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Income Tax Act 2007

Deductions - Expenditure specific to certain entities

DV 17: Consolidated groups: expenditure or loss incurred by group companies

You could also call this:

“How companies in a group can share expenses and losses for tax purposes”

When companies are part of a consolidated group, they can sometimes claim deductions for expenses or losses that are connected to another company in the group. This is explained in section FM 11. For example, if one company in the group spends money that helps another company in the group make money or run their business, any company in the group might be able to claim a deduction for that expense.

However, there are also times when companies in a consolidated group can’t claim deductions. This is covered in section FM 12. If the whole group wouldn’t be allowed to claim a deduction for an expense or loss if it was just one company, then no company in the group can claim that deduction. There’s one exception to this rule: if a company in the group borrows money from another company in the group and pays interest on that loan, they might still be able to claim a deduction for the interest in certain situations.

The rule about allowing deductions adds to the general permission for deductions, but you still need to follow all the other rules about deductions. The rule about not allowing deductions overrides the general permission, which means it’s a stronger rule that you have to follow even if the general permission would normally allow the deduction.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514177.

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Money and consumer rights > Taxes
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Part D Deductions
Expenditure specific to certain entities

DV 17Consolidated groups: expenditure or loss incurred by group companies

  1. This section results from sections FM 11 and FM 12 (which relate to expenditure or loss incurred by group companies).

  2. To the extent set out in section FM 11, if the consolidated group would be allowed a deduction for an item of expenditure or loss as 1 company because of a nexus between the expenditure and the income or carrying on of a business by another group company, a company that is part of the consolidated group is allowed a deduction.

  3. To the extent set out in section FM 12, if the consolidated group would be denied a deduction for an item of expenditure or loss as 1 company, a company that is part of the consolidated group is denied a deduction, except for an amount of expenditure or loss that is interest on money borrowed by the company from a group company in the circumstances described in that section.

  4. Subsection (2) supplements the general permission, and the general limitations still apply. Subsection (3) overrides the general permission.

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