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Income Tax Act 2007

Treatment of tax losses - Use of tax losses to pay shortfall penalties

IW 1: Shortfall penalties

You could also call this:

“Using tax losses to pay penalties for underpaid income tax”

If you have to pay a penalty for not paying the right amount of income tax, you can use your tax loss to pay it. This applies to you if you’re a person or a company.

If you’re a person and you have a tax loss in the same year as the penalty, you can use that loss to pay the penalty. You need to tell the tax office about this by the date the penalty is due.

If you’re a company that’s part of a group where one company owns all the others, you can use the tax loss of any company in the group to pay the penalty. This works for penalties on your company or any other company in the group. You also need to tell the tax office by the due date.

The tax loss is considered used when you tell the tax office about it.

When you use your tax loss to pay a penalty, each dollar of the loss is worth one dollar times the tax rate that would have applied to you in the period when you didn’t pay enough tax. Once you’ve used the tax loss this way, you can’t use it for anything else or carry it forward to future years.

These rules can apply to a full tax year or part of a tax year, depending on how the law looks at it for your situation.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517849.

Topics:
Money and consumer rights > Taxes
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Part I Treatment of tax losses
Use of tax losses to pay shortfall penalties

IW 1Shortfall penalties

  1. This section applies in a tax year when a person has a shortfall penalty for an income tax liability.

  2. If the person has a tax loss for the tax year, they may use the amount of the tax loss to pay the penalty, notifying the Commissioner by the due date for payment of the penalty.

  3. If a company that is part of a wholly-owned group of companies has a tax loss for a tax year, the wholly-owned group may use the amount of the tax loss to pay the penalty imposed on the company or on another company in the group, notifying the Commissioner by the due date for the payment of the penalty.

  4. The tax loss is used at the time of notification.

  5. Each dollar of an amount of tax loss that is used under this section—

  6. is equal to 1 dollar multiplied by the rate of tax or lowest marginal rate of tax that would apply to the person in the return period to which the tax shortfall relates if the person had tax to pay:
    1. cannot, from the date the tax loss is used, be used or made available for use, or be carried forward to a later tax year.

      1. In this section, a tax year includes a part of a tax year that may be taken into account under this Part for continuity or grouping purposes.

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      Notes
      • Section IW 1(3): amended (with effect on 1 April 2008), on , by section 130 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).