Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
HC 21: Distributions from community trusts
or “How you're taxed on money from community trusts”
You could also call this:

“Using tax losses to lower taxable income from certain trusts”

This law applies to you if you have a tax loss and receive a taxable distribution from a non-complying trust in the same year. You can use your tax loss to reduce the amount of the taxable distribution you receive.

To do this, you need to use a special calculation. The formula is: tax loss × tax rate ÷ distribution rate. Here’s what these terms mean:

  • Tax loss is the amount of your tax loss that you choose to use.
  • Tax rate is the basic rate of income tax found in schedule 1, part A, clause 3.
  • Distribution rate is the basic rate of income tax found in schedule 1, part A, clause 4.

If you use your tax loss in this way, you can’t also use it to reduce your net income for the same tax year under section IA 2(2).

Remember, this only applies to taxable distributions from non-complying trusts as mentioned in section HC 19.

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 It might be out of date or be missing some parts.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

Next up: HC 23: Temporary absences of beneficiaries

or “Rules for trust income when you temporarily leave New Zealand”
Next

Part H Taxation of certain entities
Trusts

HC 22Use of tax losses to reduce taxable distributions from non-complying trusts

  1. This section applies in an income year when a person—

  2. has, for the corresponding tax year, a tax loss component or loss balance to which sections IA 2 to IA 10 (which relate to the use of tax losses) apply; and
    1. derives a taxable distribution from a non-complying trust to which section HC 19 applies.

      1. The person may reduce the amount of the taxable distribution by an amount calculated using the formula—

        tax loss × tax rate ÷ distribution rate.

        Where:

        • In the formula,—

        • tax loss is the amount of a tax loss component or loss balance that the person chooses to use:
          1. tax rate is the basic rate of income tax set out in schedule 1, part A, clause 3 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits):
            1. distribution rate is the basic rate of income tax set out in schedule 1, part A, clause 4.

              1. If a person takes an amount of a tax loss or a loss balance into account under this section, the amount cannot be subtracted from their net income for the corresponding tax year for the purposes of section IA 2(2) (Tax losses).

              Compare
              Notes
              • Section HC 22(3)(b): amended, on , by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).