Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Expenditure related to use of certain assets

DG 14: Interest expenditure: non-corporate shareholders

You could also call this:

“Rules for individual shareholders deducting interest on company-related borrowing”

This section talks about how you handle interest expenses if you’re a person who owns part of a close company or qualifying company. It applies when there’s still money owed after looking at other rules.

You need to follow this rule if you’re not a company yourself, you have voting rights in the company, and you’re allowed to deduct interest expenses from your taxes.

If you’re a regular person (not a company), you only need to split up the interest you pay on money you borrowed to buy shares in the company.

You split up the interest using the same rules as if you were the company itself.

There are some things you don’t need to worry about when following this rule. You can ignore interest that you’re not allowed to deduct because of another rule about residential property. You can also ignore some of the debt related to that interest.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM5494560.

Topics:
Money and consumer rights > Taxes
Previous

DG 13: Interest expenditure: corporate shareholders, or

“Rules for limiting interest deductions for companies with shares in other companies”

Next

DG 15: Quarantined expenditure rules, or

“Rules for limiting expense deductions when an asset doesn't earn enough”

Part D Deductions
Expenditure related to use of certain assets

DG 14Interest expenditure: non-corporate shareholders

  1. This section applies for a person, for an income year and a 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 13, if applicable:
      1. secondly, section DG 12, if applicable:
        1. thirdly, section DG 11, if neither applies; and
        2. the person—
          1. is not a company; and
            1. has a voting interest in company A; and
              1. has interest expenditure for which they are allowed a deduction.

              2. For a natural person, the amount of interest expenditure that must be apportioned is only the amount of interest that the person incurs on money borrowed to acquire shares in company A or in a company referred to in section DG 13(1)(b).

              3. The apportionment is made using the rules set out in section DG 13(2) to (10), treating the person as if they were the company.

              4. Despite subsections (1) and (2), the following are ignored for the purposes of applying this section:

              5. interest, incurred by the person as shareholder in relation to shares of company A, for which a deduction is denied under section DH 8 (Deduction not allowed); and
                1. the debt to which that interest relates multiplied by the quarterly interposed residential property percentage described in section DH 8(4)(b).

                  Notes
                  • Section DG 14: 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 14(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 , by section 106(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                  • Section DG 14(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 , by section 106(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                  • Section DG 14(1)(b)(i): amended, on , by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                  • Section DG 14(4) heading: inserted (with effect on 27 March 2021), on , by section 74 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                  • Section DG 14(4): inserted (with effect on 27 March 2021), on , by section 74 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                  • Section DG 14 list of defined terms trustee: repealed, on , by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).