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Income Tax Act 2007

Tax credits and other credits - Tax credits relating to attributed controlled foreign company income

LK 11: When group membership lacking in tax year in which credit used

You could also call this:

“Rules for using tax credits when a company isn't in a group for the whole year”

This law talks about what happens when a company has some tax credits it wants to use, but it’s not part of a group of companies for the whole year. Here’s what you need to know:

If you’re a company that’s part of a group, and you have tax credits from a previous year, you can only use a certain amount of those credits. The amount you can use is the smallest of these three things:

  1. The amount shown in your group’s financial statements for the part of the year when you were in the group.

  2. An amount that’s calculated using a special formula. This formula takes the total credits you have and subtracts two things: credits you used before joining the group, and credits you had to give to another group you were in before.

  3. The amount mentioned in section LK 10(2).

This rule helps make sure that companies don’t get to use more credits than they should when they move in and out of company groups during a 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=DLM1518174.

Topics:
Money and consumer rights > Taxes
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LK 10: When group membership lacking in tax year in which credit arises, or

“How tax credits work when a company joins or leaves a group”

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LK 12: Treatment of credits when companies amalgamate, or

“How tax credits are handled when companies combine”

Part L Tax credits and other credits
Tax credits relating to attributed controlled foreign company income

LK 11When group membership lacking in tax year in which credit used

  1. This section applies when a company that is part of a consolidated group of companies has a credit carried forward for a tax year, but the company is not part of the consolidated group for the whole tax year in which the credit carried forward is used.

  2. The amount of the credit carried forward and made available for the consolidated group to use under section LK 9(2) is limited to the least of—

  3. the amount of the credit carried forward shown in financial statements provided with the consolidated group’s return of income for the income year corresponding to the tax year that—
    1. relate to the part of the income year when the company was part of the consolidated group; and
      1. disclose the amount that would be the net income attributable to the part of the income year when the company is part of the consolidated group, determined on a fair and reasonable basis of attribution:
      2. the amount of the credit calculated using the formula in subsection (3):
        1. the amount referred to in section LK 10(2).

          1. The amount referred to in subsection (2)(b) is calculated using the formula—

            amount carried forward − (part-year credits + pre-consolidation credits).

            Where:

            • In the formula,—

            • amount carried forward is the amount of the credit carried forward under section LK 9(2) before applying section LK 10 and this section:
              1. part-year credits is the amount of the credit carried forward that the company may use under section LA 2 or LA 4 (which relate to the company’s income tax liability) for the part of the tax year before the company becomes part of the consolidated group:
                1. pre-consolidation credits is the amount of the credits carried forward that the company must make available for another consolidated group of which it was part before becoming part of the consolidated group.

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