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Income Tax Act 2007

Treatment of tax losses - General rules for tax losses

IA 2: Tax losses

You could also call this:

“How your total tax loss is calculated and what it includes”

Your tax loss for a tax year is calculated by adding up several amounts. These include:

  1. Any loss balance you’ve carried forward from previous years that you haven’t used to reduce your income this year.

  2. Any net loss you have for this tax year.

  3. Other specific amounts that count as tax loss components, such as:

    • Certain excess expenditure for investment funds
    • Converted imputation credits
    • Unallocated deductions for supplementary dividends
    • Amounts from Australian companies choosing to convert payments into tax losses
    • Unused losses from controlled foreign companies or foreign investment funds
    • Unused specified activity net losses
    • Certain mismatch amounts related to hybrid entities or foreign branches

There are special rules for some types of losses that limit how you can use them. These are covered in other parts of the tax law.

A tax loss component includes amounts from the current year and some unused losses from before the 2008-09 tax year. It also includes certain amounts in a company’s loss balance from before 1992.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517687.

Topics:
Money and consumer rights > Taxes
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IA 1: What this subpart does, or

“This subpart outlines how tax losses connect to other parts of the Income Tax Act and sets up basic rules for using them.”

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IA 3: Using tax losses in tax year, or

“How you can use your tax losses in a given tax year”

Part I Treatment of tax losses
General rules for tax losses

IA 2Tax losses

  1. A person’s tax loss for a tax year is found by adding together the amounts referred to in subsections (2) to (4).

  2. If the person has a loss balance carried forward under section IA 3(4) to the tax year, the amount is included in their tax loss for the tax year to the extent to which it is not subtracted under section IA 4(1)(a) from their net income for the tax year.

  3. If the person has a net loss under section BC 4 (Net income and net loss) for the tax year, the amount is a tax loss component included in their tax loss for the tax year.

  4. If the person is described in 1 or more of the following paragraphs and has the amount described in the paragraph, the amount is included as a tax loss component in their tax loss for the tax year:

  5. a member fund that incurs excess expenditure:
    1. the amount that is included in the tax loss under section DV 5(4)(b) (Investment funds: transfer of expenditure to master funds); and
      1. the amount that the fund chooses under section DV 7(2) (Carry forward of expenditure) to treat as an amount added to the tax loss under this section:
      2. a person whose imputation credits are included in their annual gross income for the tax year: the amount of converted imputation credits arising under section LE 2 (Use of remaining credits by companies and trustees) for the tax year:
        1. a person who has an unallocated deduction for the payment of a supplementary dividend in the corresponding income year: the amount referred to in section LP 10(3) (Limitation on deductions) for the tax year:
          1. a company (company A) if an Australian ICA company has chosen under section OB 69(5) (Further income tax paid satisfying liability for income tax) to have a payment converted into a tax loss component of company A: the amount calculated under section OB 69(7) for the tax year:
            1. a person who has an unused attributed controlled foreign company (CFC) net loss for the tax year: the amount referred to in section IQ 2(3) (Ring-fencing cap on attributed CFC net losses) for the tax year:
              1. a person who has an unused foreign investment fund (FIF) net loss for the tax year: the amount referred to in section IQ 3(3) (Ring-fencing cap on FIF net losses) for the tax year:
                1. a person with an unused specified activity net loss: the amount of the unused specified activity net loss to the extent to which the amount has not been subtracted under section IA 4(1)(a) from net income for a tax year:
                  1. a person who has a mismatch amount under section FH 8 (Expenditure or loss through hybrid entity or foreign deducting branch producing double deduction without double income) that is not set off under section FH 12 (Offset of mismatch amounts against surplus assessable income), the amount given by section FH 12(8) for the tax year.

                    1. This section, and sections IA 3 and IA 4, do not apply to the amounts referred to in section IA 7, which are subject to particular rules in other Parts or subparts that limit the way in which a person may use them.

                    2. Repealed

                    3. A tax loss component, for a tax year,—

                    4. means an amount included in a tax loss for the tax year under subsection (3) or (4):
                      1. includes—
                        1. an unused amount of a net loss or an amount treated as a net loss or as an available net loss of a person arising before the 2008–09 tax year which the person was entitled to have carried forward under section IE 1 (Net losses may be offset against future net income) of the Income Tax Act 2004 to that tax year:
                          1. an amount included in a company's loss balance at the end of the tax year to which sections IZ 4 to IZ 6 (which relate to tax losses for tax years before 1992) apply, or other amounts in relation to which modified continuity rules apply.

                          Compare
                          Notes
                          • Section IA 2(2): amended (with effect on 1 April 2008), on , by section 54(1)(a) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(2): amended (with effect on 1 April 2008), on , by section 54(1)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(4)(b): substituted (with effect on 1 April 2008), on , by section 54(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(4)(c): amended (with effect on 1 April 2008), on , by section 54(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(4)(d): amended (with effect on 1 April 2008), on , by section 54(4) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(4)(e): amended (with effect on 1 April 2008), on , by section 54(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(4)(f): amended (with effect on 1 April 2008), on , by section 54(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(4)(f): amended (with effect on 1 April 2008), on , by section 54(6) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(4)(g): replaced, on , by section 140(1) (and see section 140(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                          • Section IA 2(4)(h): inserted, on , by section 44(1) (and see section 44(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                          • Section IA 2(6) heading: repealed (with effect on 1 April 2008), on , pursuant to section 54(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(6): repealed (with effect on 1 April 2008), on , by section 54(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(7): substituted (with effect on 1 April 2008), on , by section 54(9) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2(7): amended (with effect on 1 April 2008), on , by section 94(1) (and see section 94(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                          • Section IA 2 list of defined terms corresponding income year: repealed (with effect on 1 April 2008), on , by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2 list of defined terms schedular income: repealed (with effect on 1 April 2008), on , by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2 list of defined terms schedular income tax liability: repealed (with effect on 1 April 2008), on , by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2 list of defined terms specified activity net loss: repealed, on , by section 140(2)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                          • Section IA 2 list of defined terms trustee: added (with effect on 1 April 2008), on , by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                          • Section IA 2 list of defined terms unused specified activity net loss: inserted, on , by section 140(2)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).