Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
EL 17: Calculations for section EL 16
or “How to calculate interest expenditure and net income for interposed entities”
You could also call this:

“Special tax rules for transparent entities with residential income”

When a group or company is see-through for tax purposes, there are special rules about how to handle residential income. If you’re part of a partnership or a look-through company, here’s what you need to know:

Your residential income for the year is usually treated as your share of the net residential income. This is worked out using a special calculation.

However, if your group has chosen to apply the rules separately for a specific property (let’s call it Property A), things work a bit differently. In this case, when working out your share, you only look at the money from Property A. The calculation changes to focus just on that property.

These rules help make sure that your income is fairly counted when you’re part of a see-through group or company that owns residential property.

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 It might be out of date or be missing some parts.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

Next up: EL 19: Valuation of assets

or “How to determine the value of assets for tax purposes”
Next

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

EL 18Modifications when entities transparent

  1. For the purposes of sections EL 16 and EL 17, if the entity is a partnership or a look-through company,—

  2. the person’s residential income for the income year from property held by the entity is treated as their share of net residential income under section EL 17(3) unless paragraph (b)(ii) applies to modify the calculation of net residential income:
    1. when the entity has chosen under section EL 6 to apply the rules in this subpart on a property-by-property basis for a particular property (property A), the formulas in section EL 17 are modified as follows:
      1. the item applied capital percentage in section EL 17(2)(a) is read as if the residential rental property were property A; and
        1. the residential income derived by the person for the income year from property A is treated as their share of net residential income under section EL 17(3).

        Notes
        • Section EL 18: 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 18(a): amended (with effect on 1 April 2019), on , by section 113 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).