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Income Tax Act 2007

Timing and quantifying rules - Allocation of deductions for excess residential land expenditure

EL 2: Outline of subpart: specific provisions

You could also call this:

"Rules for claiming expenses on rental properties"

Illustration for Income Tax Act 2007

You own a residential rental property and have expenses related to it. The rules in sections EL 4 to EL 8 apply to your expenses. These rules help you work out what expenses you can claim. You can choose to apply these rules to all your properties or to each property separately. If you have more expenses than income from your properties, you can use the extra expenses in later years. There are some properties that these rules do not apply to, such as your main home. Some sections, like section EL 9, section EL 10, and section EL 11, explain which properties are exempt. Other sections, like section EL 14 and section EL 15, modify the general rules. You can also find rules about selling residential land in section EL 20. The rules in sections EL 4 to EL 8 are important for working out your expenses. You can apply these rules to your properties in different ways. It is good to know which properties are exempt from these rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS223655.

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Topics:
Money and consumer rights > TaxesHousing and property > Renting
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EL 1: Outline of subpart: general, or

"This section summarises how deductions for residential land expenses are limited and carried forward"

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EL 3: Definitions for this subpart, or

"What special words mean in this part of the Income Tax Act"

Part ETiming and quantifying rules
Allocation of deductions for excess residential land expenditure

EL 2Outline of subpart: specific provisions

  1. Sections EL 4 to EL 8 apply when a person owns a residential rental property and has expenditure or loss that relates to the property for which they are allowed a deduction. For this purpose, the expenditure does not include an amount that is a cost of revenue account property.

  2. The rules in sections EL 4 to EL 8 apply—

  3. to a person’s residential portfolio:
    1. by election, on a property-by-property basis.

      1. A person may choose to apply the rules on a property-by-property basis for an income year to 1 or more properties while applying the rules on a portfolio basis in relation to other properties owned by them.

      2. If a person has excess expenditure under section EL 4, they may use the amount in later income years in which they derive residential income. In certain cases, the amounts are released from the application of the rules.

      3. The following sections set out the properties to which the deduction allocation rule in section EL 4 does not apply:

      4. section EL 9: the person’s main home:
        1. section EL 10: property held by the person on revenue account:
          1. section EL 11: property held by certain persons and entities:
            1. section EL 12: property to which subpart DG (Expenditure related to use of certain assets) applies:
              1. section EL 13: property provided as employee accommodation.

                1. The following sections modify the general rules in this subpart:

                2. section EL 14 relating to the continuity rules for companies:
                  1. section EL 15 relating to transfers between companies in wholly-owned groups:
                    1. sections EL 16 to EL 19 relating to deductions for interest expenditure when a person borrows to invest in a residential land-rich entity.

                      1. Section EL 20 applies when a person sells residential land within the bright-line period and has expenditure that relates to the land for which they are allowed a deduction as a cost of revenue account property. The section also provides for the treatment of the expenditure when the sale is made to an associated person.

                      Notes
                      • Section EL 2: inserted (with effect on 1 April 2019), on , by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
                      • Section EL 2(5): amended (with effect on 1 April 2019), on , by section 45(1) (and see section 45(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).