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New Zealand law explained for everyone

Income Tax Act 2007

Treatment of tax losses - Grouping tax losses

IC 8: Limitations on amounts used

You could also call this:

“Limits on how much tax loss one company can use to help another”

When you want to use a tax loss from one company (company A) to help another company (company B), there are some rules you need to follow.

The amount of tax loss you can use or the payment you can make is limited. You can only use an amount that’s no more than what company B would have as income for that tax year after subtracting the tax loss.

If company B agrees to pay company A for using its tax loss, the payment can’t be more than the actual amount of company A’s tax loss.

When company A and company B are working out their incomes, they don’t need to worry about this rule. But when they’re grouping tax losses together, they need to remember that company B’s income is calculated after taking away its own losses first, and then any tax losses from other companies.

This helps make sure that companies don’t use more tax losses than they’re allowed to.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517737.

Topics:
Money and consumer rights > Taxes
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“Company must be incorporated or operate in New Zealand”

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IC 9: Date for payment and notice to Commissioner, or

“When to pay and notify about company tax losses”

Part I Treatment of tax losses
Grouping tax losses

IC 8Limitations on amounts used

  1. A tax loss made available, or a payment made, under section IC 5(2) must be no more than the amount that would be company B’s net income for the tax year in which it subtracts the amount of the tax loss.

  2. An amount that company B agrees to pay company A under section IC 5(2)(b) must be no more than the amount of company A’s tax loss.

  3. Company A and company B must ignore this section in calculating their net incomes, but for the purposes of grouping tax losses, company B’s net income is found after taking into account—

  4. first, its own losses; and
    1. secondly, a tax loss made available to company B by another company.

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