DG 13Interest expenditure: corporate shareholders

1. This section applies to a company that is not in the same group of companies as another company (company A), that is a close company or qualifying company, when—

2. a net asset balance remains outstanding for an income year after the application of—
   1. first, section DG 12, if applicable; or
   2. secondly, section DG 11; and
3. the company is 1 or more of—
   1. a company that is a shareholder in company A:
   2. a company that is a shareholder in a company that is part of the same group of companies as company A and has a voting interest in company A:
   3. a company that has a voting interest in a company referred to in subparagraph (i) or (ii).

4. This section applies sequentially as follows:

5. first, to the companies referred to in subsection (1)(b)(i) and (ii); and
6. secondly, to the extent to which the debt value of the company for the income year remains less than the company's share of the net asset balance, to the companies that are shareholders in a company referred to in paragraph (a); and
7. so on, until either—
   1. the company's share of the net asset balance for the income year is reduced to zero or is treated as reduced to zero; or
   2. no other corporate shareholders exist to which this section applies.

8. The deduction that the company is allowed for interest expenditure incurred for the income year is limited by its share of the net asset balance. The share of the asset balance is calculated using the formula—

   $net\; asset\; balance\; \times \; company’s\; interest.$

   Where:

9. In the formula in subsection (3),—

10. net asset balance is the amount of the net asset balance after the application of section DG 11 or DG 12, as applicable, and as recalculated under subsection (6):
11. company's interest is the relevant voting interest in company A, expressed as a percentage.

12. If the debt value for the company for the income year is equal to or less than its share of the net asset balance for the income year, the company is allowed a deduction of a portion of interest expenditure incurred for the income year,—

13. of an amount calculated by company A using the formula in section DG 11(3B); and
14. treating the total interest expenditure for the income year as if it were the item interest expenditure in the formula.

15. In the application of subsection (5), the amount that is the company's share of the net asset balance must be recalculated on each application, being reduced by an amount equal to each counted company's debt value.

16. If the debt value for the company for the income year is more than its share of the net asset balance, the company must calculate a reduced amount of interest expenditure incurred for the income year using the formula—

    $interest\; expenditure\; \times \; company’s\; share\; of\; net\; asset\; balance÷\; company’s\; debt\; value.$

    Where:

17. In the formula in subsection (7),—

18. interest expenditure is the total amount of interest expenditure incurred by the company for the income year:
19. company's share of net asset balance is the amount calculated for the company under subsection (3):
20. company's debt value is the amount of the debt value of the company for the income year.

21. The company is allowed a deduction for the income year of a portion of the reduced amount described in subsection (7),—

22. of an amount calculated by company A using the formula in section DG 11(3B); and
23. treating the reduced amount as if it were the item interest expenditure in the formula.

24. The company is allowed a deduction for the amount of interest expenditure calculated under subsection (9C) to the extent to which the amount would be a deduction under Part D (Deductions) in the absence of this subpart.

25. The formula is—

    $interest\; expenditure\; -\; reduced\; amount.$

    Where:

26. In the formula in subsection (9C),—

27. interest expenditure is the amount of interest expenditure incurred by the company for the income year:
28. reduced amount is the reduced amount of interest calculated using the formula in subsection (7).

29. Once a calculation is made under subsection (7), the amount that is the company's share of the net asset balance is treated as zero.

30. If a net asset balance remains outstanding after the application of this section for an income year, the amount must be used under section DG 14.

Notes

• Section DG 13: 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 13(1): amended (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); 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 24 February 2016, by section 105(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(1)(b): amended (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); 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 24 February 2016, by section 105(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(5)(a): amended (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); 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 24 February 2016, by section 105(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(5)(b): amended (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); 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 24 February 2016, by section 105(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9)(a): amended (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); 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 24 February 2016, by section 105(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9)(b): amended (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); 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 24 February 2016, by section 105(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9B) heading: 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); 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 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9B): 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); 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 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9C) heading: 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); 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 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9C): 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); 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 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9D) heading: 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); 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 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section DG 13(9D): 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); 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 24 February 2016, by section 105(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).