Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Treatment of tax losses - Meeting requirements for part-years

IP 3B: Business continuity breach: tax loss components of companies carried forward

You could also call this:

“Using past tax losses when a company's business has changed”

This section talks about what happens when a company wants to use its tax losses from previous years, but something has changed in the company that might normally stop it from doing so.

If a company has tax losses it wants to use, but it has broken some rules about keeping its business the same, it might still be able to use some of those losses. This can happen if the company can show that:

  1. It followed the rules for part of the tax year.
  2. It made some money during that part of the year.
  3. It gives the tax office (called the Commissioner) good financial records that show how much money it made during that time.

The amount of tax losses the company can use is limited to how much money it made during the part of the year when it was following the rules. Sometimes, this amount might be increased because of rules in section IP 5.

Remember, this is all part of section IA 4, which is about using tax losses from past years.

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 It might be out of date or be missing some parts.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=LMS681834.

Topics:
Money and consumer rights > Taxes
Previous

IP 3: Ownership continuity breach: tax loss components of companies carried forward, or

“How company ownership changes affect the use of previous tax losses”

Next

IP 4: Breach in income year in which tax loss component arises, or

“Rules for sharing company tax losses when ownership or business changes in the same year”

Part I Treatment of tax losses
Meeting requirements for part-years

IP 3BBusiness continuity breach: tax loss components of companies carried forward

  1. This section applies for the purposes of section IA 4 (Using loss balances carried forward to tax year) if a tax loss component of a company would have been carried forward under section IB 3 (When tax loss components of companies carried forward despite ownership continuity breach) to a tax year but for a breach or breaches, during the income year that corresponds to the tax year, of either or both of the requirements of section IB 3(2)(b) and (c).

  2. Despite the breach or breaches, the tax loss component is carried forward to the tax year to the extent to which—

  3. the requirements of section IB 3(2)(b) and (c) would be met if the relevant period described in section IB 4 (Business continuity period) included only part of the income year of the company that corresponds to the tax year; and
    1. the company has net income for part of the corresponding income year; and
      1. the company provides the Commissioner with adequate financial statements under section IP 6 calculating the amount of the company’s net income for the relevant part of the corresponding income year.

        1. The total tax loss components carried forward under subsection (2) must be no more than the amount calculated under subsection (2)(b) and (c), although the amount may be increased if section IP 5 applies.

        Notes
        • Section IP 3B: inserted (with effect on 1 April 2020), on , by section 124(1) (and see section 124(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).