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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 3BAB: Arrangements to inject income into companies carrying forward loss balances

You could also call this:

“Rules for shifting income to companies with past losses to avoid tax”

This law applies when you and someone you’re connected with make an arrangement that causes a company to earn money it wouldn’t have otherwise. Here’s what happens:

You and another person you’re associated with agree to do something. This agreement results in a company getting income that someone else would have likely received if the agreement hadn’t been made. The company also has some past losses it’s carrying forward. If the main reason for this agreement was to avoid paying taxes, then the income the company gets is treated as a special type of income called “schedular income” for that tax year.

For example, if you and your friend set up a deal to make your company earn money that your friend would normally have earned, and your company has old losses it’s using, and you did this mainly to pay less tax, then the money your company earns is treated differently for tax purposes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS482913.

Topics:
Money and consumer rights > Taxes
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Part G Avoidance and non-market transactions
Avoidance: specific

GB 3BABArrangements to inject income into companies carrying forward loss balances

  1. This section applies when—

  2. a person (person A) enters into an arrangement with another person (person B); and
    1. person A and person B are associated persons at the time they enter into the arrangement; and
      1. an effect of the arrangement is that a company derives an amount of assessable income for an income year that, but for the arrangement, a person other than the company—
        1. would have derived; or
          1. would in all likelihood have derived; or
            1. might be expected to have derived; and
            2. tax loss components of the company are carried forward under section IB 3(2) (When tax loss components of companies carried forward despite ownership continuity breach) to the tax year corresponding to the income year; and
              1. the arrangement has tax avoidance as its sole or main purpose.

                1. The amount is schedular income of the company for the tax year corresponding to the income year.

                Notes
                • Section GB 3BAB: inserted (with effect on 1 April 2020), on , by section 76(1) (and see section 76(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).