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Income Tax Act 2007

Recharacterisation of certain transactions - Amalgamation of companies

FO 8: Bad debts and expenditure or loss on resident’s restricted amalgamation

You could also call this:

“Tax deductions for bad debts and losses when companies merge”

You might be part of a company that joins with another company. This is called an amalgamation. When this happens, the new company (called the amalgamated company) might have to deal with some things from the old company (called the amalgamating company).

Sometimes, the new company might not be able to get money that was owed to the old company. They might have to write this off as a bad debt. Or, the new company might have to spend money or lose money because of something the old company did or didn’t do.

If this happens, the new company can get a tax deduction. This means they can pay less tax. But there are two things that need to be true for this to happen:

  1. The old company would have been able to get this deduction if they hadn’t joined with the new company.
  2. The new company can’t get this deduction in any other way.

If both these things are true, then the new company can get a deduction under section DV 15(2). This section talks about what happens to property when companies join together.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516796.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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“Income received after companies combine is treated as if the original company still existed”

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“Unused prepaid expenses can be transferred when companies merge”

Part F Recharacterisation of certain transactions
Amalgamation of companies

FO 8Bad debts and expenditure or loss on resident’s restricted amalgamation

  1. This section applies when an amalgamating company ends its existence on a resident’s restricted amalgamation, and the amalgamated company at any time—

  2. writes off as bad the amount of a debt that it acquires from the amalgamating company at the time of the amalgamation; or
    1. incurs an amount of expenditure or loss, including an amount of depreciation loss, as a result of something that the amalgamating company did or did not do.

      1. The amalgamated company is allowed a deduction under section DV 15(2) (Amalgamated companies: property passing on resident’s restricted amalgamation) for the amount if—

      2. the amalgamating company would have been allowed the deduction but for the amalgamation; and
        1. the amalgamated company is not otherwise allowed the deduction.

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