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Income Tax Act 2007

Recharacterisation of certain transactions - Consolidated groups of companies - When membership starts and stops

FM 38: Notice requirements on forming or joining consolidated group

You could also call this:

“Notice rules for companies forming or joining tax groups”

When companies want to form a group for tax purposes or join an existing group, they need to follow certain rules. You can form a group with other companies or join a group that already exists. But you need to stay eligible to be in the group when the income year starts or during the notice period.

If you tell the tax office within the notice period that you want to join a group, you can choose to be part of the group from the start of that income year. If you don’t say which year, you’ll be part of the group from the start of the next income year after the tax office gets your notice.

If you become eligible to join a group during an income year and you tell the tax office within the notice period, you can choose to join from the day you became eligible. In this case, you’ll need to provide financial statements for part of the year.

The notice period is usually 63 working days after the start of an income year. But it can be different if the companies are new, if they become eligible to join during the year, or if the tax office agrees to give more time.

If you become eligible to join a group during the year, you can’t use this rule if it looks like you set things up just to meet the requirements and avoid the normal group tax rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516733.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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FM 37: Leaving consolidated group, or

“How a company can leave a consolidated group”

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FM 39: Choosing to leave consolidated group, or

“How to choose to leave a consolidated group for tax purposes”

Part F Recharacterisation of certain transactions
Consolidated groups of companies: When membership starts and stops

FM 38Notice requirements on forming or joining consolidated group

  1. This section applies when—

  2. 2 or more companies choose to form a consolidated group under section FM 35; or
    1. a company chooses to join an existing consolidated group under section FM 36.

      1. Despite subsection (1), this section applies only if a company forming or joining a consolidated group remains eligible to be in the consolidated group either at the start of the relevant income year or for the notice period, as applicable.

      2. For a notice given to the Commissioner within the notice period in an income year, the company may provide that the election applies for the income year. The company is treated as in the consolidated group from the start of the income year.

      3. If the notice referred to in subsection (3) does not specify an income year, the company is treated as in the consolidated group from the start of the income year following that in which the Commissioner receives the notice.

      4. Despite subsections (3) and (4), if a company becomes eligible to join a consolidated group during an income year, and the notice is given to the Commissioner within the notice period, the company may provide that the election applies from the date they first became entitled to make an election. The company is treated as in the consolidated group from that date, and part-year financial statements under section FM 14 are required.

      5. In this section, notice period means 1 of the following:

      6. 63 working days after the start of an income year; or
        1. if the company joining, or the companies forming, the consolidated group in the income year are incorporated or formed in the same income year, 63 working days after the latest incorporation or formation; or
          1. if the company or companies become entitled to make an election during an income year, 63 working days from the date they first became entitled; or
            1. an extended period if the Commissioner agrees that the notice could not reasonably have been provided within the 63-day period.

              1. Subsection (5) does not apply if it would be reasonable to conclude that an arrangement has been entered into for a purpose of enabling the company to meet the requirements of the subsection so as to defeat the intent and application of the consolidation rules.

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              Notes
              • Section FM 38(2): amended, on (with effect on 1 April 2008), by section 104 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).