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Income Tax Act 2007

Memorandum accounts - Imputation credit accounts (ICA)

OB 83: Group companies transferring imputation credits with transfer of tax loss

You could also call this:

“Companies can transfer tax credits when sharing tax losses with related companies”

If you are a company that can claim tax credits (an ICA company) and you have a tax loss, you can share this loss with another ICA company that’s making a profit. When you do this, you can also choose to transfer some of your tax credits to the profit-making company.

You can’t do this if you and the other company are part of the same fully-owned group of companies.

The amount of tax credits you can transfer is based on a special calculation. This calculation looks at how much of your tax loss you’re sharing and any payments the profit company makes to you.

To transfer the tax credits, your company needs to meet certain rules. You must own a big part of the profit company or be closely connected to it. You also need to keep ownership of your company steady during this time. You have four years after the tax loss to make the transfer.

When you transfer the tax credits, the profit company must pay out a dividend and attach the transferred tax credits to it.

You don’t have to transfer all the tax credits that the calculation allows. You can transfer less if you want to.

If you’re sharing your tax loss with more than one profit company, and the amount of loss you can share gets reduced, the tax credits you can transfer will be reduced by the same amount.

Remember, you need to tell the tax office about this transfer by giving them a special notice.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7224185.

Topics:

Money and consumer rights > Taxes

OB 82: When and how co-operative company makes election, or

“How and when a co-operative company can choose to handle a distribution differently for tax purposes”

OB 84: When and how group company transferring tax loss makes election, or

“How a company tells the government about sharing its tax loss with another company in its group”

Part O Memorandum accounts
Imputation credit accounts (ICA)

OB 83Group companies transferring imputation credits with transfer of tax loss

When a company that is an ICA company (the loss company) makes a tax loss available under section IC 5 (Company B using company A’s tax loss) to another ICA company (the profit company) for a tax year, the loss company may choose that the loss company or another company meeting the requirements of subsection (5) be able to transfer, when or after the tax loss is made available, imputation credits to the profit company.
Subsection (1) does not apply if the loss company and profit company are members of the same wholly-owned group of companies.
The amount of imputation credits for which the loss company makes the election in subsection (1) is calculated using the formula—
$(loss offsets + subvention payments) × tax rate.$

Where:
In the formula,—
loss offsets is the amount of tax loss that is subject to the election under section IC 5(2)(a) made by the loss company in favour of the profit company:
subvention payments is the amount of the payments referred to in section IC 5(2)(b) made by the profit company to the loss company in relation to the tax loss:
tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) for the tax year.

A company that is an ICA company may transfer imputation credits to the profit company under the election in subsection (1) if—
the company is the loss company or has an ownership interest in the profit company of 66% or more; and
the company is a member of a group of companies that includes the loss company and the profit company; and
there is no wholly-owned group of companies that includes the company and the profit company or the loss company and the profit company; and
the company, the loss company, and the profit company meet the requirements of section OA 8 (Shareholder continuity requirements for memorandum accounts) for the carrying forward of imputation credits during the period beginning from the end of the income year in which the tax loss arises and ending with the transfer of the imputation credits; and
the transfer occurs in the period of 4 income years beginning from the end of the income year in which the tax loss arises; and
notice of the election meeting the requirements of section OB 84 is given to the Commissioner.

When a company transfers imputation credits to the profit company under the election in subsection (1), the profit company must pay a dividend at the time of the transfer and must attach to the dividend the amount of imputation credits transferred to the profit company.
The total amount of imputation credits transferred under the election in subsection (1) may be less than or equal to the amount given by subsection (3) for the election.
If a loss company makes an election under subsection (1) relating to a tax loss for a tax year that is made available to more than 1 profit company and the amount of tax loss made available to a profit company is reduced under section IC 11 (Reduction of amounts used by companies), the maximum amount of imputation credits able to be transferred to the profit company under the election is reduced by the same proportion as the amount of tax loss made available to the profit company is reduced under section IC 11.

Notes

Section OB 83: inserted (with effect on 1 October 2016 and applying for the 2017–18 and later income years), on 30 March 2017, by section 213(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).