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EL 2: Outline of subpart: specific provisions
or “Rules for deducting expenses from residential rental properties”
You could also call this:

“Explaining important terms used in tax rules for property income”

In this part of the Income Tax Act 2007, you’ll find some important definitions that help explain rules about timing and working out amounts for taxes. Here’s what they mean in simple terms:

Land sales provisions are rules about money made from selling land. You can find these rules in sections CB 6A to CB 15.

Residential income is money you get in a year from residential land. This includes:

  • Rent you receive from your residential properties
  • Money you make from loans in foreign currencies that relate to your residential properties
  • Money you get back from depreciation on your residential properties
  • Money you would make if you only earned income from selling your residential properties
  • Money you would make from rent, loans, or selling residential properties that are treated differently because of section EL 10

A residential land-rich entity is a company, partnership, or trust where more than half of what they own is residential land. You can learn more about this in section EL 19.

Your residential portfolio is all the residential rental properties you own in a year. It includes properties you’ve sold, starting from when you first bought a residential rental property until the end of the year when you sell your last one. It doesn’t include properties you’re treating separately under section EL 6.

A residential rental property is residential land that you can claim tax deductions for using or selling. It includes land that was residential at any time during the year. Some properties are not included because of rules in sections EL 9, EL 10, EL 11, EL 12, and EL 13.

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Next up: EL 4: Allocation of deductions for loss-making residential rental properties

or “How to handle losses from rental properties for tax purposes”
Next

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

EL 3Definitions for this subpart

  1. In this subpart,—

    land sales provisions means sections CB 6A to CB 15 (which relate to amounts derived from disposals of land)

      residential income means the following amounts that a person derives for an income year in relation to residential land:

      1. rental income which is the amount of income the person derives under sections CC 1 to CC 2 (which relate to amounts derived from the use of land) for the income year in relation to their residential portfolio:
        1. income which is the amount that the person derives under section CC 3 (Financial arrangements) for the income year in relation to a loan, denominated in a foreign currency, to the extent to which that loan relates to their residential portfolio:
          1. depreciation recovery income which is the amount that the person derives under section CG 1 (Amount of depreciation recovery income) for the income year in relation to their residential portfolio:
            1. an amount of net income that the person would have for the corresponding tax year if their only income were income under the land sales provisions from a disposal of property in their residential portfolio:
              1. an amount of net income that the person would have for the corresponding tax year if their only income were income referred to in paragraphs (a), (b), and (c) in relation to residential land to which section EL 4 does not apply because it is held on revenue account and falls within the exclusion set out in section EL 10

                residential land-rich entity means—

                1. a close company, partnership, or look-through company if more than 50% of its assets by value are residential land, whether the land is owned directly or indirectly, see section EL 19:
                  1. a trustee of a trust whose property includes residential rental property if more than 50% of the trust’s assets by value are residential land, whether the land is owned directly or indirectly, see section EL 19

                    residential portfolio—

                    1. means 1 or more residential rental properties that a person holds in a portfolio for an income year; and
                      1. includes a residential rental property that the person has included in their portfolio, whether or not they retain ownership of the property, in the period that—
                        1. starts at the beginning of the income year in which they first acquire a residential rental property that is included in their portfolio; and
                          1. ends on the last day of the income year in which they dispose of the last of the residential rental properties included in their portfolio; and
                          2. does not include a residential rental property in relation to which a person is applying the rules on a property-by-property basis under section EL 6

                            residential rental property—

                            1. means residential land for which a person who owns the land is allowed a deduction relating to the use or disposal of the land; and
                              1. includes land that, for a time in an income year, is residential land; and
                                1. does not include properties that are excluded from the application of section EL 4 by sections EL 9, EL 10, EL 11, EL 12, and EL 13.

                                Notes
                                • Section EL 3: 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 3 land sales provisions: amended, on , by section 127 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                • Section EL 3 land sales provisions: amended (with effect on 27 March 2021), on , by section 46(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                • Section EL 3 residential income paragraph (ab): inserted, on , by section 86(1) (and see section 86(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                • Section EL 3 residential income paragraph (d): amended (with effect on 1 April 2019), on , by section 106(b) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                • Section EL 3 residential rental property paragraph (b): amended (with effect on 1 April 2019), on , by section 46(2)(a) (and see section 46(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                • Section EL 3 residential rental property paragraph (c): inserted (with effect on 1 April 2019), on , by section 46(2)(b) (and see section 46(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).