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Income Tax Act 2007

Treatment of tax losses - Treatment of tax losses on amalgamation of companies

IE 3: Treatment of tax losses by amalgamated company

You could also call this:

“How a new company can use tax losses from companies that joined together”

When two or more companies join together (amalgamate), the new company can use the tax losses from the old companies in certain ways. This applies in the tax year when the amalgamation happens.

If the old companies had tax losses before they joined together, the new company can use these losses to reduce its income for the part of the year before the amalgamation. However, the losses must meet certain rules to be used this way.

The new company can also use these old losses for the part of the year after the amalgamation, but only if:

  • The losses are allowed to be carried forward to this part of the year
  • The old companies could have shared these losses with each other before joining
  • For some special types of losses, they can only be used within a group of companies that are fully owned by the same parent company

For using these losses, the tax year is split into two parts: before and after the amalgamation. These parts are treated as separate tax years.

This rule overrides some other rules about using and carrying forward tax losses for companies.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517769.

Topics:
Money and consumer rights > Taxes
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IE 2: Treatment of tax losses by amalgamating company, or

“How unused tax losses can be shared when companies merge”

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IE 4: Group companies’ treatment of tax losses on amalgamation, or

“How companies can use previous tax losses when they join together”

Part I Treatment of tax losses
Treatment of tax losses on amalgamation of companies

IE 3Treatment of tax losses by amalgamated company

  1. This section applies for an amalgamated company, and the tax year (the amalgamation tax year) corresponding to the income year in which the amalgamation takes place, when the amalgamated company has, for the part of the amalgamation tax year (the pre-amalgamation part year) that corresponds to the part of the income year ending with the date of the amalgamation, tax loss components (the pre-amalgamation loss) that—

  2. arise from the pre-amalgamation part year:
    1. meet the requirements of section IA 5(2) and (3) or IB 3(2) (which relate to the carrying forward of tax losses for companies) for being carried forward from the tax year before the amalgamation tax year to the pre-amalgamation part year.

      1. A tax loss component included in the pre-amalgamation loss may be used or made available by the amalgamated company for subtraction from net income calculated for the pre-amalgamation part year, if the requirements of sections IA 5, IB 3, IC 2, and IC 5 (which relate to the use and grouping of tax losses) for the use or availability are met.

      2. A tax loss component included in the pre-amalgamation loss may be used or made available by the amalgamated company for subtraction from net income calculated for the part of the amalgamation tax year (the post-amalgamation part year) that corresponds to the part of the income year beginning from the date of amalgamation, if—

      3. section IA 5 or IB 3 allows the tax loss component to be carried forward from the pre-amalgamation part year to the post-amalgamation part year; and
        1. sections IC 2 and IC 5 would have allowed the tax loss component to be made available to an amalgamating company for subtraction from net income calculated for the pre-amalgamation part year; and
          1. for a tax loss component that is an attributed CFC net loss or a FIF net loss and is made available by the amalgamated company, the tax loss component is made available to a wholly-owned group of companies.

            1. The pre-amalgamation part year and the post-amalgamation part year are treated as separate tax years for the purposes of applying this section.

            2. This section overrides—

            3. sections IA 3 and IA 4 (which relate to the general use of tax losses); and
              1. sections IA 5 and IB 3 (which relate to the carrying forward of tax losses for companies).

                Notes
                • Section IE 3: replaced (with effect on 1 April 2008), on , by section 151(1) (and see section 151(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                • Section IE 3(1)(b): amended (with effect on 1 April 2020), on , by section 107(1) (and see section 107(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                • Section IE 3(2): amended (with effect on 1 April 2020), on , by section 107(2) (and see section 107(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                • Section IE 3(3)(a): amended (with effect on 1 April 2020), on , by section 107(3) (and see section 107(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                • Section IE 3(5) heading: replaced (with effect on 1 April 2020), on , by section 107(4) (and see section 107(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                • Section IE 3(5): replaced (with effect on 1 April 2020), on , by section 107(4) (and see section 107(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).