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Income Tax Act 2007

Treatment of tax losses - Use of tax losses by consolidated groups

ID 3: Pre-consolidation losses: use by group companies

You could also call this:

“How group companies can use losses from before a company joined the group”

When a company that’s part of a group has losses from before it joined the group, there are rules about how the group can use those losses. These rules apply when the company didn’t have the same owners as the other companies in the group for a certain period.

The amount of losses the group can use is limited. If all the companies in the group, including the one with the losses, had the same owners for the required time, the group can use up to the amount of its income for the year. If only some of the companies had the same owners, the limit is different. It’s the total of two amounts: what the company with the losses could use on its own, plus what it could share with the other companies if they weren’t in a group.

When you’re figuring out the group’s income for this rule, you need to use a special method set out in another part of the law.

This rule is more important than the general rule about using these kinds of losses in a group.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517753.

Topics:

Money and consumer rights > Taxes

Business > Industry rules

ID 2: Pre-consolidation losses: general treatment, or

“How a company's pre-group losses are used within a consolidated group”

ID 4: Pre-consolidation losses on entry: part-year rule, or

“Calculating how much of a company's loss can be used when it joins a group part-way through the year”

Part I Treatment of tax losses
Use of tax losses by consolidated groups

ID 3Pre-consolidation losses: use by group companies

This section applies in a tax year when—
a company (company A) that is part of a consolidated group has a loss balance to which section ID 2 applies; and
company A, in the continuity period relating to a tax loss component included in the loss balance, does not have the required common ownership under section IC 3 (Common ownership: group of companies) with 1 or more companies in the consolidated group.

The amount made available under section ID 2(2) to the consolidated group is limited as follows:
if all the companies, including company A, in the consolidated group meet the requirements of section IC 6(1) (Common ownership for period): the amount available is limited to the amount of the loss balance to the extent of the net income of the consolidated group for the tax year:
if some of the companies in the consolidated group meet the requirements of section IC 6(1): the amount available is limited to the total of—
1. the amount that company A could subtract from its net income for the tax year if it were not in the tax year part of a consolidated group; and
2. the amount that could be made available under section IC 5 (Company B using company A’s tax loss) to the other group companies in the tax year, ignoring the consolidation of the companies and presuming all steps required under section IC 5 were taken in order for the section to apply.

In subsection (2), the calculation of the consolidated group’s net income must be made in accordance with section FM 3 (Liability of consolidated groups and group companies).
This section overrides section ID 2.

Compare

2004 No 35 s IG 6(6)

Notes

Section ID 3(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 300(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ID 3 list of defined terms tax loss component: inserted (with effect on 1 April 2008), on 6 October 2009, by section 300(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).