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Income Tax Act 2007

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

FM 11: Expenditure: nexus with income derivation

You could also call this:

“When a company in a group can claim tax deductions for expenses linked to other group members' income or business”

This section talks about when a company can get a tax deduction for money it spends or loses. It applies when the company is part of a bigger group of companies called a consolidated group.

You can get a tax deduction if you spend money or lose money in a way that wouldn’t normally be allowed as a deduction. But there’s a catch - it only works if the whole group of companies would be allowed to claim it if they were treated as one big company.

For this to work, there needs to be a connection between the money you spent or lost and either:

  1. The money that another company in your group is making, or
  2. The business that another company in your group is running.

If there’s a connection like this, then you can claim a deduction under section DV 17. This rule helps make sure that companies in a group are treated fairly when it comes to tax deductions.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516648.

Topics:
Money and consumer rights > Taxes
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FM 10: Expenditure: intra-group transactions, or

“Rules for spending and losses between companies in the same group”

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FM 12: Expenditure when deduction would be denied to consolidated group, or

“No deductions for consolidated group expenses, except for certain interest payments”

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

FM 11Expenditure: nexus with income derivation

  1. This section applies when a company incurs expenditure or loss or has an amount of depreciation loss in a tax year or part of a tax year in which it is part of a consolidated group that—

  2. is not expenditure or loss to which section FM 10 applies; and
    1. would not be allowed as a deduction to the company in the absence of this section.

      1. The company is allowed a deduction for the amount under section DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the consolidated group would be allowed a deduction for the amount, treating the group as if it were 1 company, because of a connection between—

      2. the incurring of the expenditure or loss or amount of depreciation loss; and
        1. the deriving of assessable or excluded income, or the carrying on of a business by another company in the consolidated group.

          Compare
          Notes
          • Section FM 11 list of defined terms excluded income: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FM 11 list of defined terms excluded income loss: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FM 11 list of defined terms loss: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).