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Income Tax Act 2007

Treatment of tax losses - Terminating provisions

IZ 8: Election to use net loss for 2019–20 or 2020–21 year as tax loss in preceding year

You could also call this:

“Choose to use a loss from 2019-20 or 2020-21 as a tax loss in the previous year”

This section allows you to choose to use a net loss from the 2019-20 or 2020-21 tax year as a tax loss in the previous year. You can do this if you had taxable income in 2018-19 or 2019-20, and a net loss in the following year.

To make this choice, you need to include the amount you want to use as a tax loss in your tax return for the earlier year. This amount can’t be more than your taxable income in the earlier year or your net loss in the later year.

If you’re a company, there are some extra rules. You need to meet requirements about continuity of ownership during both years. The amount you can use is limited by your net income in the earlier year and your net loss in the later year.

If you’re part of a group of companies, there are more complex rules about how much you can use and how you can share it with other companies in your group.

You can update the amount you want to use by filing a new return or asking Inland Revenue to change your assessment. If you find out later that you’ve used too much, you must ask Inland Revenue to fix it.

This option is not available if you’re an individual who files an income tax return through the year-end process or if you’re a multi-rate PIE.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS346687.

Topics:
Money and consumer rights > Taxes
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Part I Treatment of tax losses
Terminating provisions

IZ 8Election to use net loss for 2019–20 or 2020–21 year as tax loss in preceding year

  1. This section provides that a person who has taxable income in the 2018–19 or 2019–20 income year, or is in a group of companies with a person who has taxable income in 1 of those years, and has a net loss in the following income year may choose to reduce the taxable income in the first year by an amount, which is treated as being an available tax loss that can be used in the first income year, and subtracting the same amount from the net loss that would otherwise be available in the second income year, subject to restrictions that are expressed in terms of—

  2. the offset years, which refers to the period of 2 years that is affected by the election and begins with either the 2018–19 or the 2019–20 income year:
    1. the taxable income year, which refers to the first of the offset years:
      1. the initial taxable income, which refers to the amount of taxable income given by subsection (2)(a) for the person and the taxable income year:
        1. the net loss year, which refers to the second of the offset years:
          1. the elected amount, which refers to the amount by which an election under this section reduces both the initial taxable income and the net loss that, in the absence of the election, the person would have in the net loss year:
            1. the offset ownership period, which refers to the period in the offset years for which a person that is a company meets requirements relating to continuity of ownership for carrying forward loss balances from 1 tax year to the next:
              1. the income ownership period, which refers to the part of the offset ownership period that occurs in the taxable income year:
                1. the loss ownership period, which refers to the part of the offset ownership period that occurs in the net loss year:
                  1. the group loss excess, which is the amount of the excess of net loss given by subsection (3)(b) for the members of a wholly-owned group of companies and the loss ownership period.

                    1. A person, other than a person who is a member of a group of companies during the offset ownership period, may make an election under this section for the period consisting of 2 income years beginning with the 2018–19 or the 2019–2020 income year if,—

                    2. in the absence of an election under this section, the person would have an amount of taxable income remaining in the taxable income year after subtracting the total amount of charitable donations for which the person has a tax credit for the taxable year under subpart LD (Tax credits for gifts and donations); and
                      1. in the absence of an election under this section, the person would have a net loss in the net loss year; and
                        1. the person is not a qualifying individual, as defined in section 3(1) of the Tax Administration Act 1994, in the net loss year and is not a multi-rate PIE in the offset years; and
                          1. when the person is a company, the person meets the requirements relating to continuity of ownership given by section IA 5 or IP 3 (which give the requirements for companies to carry forward loss balances) during the offset ownership period.

                            1. A person who is a member of a group of companies during the offset ownership period may make an election under this section for the offset years if,—

                            2. in the absence of an election under this section, the person would have a net loss in the net loss year; and
                              1. for a person who is a member of a wholly-owned group, in the absence of an election under this section, an excess of net loss would remain for the loss ownership period if the total amount of the net loss of the person and the other members of the wholly-owned group were reduced by the total amount of the net income of the person and the other members of the wholly-owned group for which the other members of the wholly-owned group have not used non-refundable tax credits to meet income tax liabilities; and
                                1. the person meets the requirements relating to continuity of ownership given by section IA 5 or IP 3 during the offset ownership period.

                                  1. The person makes the election by including the elected amount, which must not exceed the amount given for the person by subsection (5), (6), or (7), as an available tax loss in calculating the person’s taxable income for the taxable income year, in—

                                  2. a return of income for the taxable income year; or
                                    1. a request that the Commissioner amend under section 113 of the Tax Administration Act 1994 the assessment for the taxable income year.

                                      1. If the person is not a company, the person’s net loss for the net loss year is reduced, and the person’s available tax loss for the taxable income year is increased, by an amount that is the smallest of—

                                      2. the initial taxable income referred to in subsection (2)(a):
                                        1. the amount of the net loss referred to in subsection (2)(b):
                                          1. the elected amount.

                                            1. If the person is a company, other than a company that is a member of a group of companies at a time in the offset ownership period, the person’s net loss for the net loss year is reduced, and the person’s available tax loss for the taxable income year is increased, by an amount that is the smallest of—

                                            2. the initial taxable income referred to in subsection (2)(a):
                                              1. the amount of the net income of the person for the income ownership period:
                                                1. the amount of the net loss referred to in subsection (2)(b):
                                                  1. the amount of the net loss of the person for the loss ownership period:
                                                    1. the elected amount.

                                                      1. If the person is a member of a group of companies at a time in the offset ownership period, the person’s net loss for the loss ownership period is reduced, and the person’s available tax loss for the income ownership period is increased, by an amount that is the smallest of—

                                                      2. the total amount of—
                                                        1. the smaller of the initial taxable income referred to in subsection (2)(a) and the net income of the person for the income ownership period:
                                                          1. the part of the elected amount that is made available under subparts IC and IP (which relate to the use and grouping of tax losses) to other members of the group of companies in the taxable income year:
                                                          2. if the person is a member of a wholly-owned group in the loss ownership period, the group loss excess referred to in subsection (3)(b) reduced by the total amount of the reductions in net loss for the period for the other members of the group from elections under this section:
                                                            1. the elected amount.

                                                              1. In the application of subparts IC and IP to the making available by a person, to another member of a group of companies, of an amount of available tax loss arising for the person under subsection (7),—

                                                              2. the amount of available tax loss that exceeds the person’s initial taxable income is a tax loss for the taxable income year for the purposes of section IC 1 (Company A making tax loss available to company B):
                                                                1. the commonality period referred to in section IC 6 (Common ownership for period) is the period consisting of the offset years:
                                                                  1. the requirements in section IP 4(4) and section IP 5 (which relate to breaches of continuity or commonality requirements) are not applied:
                                                                    1. the requirements in section IP 4(2)(a), (ab), and (c) (Breach in income year in which tax loss component arises) are replaced by the requirements given by subsection (9).

                                                                      1. The replacement requirements in section IP 4(2) are—

                                                                      2. the net loss giving rise to the available tax loss arises in the portion of the loss ownership period that is included in the common span; and
                                                                        1. the amount of the available tax loss is no more than the net income that the group company derives in the portion of the income ownership period that is included in the common span; and
                                                                          1. the person and the group company provide the Commissioner with adequate financial statements under section IP 6 (Financial statements required).

                                                                            1. The increase in the person’s available tax loss for the taxable income year is not effective until the person—

                                                                            2. files a return of income for the taxable income year that includes a figure for the elected amount or an updated figure replacing a figure for the elected amount; or
                                                                              1. makes a request that the Commissioner amend under section 113 of the Tax Administration Act 1994 the assessment for the taxable income year based on a figure or an updated figure for the elected amount.

                                                                                1. A person who makes an election under this section must make a request that the Commissioner amend under section 113 of the Tax Administration Act 1994 the assessment for the taxable income year if the elected amount used in the most recent assessment of that income year exceeds the amount permitted by this section in the return of income for the net loss year.

                                                                                2. If the offset ownership period for a company includes a part, but not all, of an income year, the company must provide to the Commissioner adequate financial statements for the relevant part of the income year complying with the requirements of sections IP 3(2) and (4) (Ownership continuity breach: tax loss components of companies carried forward) and IP 6.

                                                                                Notes
                                                                                • Section IZ 8: inserted (with effect on 15 April 2020), on , by section 11(1) (and see section 11(2) for application) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
                                                                                • Section IZ 8(1): amended (with effect on 15 April 2020), on , by section 114(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                                • Section IZ 8(1): amended (with effect on 15 April 2020), on , by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).
                                                                                • Section IZ 8(2): amended (with effect on 15 April 2020), on , by section 114(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                                • Section IZ 8(2)(c): amended (with effect on 15 April 2020), on , by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).
                                                                                • Section IZ 8(3) heading: amended (with effect on 15 April 2020), on , by section 114(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                                • Section IZ 8(3): amended (with effect on 15 April 2020), on , by section 114(4) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                                • Section IZ 8(3)(b): amended (with effect on 15 April 2020), on , by section 114(5) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                                • Section IZ 8(3)(b): amended (with effect on 15 April 2020), on , by section 114(6) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                                • Section IZ 8(8)(c): amended (with effect on 15 April 2020), on , by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).
                                                                                • Section IZ 8(12): amended (with effect on 15 April 2020), on , by section 128 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                                                • Section IZ 8 list of defined terms qualifying individual: repealed (with effect on 15 April 2020), on , by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).