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Income Tax Act 2007

Treatment of tax losses - General rules for tax losses

IA 3B: Tax losses and procedures under Insolvency Act 2006

You could also call this:

“Bankruptcy or insolvency cancels old tax losses”

This law talks about what happens to your tax losses when you go through bankruptcy or insolvency. A tax loss is when you owe less tax than you’ve paid.

If you’re discharged from bankruptcy or released from your debts under the Insolvency Act 2006, there’s a date called the “loss cancellation date”. After this date, you can’t use any tax losses from before to pay penalties or carry them forward.

This means that if you had tax losses before you went bankrupt or became insolvent, you can’t use them to reduce your tax or penalties after you’re discharged or released. It’s like those old tax losses disappear when you start fresh after bankruptcy or insolvency.

Remember, this only applies to tax losses from before the loss cancellation date. Any new tax situations after that date aren’t affected by this rule.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7220537.

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“How to use past losses to reduce your current tax”

Part I Treatment of tax losses
General rules for tax losses

IA 3BTax losses and procedures under Insolvency Act 2006

  1. This section applies when a person has a tax loss for a period ending before a date (the loss cancellation date) on which the person—

  2. is discharged from bankruptcy:
    1. is released under Part 5, other than subpart 1, of the Insolvency Act 2006 from liability for each debt that is a provable debt under that Act and is not a debt of a type for which the person’s liability is specifically preserved by that Act.

      1. The person cannot use the tax loss to pay a shortfall penalty that is incurred after the loss cancellation date or carry the tax loss forward as part of a loss balance to a period ending after the loss cancellation date.

      Notes
      • Section IA 3B: inserted, on , by section 148(1) (and see section 148(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).