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Income Tax Act 2007

Treatment of tax losses - Attributed controlled foreign company net losses and foreign investment fund net losses

IQ 7: When group membership lacking in loss period

You could also call this:

“Rules for using overseas tax losses when a company joins a group”

This section explains what happens when a company joins a group of companies and brings with it a special kind of tax loss. This loss is called a ring-fenced tax loss and comes from overseas investments.

You need to pay attention to this rule if the company wasn’t part of the group when it got the loss, and if the company doesn’t have the same owners as the other companies in the group during the time since the loss happened.

The amount of loss the group can use to reduce its tax has limits. It can’t be more than what the company could have used on its own, plus what it could have shared with other companies in the group if they weren’t all joined together.

When working out how much of the loss can be used, you have to pretend the companies aren’t joined together and follow all the usual steps for sharing losses between companies.

The group’s total income, which is used to figure out how much of the loss can be used, must be calculated according to section FM 3.

In this rule, the ‘loss period’ means the tax year when the loss happened, plus all the years up until the year when the group wants to use the loss to reduce its tax.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517816.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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IQ 6: Pre-consolidation losses: general treatment, or

“How to use pre-existing company losses when joining a consolidated group”

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IQ 8: When group membership lacking in tax year of use, or

“How tax deductions work when a company joins a group with overseas investment losses”

Part I Treatment of tax losses
Attributed controlled foreign company net losses and foreign investment fund net losses

IQ 7When group membership lacking in loss period

  1. This section applies if—

  2. a company that is part of a consolidated group has a ring-fenced tax loss consisting of either an attributed CFC net loss or FIF net loss, or both, that is carried forward to a tax year and must be used under section IQ 6; and
    1. the company was not part of the consolidated group in the earlier tax year in which the net loss arose; and
      1. the company and 1 or more of the companies in the consolidated group do not meet the requirements for common ownership of section IC 5(1)(a) (Company B using company A’s tax loss) for the loss period.

        1. The amount that may be subtracted from the net income of the consolidated group in the tax year under section ID 2(2) must be no more than the total of—

        2. the amount of ring-fenced tax loss referred to in subsection (1) that the company could use to reduce its net income in the tax year under section IQ 2 or IQ 3 as applicable, if it were not in the tax year part of a consolidated group; and
          1. the amount of ring-fenced tax loss referred to in subsection (1) that the company could group with other companies in the group under section IQ 4 or IQ 5, as applicable, determining—
            1. the net income for each of the companies using the group’s calculation of each company’s net income; and
              1. the maximum amount of tax loss to be made available, ignoring the consolidation of the companies and presuming all steps required under those sections were taken in order for them to apply.

              2. In subsection (2), the amount of net income must be calculated in accordance with section FM 3 (Liability of consolidated groups and group companies).

              3. In this section, the loss period means the tax year in which the ring-fenced tax loss arose and any tax years falling between that tax year and the tax year in which the amount is subtracted from net income.

              Compare
              Notes
              • Section IQ 7(1)(a): amended (with effect on 1 April 2008), on , by section 66(1)(a) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
              • Section IQ 7(1)(b): amended (with effect on 1 April 2008), on , by section 66(1)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
              • Section IQ 7(2)(a): amended (with effect on 1 April 2008), on , by section 66(2)(a)(i) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
              • Section IQ 7(2)(a): amended (with effect on 1 April 2008), on , by section 66(2)(a)(ii) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
              • Section IQ 7(2)(b): amended (with effect on 1 April 2008), on , by section 66(2)(b)(i) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
              • Section IQ 7(2)(b): amended (with effect on 1 April 2008), on , by section 66(2)(b)(ii) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).