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Income Tax Act 2007

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

ID 5: Pre-consolidation losses on exit: part-year rule

You could also call this:

“Rules for carrying forward losses when a company leaves a consolidated group during a tax year”

If you are part of a company that’s leaving a consolidated group and has a loss balance, there are special rules about how much of that loss you can carry forward. These rules apply when your company leaves the group during a tax year.

You can carry forward an amount of the loss balance, but it can’t be more than the consolidated group’s net income for the part of the tax year before your company left. This is in addition to what’s allowed under other rules about carrying forward tax losses for companies.

The consolidated group needs to give the Commissioner of Inland Revenue financial statements that show what their net income would be for the relevant part of the tax year. They need to work this out fairly and reasonably. These statements must be filed with the group’s tax return for that year.

For this rule to apply, your company must meet certain requirements about the level of ownership or control for the relevant part of the tax year.

This rule takes priority over another rule about pre-consolidation losses on exit.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517762.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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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”

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IE 1: When this subpart applies, or

“When tax loss rules apply to company amalgamations”

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

ID 5Pre-consolidation losses on exit: part-year rule

  1. This section applies if a company that is part of a consolidated group has a loss balance to which section ID 2 applies in a tax year when the company leaves the consolidated group.

  2. In addition to the amount available under section IP 3(3) or IP 3B(3) (which relate to the carrying forward of tax losses for companies) but subject to the limit in section ID 3(2), the amount of the company’s loss balance that is carried forward to the tax year must be no more than the consolidated group’s net income for the relevant part of the tax year. For part-year calculations, see subpart IP (Meeting requirements for part-years).

  3. The consolidated group must provide the Commissioner with adequate financial statements that disclose the amount that would be the consolidated group’s net income for the relevant part of the tax year, determined on a fair and reasonable basis of attribution. The statements must be filed with the consolidated group’s return of income for the tax year.

  4. For the purposes of this section, the company must meet the threshold level set out in section IC 2(1) (Threshold levels for grouping tax losses in tax year) for the relevant part of the tax year.

  5. This section overrides section ID 2.

Compare
Notes
  • Section ID 5(2): amended (with effect on 1 April 2020), on , by section 121(1) (and see section 121(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).