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DH 5: Key terms
or “Definitions of important terms for deductions and income tax”
You could also call this:

“How to calculate the percentage of residential property held through other entities”

This law explains how to calculate the ‘interposed residential property percentage’. You use a formula to work this out: divide the value of disqualified assets by the total value of all assets.

Disqualified assets are properties that aren’t allowed for residential purposes. However, some properties described in section DH 4 are not counted as disqualified assets.

When calculating this percentage for a company, you need to include assets held by lower-tier companies too. You do this by using section YC 4, which helps figure out how much of the lower-tier assets should be counted based on voting interests and market value interests.

If you’re a shareholder in a close company that becomes an LTC (Look-Through Company), any loans you made before it became an LTC aren’t affected by this change. This rule applies to this section, section DH 8, and the definition of ‘interposed residential property holder’.

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Next up: DH 7: Grandparented residential interest

or “Interest on certain loans for residential property”
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Part D Deductions
Interest incurred in relation to certain land

DH 6Interposed residential property percentage

  1. Interposed residential property percentage is the amount, for an interposed residential property holder (the person), calculated using the following formula, expressed as a percentage:

    disqualified assets ÷ total assets.

    Where:

    • In the formula in subsection (1)—

    • disqualified assets is the value of the person’s property that is disallowed residential property, but excluding—
      1. property described in section DH 4; and
        2. total assets is the value of the person’s assets.

          1. If the person is a company, the items disqualified assets and total assets in this section are calculated to also include assets held by lower tier companies to the company by applying section YC 4 (Look-through rule for corporate shareholders), treating the person as the ultimate shareholder, to attribute, in proportion to the relevant voting interests and market value interests under that section, those lower tier assets.

          2. For the purposes of this section, section DH 8, and the definition of interposed residential property holder, a loan entered into by a shareholder of a close company before it became an LTC is not affected by the company becoming an LTC.

          Notes
          • Section DH 6: inserted (with effect on 27 March 2021), on , by section 75 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
          • Section DH 6(2)(a)(i): amended (with effect on 27 March 2021), on , by section 43(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
          • Section DH 6(2)(a)(ii): repealed (with effect on 27 March 2021), on , by section 43(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).