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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific - Arrangements involving residential land

GB 53C: On-lending at lower rate

You could also call this:

“Rules for lending borrowed money at lower rates to connected people”

This law applies when you borrow money and then lend it to someone you’re connected with at a lower interest rate than you borrowed it. It affects you if the person you lend to, or someone they’re connected with, owns property that isn’t allowed under certain rules. The law also applies if the arrangement is meant to get around rules about interest on certain types of land.

If this happens, you can only claim the lower interest rate for tax purposes. You can’t use the higher rate you’re paying on your loan. This affects how much interest you can claim as an expense under Part D of the tax rules.

The purpose of this law is to stop people from using lending arrangements to avoid the rules in subpart DH about interest on certain types of land.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS684941.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
Housing and property > Buying and selling homes
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Part G Avoidance and non-market transactions
Avoidance: specific: Arrangements involving residential land

GB 53COn-lending at lower rate

  1. This section applies when, under an arrangement, a person borrows money and on-lends it to an associated person at a lower rate than that at which the person borrowed it, if—

  2. the associated person, or a person associated with the associated person, owns disallowed residential property; and
    1. the arrangement has a purpose or effect, not being a merely incidental purpose or effect, of defeating the intent and application of subpart DH (Interest incurred in relation to certain land).

      1. The amount of interest incurred by the person for the purposes of Part D is limited to and calculated using the lower rate. The higher rate is ignored.

      Notes
      • Section GB 53C: inserted (with effect on 27 March 2021), on , by section 112 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).