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Income Tax Act 2007

Treatment of tax losses - Carrying forward companies’ loss balances: continuity of business activities

IB 3: When tax loss components of companies carried forward despite ownership continuity breach

You could also call this:

“Companies can keep tax losses after ownership changes if they meet certain conditions”

This section explains when a company can keep its tax losses even if the ownership of the company changes. You can keep your tax losses if:

  • The losses happened in the 2013-14 tax year or later.
  • Your company keeps doing business during a certain time period.
  • Your company doesn’t make big changes to what it does, unless the changes are allowed.

You can’t keep your tax losses if:

  • Your company stopped doing business before the time period started and didn’t start again.
  • Your company had another big ownership change and didn’t meet the rules.
  • The losses happened before the 2020-21 tax year and couldn’t be used in that year without these new rules.

When deciding if your company made big changes, you need to look at whether you’re using the same or similar things to make money.

Some big changes are okay, like:

  • Making your business more efficient.
  • Keeping up with new technology.
  • Growing your business or selling to new customers.
  • Changing what you make or sell, but using mostly the same things to do it.

These rules don’t apply to certain types of losses mentioned in section IA 7(7).

Section GB 3BA might say your company doesn’t meet these rules.

When we talk about the things your company uses, we don’t include land, except for buildings and things attached to buildings.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS486061.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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IB 2B: When subsequent ownership continuity breach regarded as occurring, or

“When later ownership changes affect a company's ability to use past tax losses”

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IB 4: Business continuity period, or

“How long a company can use tax losses after ownership changes”

Part I Treatment of tax losses
Carrying forward companies’ loss balances: continuity of business activities

IB 3When tax loss components of companies carried forward despite ownership continuity breach

  1. This section applies when an ownership continuity breach occurs for a company.

  2. Despite the ownership continuity breach, a tax loss component arising in an earlier income year is carried forward to a tax year in a loss balance under section IA 3(4) (Using tax losses in tax year) if—

  3. the earlier income year is the 2013–14 income year or a later income year; and
    1. the company does not cease to carry on business activities during the relevant period described in section IB 4 (the business continuity period); and
      1. no major change in the nature of the business activities carried on by the company occurs during the business continuity period, other than 1 or more major changes that are permitted under subsection (5); and
        1. subsection (3) does not apply to prevent the tax loss component being carried forward to the tax year.

          1. The tax loss component is not carried forward to the tax year if—

          2. before the beginning of the business continuity period,—
            1. the business activities carried on by the company have ceased; and
              1. the business activities have not been revived:
              2. the company has had another ownership continuity breach—
                1. since the later of the beginning of the earlier income year and the beginning of the 2020–21 income year; and
                  1. in relation to which the requirements of subsection (2)(b) and (c) for the carrying forward to the tax year of the tax loss component are not met:
                  2. the earlier income year is before the 2020–21 income year and the tax loss component could not be carried forward to the 2020–21 tax year in the absence of this subpart.

                    1. For the purposes of subsection (2), without limiting the factors that may be taken into account in determining whether a major change in the nature of the business activities carried on by the company has occurred during the business continuity period, the extent to which the assets used in deriving the company’s assessable income have remained the same or similar over the business continuity period must be taken into account.

                    2. A major change in the nature of the business activities carried on by the company during the business continuity period does not breach the requirement set out in subsection (2)(c) if the major change is—

                    3. made to increase the efficiency of a business activity that the company carried on immediately before the beginning of the business continuity period:
                      1. made to keep up to date with advances in technology relating to a business activity that the company carried on immediately before the beginning of the business continuity period:
                        1. caused by an increase in the scale of a business activity that the company carried on immediately before the beginning of the business continuity period, including as a result of the company entering a new market for a product or service that it produced or provided at that time:
                          1. caused by a change in the type of products or services the company produces or provides that involves the company starting to produce or provide a product or service using the same, or mainly the same, assets as, or that is otherwise closely connected with, a product or service that the company produced or provided immediately before the beginning of the business continuity period.

                            1. This section does not apply to an amount referred to in section IA 7(7) (Restrictions relating to ring-fenced tax losses) that is treated by subsection (1B) of that section as if it were a tax loss component.

                            2. Section GB 3BA (Arrangements for carrying forward loss balances: companies’ business activities) may apply to treat a company as not meeting the requirements of subsection (2).

                            3. In subsection (5), asset does not include land other than buildings and fixtures.

                            Notes
                            • Section IB 3: inserted (with effect on 1 April 2020), on , by section 99(1) (and see section 99(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                            • Section IB 3(3)(b): replaced (with effect on 1 April 2020), on , by section 119(1) (and see section 119(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section IB 3(3)(c): replaced (with effect on 1 April 2020), on , by section 119(1) (and see section 119(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section IB 3(5)(a): amended (with effect on 1 April 2020), on , by section 119(2) (and see section 119(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section IB 3(5)(b): amended (with effect on 1 April 2020), on , by section 119(3) (and see section 119(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section IB 3(5)(c): replaced (with effect on 1 April 2020), on , by section 119(4) (and see section 119(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section IB 3(5B) heading: inserted (with effect on 1 April 2020), on , by section 119(5) (and see section 119(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section IB 3(5B): inserted (with effect on 1 April 2020), on , by section 119(5) (and see section 119(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section IB 3 list of defined terms amount: inserted (with effect on 1 April 2020), on , by section 119(6) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).