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Income Tax Act 2007

Treatment of tax losses - Grouping tax losses

IC 12: Bad debts or decline in value of shares

You could also call this:

“Rules for tax losses from bad debts or share value drops in company groups”

When you are part of a group of companies, there are special rules about tax losses when one company has a bad debt or when the value of shares goes down. Here’s how it works:

If a company in your group (let’s call it Company C) has a deduction for a bad debt from a loan to another company in the group, or because shares in another group company lost value, there are some limits. At the same time, if another company in your group (let’s call it Company A) has a tax loss because of money spent from that loan or from selling those shares, there are rules about how that tax loss can be used.

Company A can’t share its whole tax loss with other companies in the group. It can only share the part of the tax loss that’s more than the deductions Company C got for the bad debt or share value drop. If there is some left over, Company A can choose to let another company in the group use it, but only if they follow the rules in sections IA 3(2), IA 5, and IB 3 about sharing tax losses in a group.

When we talk about shares losing value, we mean either:

  1. When you sell the shares for less than what you paid for them, or
  2. When you haven’t sold the shares yet, but their value has gone down based on how we calculate it in subpart EB or in other ways.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517746.

Topics:
Money and consumer rights > Taxes
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Part I Treatment of tax losses
Grouping tax losses

IC 12Bad debts or decline in value of shares

  1. This section applies to companies that are part of a group of companies in a tax year when—

  2. a company (company C) in the group has in the tax year a deduction—
    1. under section DB 31 (Bad debts) for a loan to another company in the group:
      1. for a decline in the value of shares in another company in the group; and
      2. a company (company A) in the group, other than company C, has a tax loss for the tax year that includes a tax loss component arising from a deduction—
        1. for expenditure funded by the loan referred to in paragraph (a)(i) or by the issue to company A of the shares referred to in paragraph (a)(ii); and
          1. taken into account in calculating company A's tax loss for the 1993–94 tax year or a later tax year.

          2. The amount of company A's tax loss cannot be made available to another company in the group to use except to the extent to which the amount of the tax loss is more than the total amount of the deductions referred to in subsection (1)(a). To that extent, company A may choose to make the excess amount available to a group company to use under sections IA 3(2), IA 5, and IB 3 (which relate to using and carrying forward tax losses) if the requirements for grouping tax losses are met.

          3. For the purposes of this section, shares are treated as declining in value if,—

          4. on the disposal of the shares, the amount for which they were disposed of is less than the deduction for the cost of the shares; or
            1. when the shares have not been disposed of, their value as calculated under subpart EB (Valuation of trading stock (including dealer’s livestock)) or otherwise declines.

              Compare
              Notes
              • Section IC 12(1): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 83(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
              • Section IC 12(2) heading: substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 83(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
              • Section IC 12(2): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 83(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
              • Section IC 12(2): amended (with effect on 1 April 2020), on , by section 103(1) (and see section 103(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
              • Section IC 12 list of defined terms loan: inserted (with effect on 1 April 2008), on , by section 83(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).