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Income Tax Act 2007

Deductions - Interest incurred in relation to certain land

DH 8: Deduction not allowed

You could also call this:

“You can't claim tax deductions for interest on certain residential property loans”

You can’t get a tax deduction for interest in certain situations. This rule applies to interest you pay on loans for some types of residential property.

You can’t claim a deduction for interest if it’s for disallowed residential property. However, there’s an exception for grandparented transitional loans. You also can’t claim for grandparented residential interest.

If you borrow money to buy an ownership interest in, or become a beneficiary of, an interposed residential property holder, you can’t claim the interest on that loan. The same goes for loans that refinance any of these types of borrowing.

From 1 April 2024 to 31 March 2025, you can only claim 80% of the interest. This means 20% of the interest is not allowed as a deduction.

There’s a special rule for interest related to owning or becoming an owner of an interposed residential property holder that’s a close company. The amount you can’t claim is worked out using a formula. This formula takes into account the interest paid each quarter, the percentage of residential property held by the company, and the percentage that can’t be claimed for that period.

The formula is: interposed interest × quarterly interposed residential property percentage × denial percentage.

In this formula, ‘interposed interest’ is the amount of interest you paid in that quarter. The ‘quarterly interposed residential property percentage’ is worked out at the end of each quarter as described in section DH 6. The ‘denial percentage’ is the percentage you can’t claim, which is 20% for the period from 1 April 2024 to 31 March 2025.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS675468.

Topics:
Money and consumer rights > Taxes
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"Interest on certain loans for residential property"

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Part D Deductions
Interest incurred in relation to certain land

DH 8Deduction not allowed

  1. A person is denied a deduction for interest if and to the extent to which the interest is—

  2. incurred for disallowed residential property, but excluding interest for a grandparented transitional loan:
    1. grandparented residential interest:
      1. incurred to acquire an ownership interest in, or become a beneficiary of, an interposed residential property holder:
        1. incurred to refinance a loan, interest for which is described in paragraph (a) or (c).

          1. The amount of the deduction denied for interest described in subsection (1) is limited to the following percentage for the following period:

            The following table is small in size and contains 2 columns. Column 1 is headed Period that interest is incurred. Column 2 is headed Percentage denied.
            Period that interest is incurred Percentage denied
            1 April 2024 – 31 March 2025 20%

          2. The amount of the deduction denied for interest (the interest) incurred as the owner or to become an owner of an interposed residential property holder that is a close company is limited, for an income year, to the amount calculated quarterly using the following formula and summed for the entire income year:

            interposed interest × quarterly interposed residential property percentage × denial percentage.

            Where:

            • In the formula in subsection (3)—

            • interposed interest is the interest, to the extent to which it is incurred in the relevant quarterly calculation period:
              1. quarterly interposed residential property percentage is the interposed residential property percentage for the interposed residential property holder, calculated, as described in section DH 6, at the end of the relevant quarterly calculation period:
                1. denial percentage is the percentage denied in the table in subsection (2) for the period.

                  Notes
                  • Section DH 8: 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 8(2) heading: replaced, on , by section 47(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                  • Section DH 8(2): replaced, on , by section 47(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                  • Section DH 8(3) formula: amended, on , by section 47(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                  • Section DH 8(4)(c): inserted, on , by section 47(3) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).