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Income Tax Act 2007

Treatment of tax losses - Meeting requirements for part-years

IP 4: Breach in income year in which tax loss component arises

You could also call this:

“Rules for sharing company tax losses when ownership or business changes in the same year”

When a company (let’s call it Company A) has a tax loss in a year where it doesn’t meet the rules for sharing losses with other companies, there are special rules about how it can use that loss.

Company A can only share its tax loss with another company (let’s call it Company B) if:

The loss happened during a time when both companies were part of the same group.

The amount of the loss isn’t more than what Company B earned during that same time.

Company A kept the same owners, or kept doing the same business, for that whole time.

Both companies give the tax department (called the Commissioner) good financial records.

Company A tells the Commissioner how they’re using the tax loss.

When figuring out how much of the loss Companies A and B can use, they should treat the time they were in the same group as if it was a full tax year.

If Company B made more money during the time they were in the same group than they did in the whole year, there’s a limit on how much of the loss they can use. This limit is explained in another part of the law called section IC 8.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517790.

Topics:
Money and consumer rights > Taxes
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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”

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IP 5: Breach in tax year in which loss balance is grouped, or

“Rules for sharing company losses within a group when ownership changes”

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

IP 4Breach in income year in which tax loss component arises

  1. This section applies for the purposes of sections IA 6 and IC 5 (which relate to the use and grouping of tax losses) when company A has a tax loss component arising in an income year in which either the continuity or commonality requirements for grouping tax losses are breached.

  2. The tax loss component is included in a tax loss that company A makes available under section IA 3(2) (Using tax losses in tax year) to company B only to the extent to which the following requirements, which modify those set out in section IC 5 (Company B using company A’s tax loss), are met:

  3. the tax loss component arises in the common span; and
    1. the amount of the tax loss component is no more than the net income that company B derives in the common span; and
      1. continuity of ownership in company A, or continuity of company A’s business activities, under section IC 2(1) (Threshold levels for grouping tax losses in tax year) applies from the beginning to the end of the common span; and
        1. company A and company B provide the Commissioner with adequate financial statements under section IP 6; and
          1. company A notifies the Commissioner of the treatment of the tax loss under section IP 7.

            1. For the purposes of determining the amount of tax loss that company A and company B may use, sections IC 5 and IC 8 (which relate to the treatment of tax losses by companies) apply as if the common span were a corresponding income year.

            2. Despite subsection (2)(ab), section IC 8 overrides this section in limiting the amount that may be used when the net income derived in the common span is more than the net income of company B for the income year.

            Compare
            Notes
            • Section IP 4(2)(ab): inserted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 91(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section IP 4(4) heading: added (with effect on 1 April 2008), on , by section 91(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section IP 4(4): added (with effect on 1 April 2008), on , by section 91(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section IP 4(2)(b): amended (with effect on 1 April 2020), on , by section 125(1) (and see section 125(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).