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Income Tax Act 2007

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

EL 5: When residential portfolios sold

You could also call this:

“Rules for using unused excess amounts when selling your entire residential property portfolio”

This section talks about what happens when you sell all the properties in your residential portfolio. If you have any unused excess amounts from previous years, here’s what you need to know:

If you make money from selling all your properties under the land sales rules, you can use any leftover excess amounts in the current year. This doesn’t apply to amounts you moved from other properties.

If you don’t make money from selling all your properties under the land sales rules, you can still use the leftover excess amounts in future years when you earn residential income. You can move these amounts to other rental properties you own.

When you move excess amounts between properties, it doesn’t matter if you do it for your whole portfolio or for each property separately.

If you moved an excess amount from a property you didn’t sell to the portfolio you’re selling now, and you didn’t make money from selling that other property, there are special rules. The amount you can use now will be reduced by the amount you moved from the other property. The moved amount can be used for other rental properties in years when you earn residential income.

Section EL 4(1), Section EL 4(2), and Section EL 4(3) have more information about 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=LMS223671.

Topics:
Money and consumer rights > Taxes
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Part E Timing and quantifying rules
Allocation of deductions for excess residential land expenditure

EL 5When residential portfolios sold

  1. This section applies for an income year (the current income year) when a person—

  2. disposes of the last of the properties in their residential portfolio; and
    1. has an unused excess amount under section EL 4(3) relating to their portfolio.

      1. If the person derives income under the land sales provisions for the current income year or for an earlier income year from the disposal of each of the properties in their residential portfolio, any unused excess amount relating to the portfolio is released from the application of the limited allocation rule in section EL 4(2) for the current income year. However, this subsection does not apply in relation to an unused excess amount transferred from another property, see subsections (5) and (6).

      2. If the person does not derive income under the land sales provisions for the current income year or for an earlier income year from the disposal of each of the properties in their residential portfolio, any unused excess amount relating to the portfolio—

      3. is an amount to which section EL 4(3) continues to apply for income years in which the person derives residential income; and
        1. is treated as a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.

          1. For the purposes of subsection (3)(b), it does not matter whether the allocation of the transferred amount is made on a portfolio basis or on a property-by-property basis.

          2. Subsection (6) applies in relation to a disposal described in subsection (2) when—

          3. an unused excess amount was transferred to the portfolio from another of the person’s properties that was not included in the portfolio; and
            1. the person did not derive income from the disposal of the other property.

              1. An unused excess amount that would otherwise be released under subsection (2) is—

              2. reduced by an amount equal to the total unused excess amount transferred from the other property; and
                1. to the extent of the amount transferred, is a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.

                  Notes
                  • Section EL 5: 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 5(2): amended (with effect on 1 April 2019), on , by section 108(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                  • Section EL 5(5) heading: inserted (with effect on 1 April 2019), on , by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                  • Section EL 5(5): inserted (with effect on 1 April 2019), on , by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                  • Section EL 5(6) heading: inserted (with effect on 1 April 2019), on , by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                  • Section EL 5(6): inserted (with effect on 1 April 2019), on , by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).