Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Consolidated groups of companies

FM 5: Liability when company leaves consolidated group

You could also call this:

“Tax responsibilities when a company exits a consolidated group”

When a company leaves a consolidated group, it might not have to pay for some tax obligations. This happens if certain conditions are met:

  1. The tax assessment is made after the company has left the group.
  2. The new tax amount is more than what was originally assessed for the whole group.
  3. The tax office thinks that removing the company’s responsibility won’t make it too hard to collect the tax.

If these conditions are met, the tax office will let the company and the group know.

Sometimes, a company in a consolidated group might be seen as earning money when it’s closed down or leaves the group. In these cases, the whole group is treated as if it earned that money, not just the individual company.

If a company previously had unpaid bills that were counted as income when it was closed down or left the group, these amounts won’t be counted as income again for the group.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516634.

Topics:
Money and consumer rights > Taxes
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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”

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FM 6: Some general rules for treatment of consolidated groups, or

“Rules for treating consolidated groups as a single company for tax purposes”

Part F Recharacterisation of certain transactions
Consolidated groups of companies

FM 5Liability when company leaves consolidated group

  1. If a company leaves a consolidated group, the company’s liability under section FM 3(5) is removed if all the following paragraphs apply:

  2. if the assessment is made after the later of—
    1. the date on which the company is treated as leaving the consolidated group; or
      1. the date of the event that caused the company to be treated as leaving the consolidated group; and
      2. the amount assessed is more than an earlier assessment of the consolidated group for the income year; and
        1. the Commissioner considers that the removal of the liability will not significantly prejudice the recovery, or likely recovery, of the amount of income tax assessed for the income year.

          1. For the purposes of subsection (1)(c), the Commissioner must notify the company and the consolidated group if the discretion has been exercised.

          2. Subsection (4) applies when—

          3. a company in a consolidated group is treated as deriving an amount of income under section CG 2C or CG 2D (which relate to the treatment of remitted amounts when certain companies are liquidated or leave groups of companies); and
            1. the company—
              1. for the purposes of section CG 2C, is company A and is liquidated while still part of the consolidated group:
                1. for the purposes of section CG 2D, is either company C or company D, and leaves the consolidated group.

                2. The amount of income that the company is treated as deriving under section CG 2C or CG 2D, as applicable, is treated as derived by the consolidated group.

                3. In the application of subsection (4), to the extent to which an unpaid liability was previously taken into account in determining whether an amount is income under section CG 2C or CG 2D, the amount is not included in determining income under subsection (2).

                Compare
                Notes
                • Section FM 5(1): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 117(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5(3) heading: inserted (with effect on 22 November 2013), on , by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5(3): inserted (with effect on 22 November 2013), on , by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5(4) heading: inserted (with effect on 22 November 2013), on , by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5(4): inserted (with effect on 22 November 2013), on , by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5(5) heading: inserted (with effect on 22 November 2013), on , by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5(5): inserted (with effect on 22 November 2013), on , by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5 list of defined terms income: inserted, on , by section 117(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section FM 5 list of defined terms pay: inserted, on , by section 117(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).