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Income Tax Act 2007

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

EL 16: Interests in residential land-rich entities

You could also call this:

“Rules for claiming interest on loans for investing in companies with significant residential property holdings”

If you borrow money to buy a share in a company that owns a lot of residential land, this law might affect you. It applies when you can claim a tax deduction for the interest you pay on that loan.

If the amount of interest you can claim is more than your share of the income from the residential properties, you can’t claim all of it right away. The extra amount is put on hold for now.

You can use this extra amount in a later year when the company makes more money from its residential properties. At that time, you can add it to your interest claim for that year.

There are some special rules if the entity you’ve invested in is a partnership or a look-through company. These rules are explained in section EL 18.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS223696.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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EL 15: Transfers between companies in wholly-owned groups, or

“Sharing tax benefits between companies owned by the same people”

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EL 17: Calculations for section EL 16, or

“How to calculate interest expenditure and net income for interposed entities”

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

EL 16Interests in residential land-rich entities

  1. This section applies when a person—

  2. has borrowed money and used it to acquire an interest in an entity that is, for an income year, a residential land-rich entity; and
    1. has interest expenditure for the income year in relation to the amount borrowed for which they are allowed a deduction.

      1. To the extent to which the portion of the person’s interest expenditure calculated under section EL 17(1) is more than their share of net residential income calculated under section EL 17(3), the excess amount is—

      2. suspended as a deduction for the income year; and
        1. carried forward to a later income year in which the entity derives residential income; and
          1. added to the amount of the interest expenditure referred to in subsection (1)(b) for the later income year.

            1. The application of this section and section EL 17 is modified by section EL 18 when the entity is a partnership or a look-through company.

            Notes
            • Section EL 16: 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 16(2)(b): replaced (with effect on 1 April 2019), on , by section 112 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).