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Income Tax Act 2007

Treatment of tax losses - Grouping tax losses

IC 11: Reduction of amounts used by companies

You could also call this:

“How companies adjust their tax loss claims when the total is less than reported”

This law explains what happens when a company’s tax loss is used by more than one company in a group, but the actual total tax loss is less than what the companies claimed.

If you’re part of a company group and this happens, you need to reduce the amount of tax loss you used. The main company (Company A) can decide how to split up the reduction among the companies. If they don’t decide, it’s split up fairly based on how much each company used.

Company A has to tell the tax office (the Commissioner) about how they split up the reduction within 6 months of being told about the problem. The tax office might give them more time if needed.

If the reduction means a company has to pay back money that’s now counted as a dividend, the dividend can be made smaller if Company A pays back the money quickly enough.

If Company A tries to give too much of the reduction to a company that’s not in the group anymore, that decision doesn’t count.

You can find more information about how companies pay each other for using tax losses in section IC 5(2)(b).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517744.

Topics:
Money and consumer rights > Taxes
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“Rules for tax losses from bad debts or share value drops in company groups”

Part I Treatment of tax losses
Grouping tax losses

IC 11Reduction of amounts used by companies

  1. This section applies in a tax year if—

  2. company A has a tax loss for the tax year that is made available to, and subtracted by, more than 1 company that is part of the group of companies; and
    1. the Commissioner determines under section 113 of the Tax Administration Act 1994 that the actual total tax loss for the tax year is less than the sum of the amounts subtracted by the companies in the group, and notifies company A.

      1. The relevant companies must reduce the amounts they subtracted either in the way company A allocates under subsection (3) or, if no allocation is made, proportionately under subsection (4).

      2. Company A may choose how the amount by which the total must be reduced is allocated between or among the companies. But if company A allocates an amount to a company that is no longer part of the group at the time of the allocation, and the amount is more than a proportionate amount, the allocation is disregarded. Subsection (6) sets out the notice requirements for this subsection.

      3. If company A does not allocate the amounts by which the total must be reduced, the amounts subtracted by the group companies are reduced in the same proportion as that by which the total amount was reduced in determining the actual total tax loss.

      4. If the reduction results in a payment under section IC 5(2)(b) being treated as a dividend, the dividend is reduced to the extent to which the payment is repaid by company A within the notification period referred to in subsection (6).

      5. For the purposes of subsections (3) and (5), company A must notify the Commissioner of the allocation within 6 months after the date on which the Commissioner notifies company A that the reduction is required. However, the Commissioner may agree to extend this notification period.

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