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Income Tax Act 2007

Recharacterisation of certain transactions - Consolidated groups of companies - Accounting generally

FM 8: Transactions between group companies: income

You could also call this:

“How income is treated for transactions within company groups”

This law is about how money is handled between companies that are part of the same group. When a company in a group gets money from dealing with another company in the same group, it’s usually not counted as income. This is because the group is treated as if it were one big company.

However, there are some cases where the money is still counted as income. These include:

  1. If the company sells its trading stock to another company in the group.

  2. If the company sells or cancels a financial arrangement with another company in the group. But if the arrangement was cancelled and the companies weren’t part of the same group for the whole time, then it’s not counted as income.

  3. If one company in the group gives money to another company in the group to pay back a loan that was made before they became part of the same group.

  4. If a local council (which is a type of government) gets money from another company in the group.

In these cases, the money is treated as income, even though the companies are part of the same 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=DLM1516642.

Topics:
Money and consumer rights > Taxes
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“Money that counts as income for companies in a consolidated group”

Part F Recharacterisation of certain transactions
Consolidated groups of companies: Accounting generally

FM 8Transactions between group companies: income

  1. This section applies when a company that is part of a consolidated group derives an amount of income from a transaction or arrangement with another company in the same consolidated group, and the amount would not be income if the consolidated group were 1 company.

  2. The amount is excluded income of the company under section CX 60 (Intra-group transactions).

  3. Despite subsection (2), this section does not apply to—

  4. an amount arising from the disposal of the company’s trading stock; or
    1. an amount arising under section EW 31 (Base price adjustment formula) from—
      1. the disposal of a financial arrangement to which the financial arrangements rules apply; or
        1. the remission of a financial arrangement to which the financial arrangements rules apply, if the parties were not consolidated group companies for the whole term of the arrangement; or
        2. a dividend under section CD 4(1) (Transfers of company value generally) between group companies arising from the release of an obligation to repay money lent before the companies are treated under section FM 35 as part of the consolidated group; or
          1. the amount of a dividend derived by a local authority.

            Compare
            Notes
            • Section FM 8(3)(b)(ii): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years, except for a tax position that is inconsistent with subsection (1) and is taken in a tax return filed before 14 September 2011), by section 72(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
            • Section FM 8(3)(c): amended, on , by section 126 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
            • Section FM 8(3)(c): amended, on , by section 100(1) (and see section 100(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
            • Section FM 8(3)(d): replaced, on , by section 107(1) (and see section 107(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).