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Income Tax Act 2007

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

IB 4: Business continuity period

You could also call this:

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

This law talks about how long a company can keep using its tax losses after it changes owners. You need to know about this if you own a company or work with company taxes.

The law says there’s a special time called the “business continuity period”. This period starts just before the company changes owners and ends at different times depending on the company’s situation.

For some companies, the period ends on the last day of the income year when they use their tax loss. But this only applies if the company’s bad debt deductions minus bad debt repayment income, divided by total deductions minus bad debt repayment income, is 0.50 or more.

For other companies, the period ends on the earlier of two dates: either the last day of the income year when they use their tax loss, or the last day of the income year that includes the fifth anniversary of when the company changed owners.

The law also explains how to calculate the numbers used in this rule. It looks at the company’s bad debt deductions, bad debt repayment income, and total deductions over several years. These numbers help decide how long the company can keep using its tax losses.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS486064.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part I Treatment of tax losses
Carrying forward companies’ loss balances: continuity of business activities

IB 4Business continuity period

  1. The period referred to in section IB 3(2)(b), for an ownership continuity breach and a tax loss component of a company, is the period beginning immediately before the ownership continuity breach occurs and ending on,—

  2. for a company for which the amount calculated using the formula in subsection (2) is 0.50 or greater, the last day of the income year that corresponds to the tax year in which the company uses the tax loss component; or
    1. in any other case, the earlier of—
      1. the last day of the income year that corresponds to the tax year in which the company uses the tax loss component; and
        1. the last day of the income year in which the fifth anniversary of the ownership continuity breach falls.

        2. The formula is—

          (bad debt deductions – bad debt repayment income) ÷ (total deductions – bad debt repayment income).

          Where:

          • In the formula,—

          • bad debt deductions is the total amount of deductions that the company has been allowed under section DB 31(3) (Bad debts) for income years between the 2013–14 income year and the income year corresponding to the tax year immediately preceding the ownership continuity breach, both income years inclusive, in which a tax loss component included in the company’s tax loss for that tax year arose:
            1. bad debt repayment income is the total amount of income that the company has under section CG 3 (Bad debt repayment)—
              1. for income years between the earliest and the latest of the income years described in paragraph (a), both income years inclusive; and
                1. that relates to deductions that the company has been allowed under section DB 31(3):
                2. total deductions is the total amount of deductions that the company has been allowed for the income years described in paragraph (a).

                  Notes
                  • Section IB 4: 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).