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New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Consolidated groups of companies

FM 3: Liability of consolidated groups and group companies

You could also call this:

“Group companies share tax responsibilities and reporting”

When you are part of a group of companies called a consolidated group, the way your income tax is calculated and paid is a bit different. Here’s how it works:

The group’s taxable income for a tax year is the sum of what each company in the group would have to pay if they were on their own. Each company figures out what they would owe, but they don’t pay it separately.

One company in the group, called the nominated company, has a special job. They have to give a single tax return for the whole group and work out how much tax the group needs to pay.

If you’re in the group for only part of the year, you might need to do a separate return for the time you weren’t in the group. But for the time you are in the group, you can’t do your own return.

All the companies in the group share the responsibility for paying the group’s tax bill. This means if one company can’t pay, the others might have to help out. But this only applies to the tax for the time you were actually part of the group.

Even though you’re part of a group, each company still has to follow the rules for things like PAYE (the system for deducting tax from wages), FBT (tax on benefits given to employees), and other tax deduction rules.

Remember, this is just a simple explanation. If you need to know more, it’s best to ask a grown-up who knows about tax laws or talk to someone at the tax office.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516630.

Topics:
Money and consumer rights > Taxes
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FM 2: Consolidation rules, or

“Rules for treating multiple companies as one for tax purposes”

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FM 4: Limiting joint and several liability of group companies, or

“Choosing which companies in a group are responsible for paying group tax”

Part F Recharacterisation of certain transactions
Consolidated groups of companies

FM 3Liability of consolidated groups and group companies

  1. For the purposes of calculating the income tax liability for a tax year of a consolidated group under subpart BC (Calculating and satisfying income tax liabilities), the taxable income of a consolidated group for a tax year is the sum of the amounts calculated under subsection (2) for each company in the consolidated group for all or part of the corresponding income year.

  2. Each company that is part of a consolidated group for all or part of an income year must calculate the amount that would be its taxable income under subpart BC, as modified by this section and sections FM 4 to FM 13, for all or part of the income year in which the company is part of the consolidated group.

  3. The nominated company of a consolidated group must—

  4. provide a single return of income for a tax year for the companies in the consolidated group in the corresponding income year under section 33 of the Tax Administration Act 1994; and
    1. make an assessment under section 92 of the Tax Administration Act 1994 of the amount of income tax payable by the consolidated group.

      1. A group company cannot make a separate assessment or return for the tax year unless it is, for part of the corresponding income year, not part of the consolidated group.

      2. Each company that is part of a consolidated group is jointly and severally liable for the amount of income tax assessed for the consolidated group in relation to its taxable income.

      3. The joint and several liability of each company that is part of a consolidated group is substituted for their individual income tax liability, but only to the extent—

      4. of the income tax liability of the consolidated group for the period of the income year in which the company is in the consolidated group; and
        1. to which section FM 37 does not apply.

          1. Each company that is part of a consolidated group is liable to comply with its obligations under the PAYE rules, the FBT rules, the ESCT rules, the RWT rules, and the NRWT rules.

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