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Income Tax Act 2007

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

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

You could also call this:

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

When you’re part of a group of companies that file taxes together (called a consolidated group), there are special rules about what expenses you can claim as deductions.

If you spend money or lose money in a tax year when you’re part of this group, you might not be allowed to claim it as a deduction if the whole group wouldn’t be allowed to claim it. It’s like the tax office is looking at all the companies in the group as if they were one big company.

However, there’s an exception to this rule. If you borrow money from someone who isn’t part of your group and you have to pay interest on that loan, you might still be able to claim that interest as a deduction. This is true if you’re allowed to claim it under section DB 7 or DB 8, which are about interest deductions for companies.

You might also be allowed to claim interest as a deduction if you borrowed money to buy shares in other companies in your group. Even if you didn’t directly use the borrowed money to buy the shares, but instead lent it to another company in your group who then used it to buy shares, you might still be able to claim the interest as a 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=DLM1516650.

Topics:
Money and consumer rights > Taxes
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FM 11: Expenditure: nexus with income derivation, or

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

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FM 13: Capital expenditure, or

“How to treat long-term spending in a group of companies”

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

FM 12Expenditure when deduction would be denied to consolidated group

  1. This section applies when a company incurs expenditure or loss or 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 be allowed as a deduction to that company in the absence of this section.

      1. The company is denied a deduction for an amount under section DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the deduction would be denied to the consolidated group, treating the group as if it were 1 company, except to the extent to which the expenditure or loss or amount of depreciation loss is interest on money that the company has borrowed from a person that is not part of the consolidated group, and the company—

      2. is allowed a deduction under section DB 7 (Interest: most companies need no nexus with income) or DB 8 (Interest: money borrowed to acquire shares in group companies):
        1. would be allowed a deduction under section DB 7 or DB 8 because the company is treated as having used the money borrowed, to the extent of the actual acquisition cost, to acquire certain shares when, through interposed intra-group borrowings, the money borrowed was in fact used by another group company in acquiring the shares.

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          Notes
          • Section FM 12(2): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 52(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).