Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

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

FM 40: Losing eligibility to be part of consolidated group

You could also call this:

“When a company becomes ineligible to be part of a consolidated group”

This section explains what happens when a company can no longer be part of a consolidated group. If you’re not eligible to be in the group anymore, or if you’re not the main company and can’t stay in the same group as the main company, you’re treated as leaving the group from the start of the income year when this happens.

If you become ineligible in the same year you joined the group, you’re treated as leaving on the day you joined. However, you can tell the tax office that you’re leaving on the day you became ineligible. To do this, you need to let them know within 20 working days (unless they agree to give you more time) and provide financial statements for part of the year as required by section FM 14.

If you try to leave the group just to avoid the rules, your notice won’t be accepted. In this case, you’ll be treated as leaving at the start of the tax year when you became ineligible.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516738.

Topics:
Money and consumer rights > Taxes
Previous

FM 39: Choosing to leave consolidated group, or

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

Next

FM 41: No nominated company, or

“What happens when a consolidated group has no nominated company”

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

FM 40Losing eligibility to be part of consolidated group

  1. This section applies when a company is no longer eligible to be part of a consolidated group or, if it is not the nominated company, when it is not eligible to continue as part of the same consolidated group as the nominated company.

  2. Unless subsections (3) or (4) apply, the company is treated as leaving the consolidated group from the start of the income year in which the relevant event occurs, making it no longer—

  3. eligible to be part of the consolidated group; or
    1. if it is not the nominated company, eligible to continue as part of the same consolidated group as the nominated company.

      1. Despite subsection (2), if a company becomes no longer eligible to be in the consolidated group in the same income year in which it joined the group, the company is treated as leaving the consolidated group on the day it joined the group.

      2. Despite subsections (2) and (3), the company may notify the Commissioner that it is leaving the consolidated group from the date on which its eligibility ended. For the notice to be effective, the company must—

      3. provide the notice within 20 working days after the date on which the company’s eligibility ended, although the Commissioner may agree to extend this period if it is reasonable to do so in the circumstances; and
        1. provide part-year financial statements under section FM 14.

          1. A notice under this section is not valid if it is made in connection with an arrangement entered into for a purpose of enabling the company to leave a consolidated group so as to defeat the intent and application of the consolidation rules. When this subsection applies, the company is treated as leaving the consolidated group at the beginning of the tax year in which its eligibility or entitlement ended.

          Compare
          Notes
          • Section FM 40 heading: amended, on (with effect on 1 April 2008), by section 105(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section FM 40(1): amended, on (with effect on 1 April 2008), by section 105(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section FM 40(2)(b): amended, on (with effect on 1 April 2008), by section 105(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section FM 40(3): amended, on (with effect on 1 April 2008), by section 105(4) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section FM 40(4): amended (with effect on 1 April 2008), on , by section 203 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
          • Section FM 40(4)(a): amended, on (with effect on 1 April 2008), by section 105(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section FM 40(5): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 74(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
          • Section FM 40 list of defined terms tax year: inserted (with effect on 1 April 2008), on , by section 74(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).