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Income Tax Act 2007

Deductions - Interest incurred in relation to certain land

DH 10: Limited denial of deductibility: simplified calculation of interest affected

You could also call this:

“Calculating how much interest you can't deduct for residential property loans”

This section explains how you can calculate the amount of interest affected by limited denial of deductibility for certain loans related to residential property. It applies from 1 October 2021 to 31 March 2025.

You can use this method to figure out how much interest you can’t deduct for tax purposes. It’s especially helpful if you have a loan that you’ve borrowed in parts over time.

To use this method, you need to know two important amounts: the ‘initial loan balance’ and the ‘affected loan balance’. The initial loan balance is how much of your loan was used for residential property at a specific starting date. The affected loan balance is calculated using a special formula that considers any additional borrowing or repayments you’ve made.

The amount of interest that you can’t fully deduct is based on whichever of these two amounts is smaller at any given time. This helps you work out how much of your interest payments are affected by the limited deductibility rules.

The section also explains how to calculate these amounts in different situations, such as when you got the loan or when you bought the property. It provides a step-by-step guide to help you understand how much of your loan is subject to these special tax 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=LMS675473.

Topics:
Money and consumer rights > Taxes
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Part D Deductions
Interest incurred in relation to certain land

DH 10Limited denial of deductibility: simplified calculation of interest affected

  1. This section applies to a person who chooses to rely on the method of calculation it contains for calculating interest incurred under some loans and subject to limited denial of deductibility under this subpart.

  2. This section is intended to simplify the calculation, for a loan that may be drawn down in several tranches, of the amount of interest incurred in the period (the affected interest period) from 1 October 2021 to 31 March 2025 that is—

  3. described in section DH 8(1); and
    1. subject to limited denial of deductibility under section DH 8(2).

      1. For a period in the affected interest period, the amount of interest incurred under the loan that is affected by limited denial of deductibility under section DH 8(2) is the total amount of interest that can be attributed for instants in the period to the amount of the loan that is the lesser, for the instant in the period, of—

      2. the amount (the initial loan balance) given by subsection (4):
        1. the amount (the affected loan balance) given by subsection (5).

          1. The initial loan balance is the amount of the loan that is allocated to disallowed residential property for the date (the start date) that is—

          2. the end of 26 March 2021, if paragraphs (b) and (c) don’t apply; or
            1. the date on which the loan is drawn down, if the loan is a grandparented transitional loan under paragraph (b) or (c) of the definition of that term and is drawn down on or after 27 March 2021; or
              1. the date on which the loan is drawn down if the acquisition of the property is described in subpart FD.

                1. The affected loan balance is the amount of the loan that is a grandparented transitional loan at an instant (the balance time) in the affected interest period, calculated using the following formula:

                  initial loan balance + (advances − repayments) − (unrelated advances − unrelated repayments).

                  Where:

                  • In the formula in subsection (5)—

                  • initial loan balance is the amount given by subsection (4):
                    1. advances is the total amount of the loan applied in transactions that occur in the period between the start date and the balance time:
                      1. repayments is the total amount of the loan repaid in transactions that occur in the period between the start date and the balance time:
                        1. unrelated advances is the total amount of the loan that is not a grandparented transitional loan in the period between the start date and the balance time:
                          1. unrelated repayments is the total amount of the loan repayments applied under section DH 7(4), other than against the notional loan principal, in the period between the start date and the balance time.

                            Notes
                            • Section DH 10: 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 10(4)(c): amended, on , by section 127 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                            • Section DH 10(6)(e): amended (with effect on 27 March 2021), on , by section 46 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).