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Income Tax Act 2007

Treatment of tax losses - General rules for tax losses

IA 3: Using tax losses in tax year

You could also call this:

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

If you have a tax loss for a tax year, you can use it in a few ways:

You can use some or all of it to pay a shortfall penalty. This is explained in section IW 1.

If you’re a company, you can share your tax loss with another company. The other company can use it to reduce their net income for the tax year. This is explained in section IC 5.

If you’re a beneficiary of a non-complying trust, you can use your tax loss to adjust the amount of a taxable distribution you received in the same income year. This is explained in section HC 22.

If you still have some tax loss left after using it in these ways, it gets carried forward to the next tax year. This is called a loss balance.

There are some other rules that can change how this works. These are found in sections IA 3B, IA 5, IA 8, and IA 10.

If you’re a company, there’s a special rule in section IB 3 that might let you carry forward your tax loss even if your ownership has changed.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517691.

Topics:
Money and consumer rights > Taxes
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IA 2: Tax losses, or

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

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IA 3B: Tax losses and procedures under Insolvency Act 2006, or

“Bankruptcy or insolvency cancels old tax losses”

Part I Treatment of tax losses
General rules for tax losses

IA 3Using tax losses in tax year

  1. A person who has a tax loss for a tax year may use some or all of the amount of the tax loss under section IW 1 (Shortfall penalties) to pay a shortfall penalty.

  2. A company that has a tax loss for a tax year may—

  3. make the amount available to another company under section IC 5 (Company B using company A’s tax loss) to subtract from the other company’s net income for the tax year.

        1. The amount of a tax loss for a tax year of a beneficiary of a non-complying trust may be used under section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts) to adjust the amount of a taxable distribution derived in the corresponding income year.

        2. If a person has a balance of tax loss remaining for a tax year after the uses described in this section, the balance is carried forward to the next tax year as a loss balance.

        3. Sections IA 3B, IA 5, IA 8, and IA 10 override this section.

        4. Section IB 3 (When tax loss components of companies carried forward despite ownership continuity breach) modifies the application of this section when the person is a company.

        Compare
        Notes
        • Section IA 3(2)(a): amended, on , by section 147(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
        • Section IA 3(2)(b): repealed, on , by section 147(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
        • Section IA 3(2)(c): repealed, on , by section 147(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
        • Section IA 3(5) heading: substituted (with effect on 1 April 2008), on , by section 55(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
        • Section IA 3(5): amended, on , by section 147(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
        • Section IA 3(5): amended (with effect on 1 April 2008), on , by section 55(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
        • Section IA 3(6) heading: inserted (with effect on 1 April 2020), on , by section 95 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
        • Section IA 3(6): inserted (with effect on 1 April 2020), on , by section 95 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
        • Section IA 3 list of defined terms FDP: repealed, on , by section 147(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
        • Section IA 3 list of defined terms foreign dividend: repealed, on , by section 147(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).