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Income Tax Act 2007

Treatment of tax losses - Meeting requirements for part-years

IP 3: Ownership continuity breach: tax loss components of companies carried forward

You could also call this:

“How company ownership changes affect the use of previous tax losses”

You need to know about what happens when a company’s ownership changes and how this affects their tax losses. This is important for using tax losses from previous years.

If a company’s ownership changes too much, they might not be able to use their old tax losses. But there are some exceptions:

The company can still use some of their old tax losses if:

  • They meet the ownership rules for part of the tax year
  • They made some money during that part of the year
  • They give the tax office (called the Commissioner) good financial statements showing how much money they made

The amount of old tax losses they can use is limited. It can’t be more than the amount of money they made in that part of the year.

The company can also carry forward some of their tax losses to the next year if:

  • They meet the ownership rules for part of the current tax year
  • They give the tax office good financial statements showing how much money they lost in that part of the year

The amount of tax losses they can carry forward to the next year is the smallest of:

  • The loss they had in that part of the year
  • Zero, if they made money overall in the year
  • Their total loss for the year, if they lost money overall

These rules help companies use some of their old tax losses even if their ownership has changed, as long as they follow the right steps and provide the right information.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517785.

Topics:
Money and consumer rights > Taxes
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“Rules for sharing tax losses between related companies”

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IP 3B: Business continuity breach: tax loss components of companies carried forward, or

“Using past tax losses when a company's business has changed”

Part I Treatment of tax losses
Meeting requirements for part-years

IP 3Ownership continuity breach: tax loss components of companies carried forward

  1. This section applies for the purposes of section IA 4 (Using loss balances carried forward to tax year) if a breach occurs in the requirements for continuity of ownership of section IA 5 (Restrictions on companies’ loss balances carried forward: continuity of ownership) that enable a tax loss component included in a company’s loss balance to be carried forward to or from a tax year.

  2. Despite the breach, a tax loss component arising in an earlier income year is carried forward to a tax year (year A) to the extent to which—

  3. the requirements for continuity of ownership would be met if the continuity period included only part of the income year of the company that corresponds to year A; and
    1. the company has net income for part of the corresponding income year; and
      1. the company provides the Commissioner with adequate financial statements under section IP 6 calculating the amount of the company’s net income for the relevant part of the corresponding income year.

        1. The total tax loss components carried forward under subsection (2) must be no more than the amount calculated under subsection (2)(b) and (c), although the amount may be increased if section IP 5 applies.

        2. Despite the breach, a tax loss component is carried forward to the tax year (year B) from year A to the extent to which—

        3. the requirements for continuity of ownership would be met if the continuity period included only part of the income year that corresponds to year A; and
          1. the company provides the Commissioner with adequate financial statements under section IP 6 calculating the amount of the company’s net loss for the part of year A.

            1. The amount of the tax loss component carried forward under subsection (4) must be the least of—

            2. the part-year net loss calculated under subsection (4)(b):
              1. if the company has net income for year A, zero:
                1. if the company has a net loss for year A, the company’s net loss for year A.

                  Compare
                  Notes
                  • Section IP 3 heading: amended (with effect on 1 April 2020), on , by section 123 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                  • Section IP 3(1): amended (with effect on 1 April 2020), on , by section 110 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).