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                  • Section DG 10 list of defined terms interposed residential property holder: repealed, on , by section 43(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).