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Income Tax Act 2007

Taxation of certain entities - Portfolio investment entities - Formation losses

HM 67: Formation losses carried forward to first quarter

You could also call this:

“Carrying forward company losses when becoming or changing type of investment entity”

This section talks about what happens to formation losses when a company becomes a special type of investment entity called a multi-rate PIE, or when it changes how it calculates its tax.

If you have a company that becomes a multi-rate PIE, or if it’s already a multi-rate PIE that used to calculate its tax one way and now wants to change to a different way, this section applies to you.

The section says that if your company has a formation loss, you can carry that loss forward to the first quarter when your company either becomes a PIE or changes its tax calculation method.

A formation loss is a special kind of loss that a company might have when it’s first formed. The law allows you to use this loss to reduce your tax in the future, which can help your company financially.

The specific tax calculation methods mentioned are called the exit calculation option, the quarterly calculation option, and the provisional tax calculation option. These are different ways that multi-rate PIEs can work out how much tax they need to pay.

If you want to know more about how losses can be carried forward, you can check Part I of the Income Tax Act, which has more information about losses.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2888863.

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HM 66: Formation losses carried forward to tax year, or

“Carrying forward losses from when a Portfolio Investment Entity (PIE) is first formed”

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HM 68: When formation losses carried forward are less than 5% of formation investment value, or

“Treatment of small formation losses for Portfolio Investment Entities”

Part H Taxation of certain entities
Portfolio investment entities: Formation losses

HM 67Formation losses carried forward to first quarter

  1. This section applies when an entity either becomes a multi-rate PIE or is a multi-rate PIE that has calculated and paid tax under the provisional tax calculation option under section HM 44 that—

  2. calculates and pays tax using the exit calculation or quarterly calculation option under section HM 42 or HM 43; and
    1. has a formation loss.

      1. The amount of formation loss may be carried forward under Part I (Losses) to the quarter in which the entity either becomes a PIE or changes its calculation option from the provisional tax calculation option to the exit calculation or quarterly calculation option.

      Compare
      • s HL 30(1)
      Notes
      • Section HM 67: inserted, on (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section HM 67(1): amended, on , by section 133(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
      • Section HM 67(2): amended, on , by section 133(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
      • Section HM 67 list of defined terms provisional tax: inserted, on , by section 133(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).