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Income Tax Act 2007

Treatment of tax losses - Meeting requirements for part-years

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

You could also call this:

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

When a company (Company A) has a loss balance from previous years and wants to share it with another company (Company B) in the same group, there are some rules to follow. These rules apply when there’s a problem with the ownership or connection between the companies in the tax year when they want to share the loss.

Company A can only share its loss balance with Company B if:

The amount of loss being shared isn’t more than Company B’s income (or the total income of all companies in the group) for the time when both companies were part of the same group.
Company A still has the same owners or is doing the same business activities during the time both companies were in the group.
Company B gives the tax department (called the Commissioner) good financial statements.
Company A tells the Commissioner how they’re using the tax loss.

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

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517792.

Topics:

Money and consumer rights > Taxes

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

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

IP 6: Financial statements required, or

“When you need to provide financial statements for tax loss purposes”

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

IP 5Breach in tax year in which loss balance is grouped

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 loss balance carried forward to a tax year in which either the continuity or commonality requirements for grouping tax losses are breached.
The loss balance 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:
the amount of company A's loss balance carried forward to the tax year in which the breach occurred is not more than the amount of—
1. company B's net income for the common span, if no company in the group other than company B has net income for the common span of more than zero; or
2. the total of the amounts of net income for the common span of companies in the group; and
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 in the common span; and
company B provides the Commissioner with adequate financial statements under section IP 6; and
company A notifies the Commissioner of the treatment of the tax loss under section IP 7.

For the purposes of determining the amount of the loss balance 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 tax year.

Compare

2004 No 35 s IG 2(2)(b)–(f), (5)

Notes

Section IP 5(2)(a): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 84(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section IP 5(2)(b): amended (with effect on 1 April 2020), on 30 March 2022, by section 126(1) (and see section 126(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).