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Income Tax Act 2007

Income - Recoveries

CG 2C: Remitted and other amounts: companies in liquidation

You could also call this:

“Tax implications for company groups when debts are cancelled during liquidation”

When you’re part of a group of companies, there are special rules about money that’s owed and then cancelled. Here’s how it works:

Let’s say your company (we’ll call it Company A) is allowed to reduce its taxes because it owes money to someone. But then, that debt is cancelled, either all of it or just some. If your company used that tax reduction to lower its taxable income, and then shared that lower income with another company in your group (we’ll call it Company B), something important happens if your company is closed down.

In this case, Company B has to count the cancelled debt as income. This means Company B might have to pay more tax. Company B is treated as if it got this income on the day your company was closed down.

There are a few exceptions to this rule. It doesn’t apply to certain types of financial arrangements. Also, there are special rules if companies join together (amalgamate) or if the companies are part of a consolidated group.

This rule is changed by other parts of the tax law. For example, section FM 5(4) talks about what happens when a company leaves a consolidated group. Section FO 5 explains how this works when companies join together. Also, sections IC 11 and IC 12 can change how this rule works for some group companies’ tax losses from earlier years.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6187250.

Topics:
Money and consumer rights > Taxes
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CG 2D: Remitted and other amounts: companies leaving groups, or

“Tax consequences when companies leave groups with unpaid debts”

Part C Income
Recoveries

CG 2CRemitted and other amounts: companies in liquidation

  1. This section applies when—

  2. a company that is part of a group of companies (company A) is allowed a deduction for an amount that it is liable to pay; and
    1. company A's liability for the amount is later remitted or cancelled, wholly or partly; and
      1. company A includes some or all of the amount of the deduction in the calculation of a net loss for a tax year; and
        1. the net loss is a tax loss component included in a tax loss of company A for a tax year under section IA 2(2) or (3) (Tax losses); and
          1. after the inclusion of the amount of the deduction in its net loss, company A makes some or all of the tax loss available to another company in the group (company B) to subtract from its net income for a tax year; and
            1. after making the tax loss available to company B, and at a time when company A and company B are in the same group of companies, company A is liquidated, struck off, or otherwise removed from the register of companies.

              1. An amount equal to the amount remitted or cancelled is income of company B.

              2. Company B is treated as deriving the income on the date on which company A is liquidated, struck off, or otherwise removed from the register of companies.

              3. This section does not apply to a liability that is a financial arrangement, whether or not the liability has been remitted or cancelled.

              4. This section—

              5. overrides section CG 2:
                1. is modified by section FM 5(4) (Liability when company leaves consolidated group):
                  1. does not apply to a company to which section FO 4 (Rights and obligations of amalgamating companies) applies, except to the extent to which paragraph (d) applies in relation to the company:
                    1. is modified by section FO 5 (Amalgamations and remitted liabilities) in relation to the treatment of liabilities assumed by an amalgamated company in an amalgamation:
                      1. is overridden by sections IC 11 and IC 12 (which relate to the tax losses of certain group companies) but only to the extent to which sections IC 11 and IC 12 apply to reduce a tax loss component arising in an earlier tax year that would otherwise be subject to this section.

                        Notes
                        • Section CG 2C: inserted (with effect on 22 November 2013 and applying when an event, listed in the following paragraphs, occurs after this date: (a) company A is removed from the register of companies; (b) company C is insolvent and leaves the group of companies; (c) company D leaves the group of companies), on , by section 18(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).