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Income Tax Act 2007
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Income Tax Act 2007
| Public Act | 2007 No 97 |
| Date of assent | 1 November 2007 |
Contents
BD 1 Income, exempt income, excluded income, nonresidents' foreign-sourced income, and assessable income
Exclusions for residential land
Exclusions for business premises
CD 33 Payments corresponding to notional distributions of producer boards and co-operative companies
Attributed repatriation calculation rules
Restrictive covenants and exit inducement payments
Matching rules: revenue account property, prepayments, and deferred payments
Avoidance and non-market transactions
Interest apportionment on thin capitalisation
Attributed controlled foreign company income
Foreign investment fund income
Transfers to or from superannuation funds and superannuation schemes
Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa
Treatment of distributions when superannuation fund wound up
Income from business or trade-like activities
CW 1 Forestry companies established by the Crown, Maori owners, and holding companies buying land with standing timber from founders
Income from holding property (excluding equity)
Certain income of transitional resident
Income from living allowances, compensation, and government grants
Income from certain activities
CX 55 Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund
CX 56 Portfolio investor allocated income and distributions of income by portfolio investment entities
Transactions between companies in consolidated groups
CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983
CZ 13 Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996
Financial arrangements adjustments
Matching rules: revenue account property, prepayments, and deferred payments
DB 49 Adjustment for opening values of trading stock, livestock, and excepted financial arrangements
Use of motor vehicle under certain arrangements
DB 56 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 7
Payments to spouses, civil union partners, or de facto partners
Avoidance and non-market transactions
Attributed controlled foreign company (CFC) loss
Foreign investment fund (FIF) loss
DP 8 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction
DP 9 Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding company
Petroleum exploration expenditure
Petroleum development expenditure
DV 14 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses
Valuation of specified livestock
Valuation of non-specified livestock
Valuation of high-priced livestock
Meaning of depreciable property
How amounts of depreciation loss and depreciation recovery income are calculated
Amount of depreciation loss under diminishing value method or straight-line method
Amount of depreciation loss under pool method
EE 25 Depreciation loss for plant variety rights application granted in 2005–06 or later income year
Improvements, items of low value, or items no longer used
Transfers of depreciable property: associated persons and certain amalgamations
Main income equalisation scheme
Adverse event income equalisation scheme
Thinning operations income equalisation scheme
Refunds: general provisions, and tax credits
EH 77 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme
Research, development, and resulting market development
Meaning of financial arrangement and excepted financial arrangement
Application of financial arrangements rules
Calculation and allocation of income and expenditure over financial arrangement’s term
Consideration when financial arrangement involves property or services
EW 32 Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified option, or finance lease
Consideration treated as paid to person
Consideration treated as paid by person
Consideration when legal defeasance has occurred
Consideration when anti-avoidance provision applies
Income and deduction provisions specifically related to financial arrangements
Treatment of original share acquired under financial arrangement
Application of financial arrangements rules to cash basis persons
Controlled foreign company (CFC) rules
When is a company a controlled foreign company?
Calculation of person’s control interest
Calculation of person’s income interest
Ten percent threshold and variations in income interest level
Calculation of attributed CFC income or loss
Calculation of branch equivalent income or loss
Change of residence of companies
Ownership measurement concession
Anti-avoidance rule: stapled stock
Foreign investment fund (FIF) rules
What is a foreign investment fund?
Calculation of FIF income or loss
Relationship with other provisions in Act
EX 59 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method
Cases of entry into and exit from FIF rules
Commissioner’s default assessment power
EY 19 Premium loading formulas: when life insurers not providing life insurance at start of income year
EY 29 Mortality profit formula: when life insurers not providing life insurance at start of income year
EZ 11 Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year
EZ 12 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997
EZ 13 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year
EZ 18 Section EZ 17 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993
EZ 19 Section EZ 17 amount of depreciation loss when person previously exempt from tax acquires item
EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005
Controlled foreign company and foreign investment fund rules
Old financial arrangements rules
EZ 47 Election to continue to treat certain excepted financial arrangements as financial arrangements
EZ 49 Determination of core acquisition price where consideration for property denominated in foreign currency
Exceptions for property transferred on death of person
Debt percentage of New Zealand group
Debt percentage of worldwide group
Determining membership of groups
Measuring ownership interests in companies
Membership and debt percentages of foreign groups
Calculating taxable income for consolidated group returns
Accounting for particular property
Treatment of foreign dividends
Membership of consolidated groups
Forming, joining, or leaving consolidated groups
When membership starts and stops
Treatment of shares, income, expenditure, and bad debts
Property passing to amalgamated company on amalgamation
Treatment of financial arrangements between amalgamating companies
Arrangements involving dividend stripping
Arrangements involving transfer pricing
Arrangements involving tax losses
Arrangements to defeat continuity provisions
Arrangements involving qualifying companies
Arrangements involving controlled foreign companies
Arrangements involving foreign investment funds
Arrangements involving film rights
Arrangements involving petroleum mining
Arrangements involving financial arrangements
Arrangements involving trust beneficiary income
Arrangements involving repatriation of commercial bills
Attribution rule for income from personal services
Arrangements involving restrictive covenants
Arrangements involving fringe benefit tax
Arrangements involving depreciation loss
Arrangements involving imputation rules
Arrangements involving foreign dividends
Arrangements involving Maori authority credits
Arrangements involving family support credits
Arrangements involving money not at risk
Arrangements involving returning share transfers
Disposals of trading stock or similar property
Treatment of profits, dividends, and tax losses
Special tax matters for loss-attributing qualifying companies
Elections: qualifying companies
Elections: loss-attributing qualifying companies
Qualifying company election tax
Effective interests in qualifying companies
Tax treatment of amounts that beneficiaries derive from trusts
Tax treatment of trustee income
Settlors and their liabilities
Treatment of transition situations
Valuation of property, trading stock, and financial arrangements
Rate and payment of income tax
Eligibility requirements: portfolio investment entities and foreign investment vehicles
Becoming and ceasing to be portfolio investment entity
Periods relevant to calculation of portfolio entity tax liability
Allocation of income in some cases
Calculating portfolio entity tax liability
HL 20 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period
Payment by portfolio tax rate entity of tax for tax year
HL 27 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period
Treatment of losses for entity
Partnerships and joint ventures
Tax loss components carried forward
Tax credits for persons on low incomes
Tax credits for transitional circumstances
Adjustments to certain tax credits
Use of credits in later tax years
Treatment of taxable distributions
Supplementary dividend holding companies
Underlying foreign tax credits
Credits for certain non-resident investment companies
Credits for interest on home vendor mortgages
Credits for savings in special home ownership accounts
Shareholder continuity requirements
Treatment of credits and debits on resident’s restricted amalgamation
Amalgamation of companies in consolidated groups
Imputation credits attached to dividends
Distributions of statutory producer boards and co-operative companies
Tables of credits and debits in memorandum accounts
FDP credits attached to dividends
CTR credits attached to dividends
Table O5: conduit tax relief credits
Table O6: conduit tax relief debits
Companies with branch equivalent tax accounts
Persons with branch equivalent tax accounts
Table O7 branch equivalent tax credits
Table O8 branch equivalent tax debits
Table O9 person's equivalent tax credits
Table O10 person's equivalent tax debits
Companies with policyholder credit accounts
Policyholder credits of PCA company
Policyholder debits of PCA company
Persons with policyholder credit accounts
Policyholder credits of PCA person
Policyholder debits of PCA person
Table O13 policy holder credits
Table O15 person's policyholder credits
Table O16 person's policyholder debits
Maori authority credits attached to distributions
Table O17 Maori authority credits
Table O18 Maori authority debits
Consolidated groups and imputation credit accounts
Imputation credits of consolidated imputation groups
Imputation debits of consolidated imputation groups
Table O19 imputation credits of consolidated imputation groups
Table O20 imputation debits of consolidated imputation groups
Consolidated groups and FDP accounts
FDP credits of consolidated FDP groups
FDP debits of consolidated FDP groups
Table O21 : credits of consolidated FDP groups
Table O22 : FDP debits of consolidated FDP groups
Consolidated groups and CTR credits
CTR credits of consolidated groups
CTR debits of consolidated groups
Consolidated groups’ FDP payments and refunds
Table O23 : conduit tax relief credits of consolidated groups
Table O23 : conduit tax relief debits of consolidated groups
Consolidated groups and branch equivalent tax accounts
Branch equivalent tax credits of consolidated BETA groups
Branch equivalent tax debits of consolidated BETA groups
Table O25 : branch equivalent tax credits of consolidated BETA groups
Table O26 : branch equivalent tax debits of consolidated BETA groups
Consolidated groups and policyholder credit accounts
Policyholder credits of consolidated groups
Policyholder debits of consolidated groups
Payment and withholding obligations
Application of other provisions
Calculating provisional tax liability
Instalments of provisional tax
Requirements for using GST ratio
When persons start or stop paying GST, or change taxable periods
Treatment of groups of companies and amalgamated companies
Attribution rule for income from personal services
PAYE rules and PAYE income payments
Adjustments for certain PAYE income payments
Fringe benefit tax (FBT) rules and fringe benefits
Attributing fringe benefits to employees
Taxable value of fringe benefits
Employer’s superannuation contribution tax (ESCT) rules and employer’s superannuation contributions
Tax on certain withdrawals from superannuation funds
Limits on refunds and transfers
Companies receiving foreign dividends
Persons with policyholder credit accounts
Certain unit trusts and group investment funds
Obligations and treatment of PAYE intermediaries
PAYE intermediaries’ responsibilities
YA 3 Treatment of qualifying company election tax, FBT, FDP penalty tax, imputation penalty tax, and withdrawal tax
Table Y1 Associated person rules
Voting and market value interests
Voting and market value interests: modifications for continuity provisions
The Parliament of New Zealand enacts as follows:
Part I
Treatment of tax losses
Subpart IA—General rules for tax losses
IA 1 What this subpart does
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This subpart—
(a) defines the relationship between the core provisions of this Act, the provisions of this Part, and other provisions in this Act that allow a person with a tax loss to use the amount of the loss; and
(b) establishes the general rules for using a tax loss.
Defined in this Act: amount, tax loss,
Compare: 2004 No 35 s IE 1(1)(a)
IA 2 Tax losses
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What is a tax loss?
(1) A person’s tax loss for a tax year is found by adding together the amounts referred to in subsections (2) to (4).
Loss balances carried forward
(2) If the person has a loss balance carried forward to the tax year, the amount is included in their tax loss for the tax year to the extent to which it is not subtracted from their net income for the tax year.
Net losses
(3) If the person has a net loss under section BC 4 (Net income and net loss) for the tax year, the amount is a tax loss component included in their tax loss for the tax year.
Additional amounts
(4) If the person is described in 1 or more of the following paragraphs and has the amount described in the paragraph, the amount is included as a tax loss component in their tax loss for the tax year:
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(a) a member fund that incurs excess expenditure:
(i) the amount that is included in the tax loss under section DV 5(4)(b) (Investment funds: transfer of expenditure to master funds); and
(ii) the amount that the fund chooses under section DV 7(2) (Carry forward of expenditure) to treat as an amount added to the tax loss under this section:
(b) a person whose imputation credits are included in their annual gross income for the tax year: the amount of converted imputation credits arising under section LE 1 (Tax credits for imputation credits) for the tax year:
(c) a person who has an unallocated deduction for the payment of a supplementary dividend in the corresponding income year: the amount referred to in section LP 10 (Limitation on deductions) for the tax year:
(d) a company (company A) if an Australian ICA company has chosen under section OB 69(5) (Further income tax paid satisfying liability for income tax) to have a payment treated as a tax loss component of company A: the payment referred to in section OB 69(5) for the tax year:
(e) a person who has an unused attributed controlled foreign company (CFC) net loss for the corresponding income year: the amount referred to in section IQ 2(3) (Ring-fencing cap on attributed CFC net losses) for the corresponding income year:
(f) a person who has an unused foreign investment fund (FIF) net loss for the corresponding income year: the amount referred to in section IQ 3 (Ring-fencing cap on FIF net losses) for the corresponding income year:
(g) a person with a specified activity net loss for the corresponding income year: the amount referred to in section IZ 1(1) (Use of specified activity net losses) for the corresponding income year.
Ring-fenced amounts
(5) This section, and sections IA 3 and IA 4, do not apply to the amounts referred to in section IA 7, which are subject to particular rules in other Parts or subparts that limit the way in which a person may use them.
Exclusion: net losses from schedular income
(6) When a person with a schedular income tax liability for a tax year has an amount that would be a net loss for the tax year, if their only income for the tax year were schedular income, the amount is not a net loss under subsection (3) that is included in a tax loss for the tax year.
Meaning of tax loss component
(7) For the purposes of this Part, a tax loss component means an amount included in a tax loss for a tax year under subsection (3) or (4).
Defined in this Act: amount, annual gross income, attributed CFC net loss, Australian ICA company, company, corresponding income year, deduction, FIF net loss, imputation credit, income, loss balance, net income, net loss, pay, schedular income, schedular income tax liability, specified activity net loss, supplementary dividend, tax loss, tax loss component, tax year,
Compare: 2004 No 35 ss BC 4(4), DV 5(4)(b), DV 7(2), IE 1(1), (3)(a), IE 2(1), IE 3(5), IE 4(6), LB 2(3), (3A), LE 4(5), ME 9(5B)
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IA 3 Using tax losses in tax year
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Paying shortfall penalties
(1) A person who has a tax loss for a tax year may use some or all of the amount of the tax loss under section IW 1 (Shortfall penalties) to pay a shortfall penalty.
Companies using tax losses
(2) A company that has a tax loss for a tax year may—
(a) make the amount available to another company under section IC 5 (Company B using company A’s tax loss) to subtract from the other company’s net income for the tax year; or
(b) use the amount under section RG 6 (Using loss balances) to satisfy a liability for a foreign dividend payment (FDP) payable in the corresponding income year; or
(c) use the amount under sections FM 26 to FM 28, or RM 21, (which relate to FDP) to obtain a refund of an overpayment of FDP made in the corresponding income year.
Taxable distributions
(3) The amount of a tax loss for a tax year of a beneficiary of a non-complying trust may be used under section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts) to adjust the amount of a taxable distribution derived in the corresponding income year.
Remaining loss balances carried forward
(4) If a person has a balance of tax loss remaining for a tax year after the uses described in this section, the balance is carried forward to the next tax year as a loss balance.
Relationship with sections IA 5 to IA 8
(5) Sections IA 5 to IA 8 override this section.
Defined in this Act: amount, company, corresponding income year, FDP, foreign dividend, loss balance, net income, non-complying trust, pay, shortfall penalty, tax loss, tax year, taxable distribution,
Compare: 2004 No 35 ss BC 4(4), HH 3(4), IE 1(1), (2), IG 10, NH 3(2), NH 4(5), (6), NH 5(6), (7)
IA 4 Using loss balances carried forward to tax year
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Priority uses
(1) A person’s loss balance carried forward under section IA 3(4) to a tax year, must—
(a) first, be subtracted from their net income, so far as it extends, for the tax year; and
(b) secondly, to the extent of a remaining loss balance, be included in their tax loss for the tax year.
Relationship with other provisions
(2) Sections IA 5 to IA 8 override this section. Section IP 3 (Continuity breach: tax loss components of companies carried forward) modifies this section for a company’s part-year calculations. sections IZ 4 to IZ 6 (which relate to tax losses for earlier tax years) modify this section for certain tax years.
Defined in this Act: company, loss balance, net income, tax loss, tax year,
Compare: 2004 No 35 s IE 1(2)
IA 5 Restrictions on companies’ loss balances carried forward
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General statement
(1) A company’s tax loss component is carried forward in a loss balance only if the minimum requirements of subsections (2) and (3) are met.
Continuity of voting interests
(2) A tax loss component is carried forward in a loss balance under section IA 3(4) only if a group of persons holds for the continuity period minimum voting interests in the company that add up to at least 49%.
Continuity of market value interests
(3) If a market value circumstance exists for the company at any time during the continuity period, the group of persons must also hold for the continuity period, minimum market value interests in the company that add up to at least 49%.
Breach of continuity of ownership in period
(4) If the requirements of subsection (2) or (3) are not met, section IP 3 (Continuity breach: tax loss components of companies carried forward) applies to determine whether some or all of a tax loss component is carried forward in a loss balance.
Avoidance arrangements
(5) Section GB 3 (Arrangements for carrying forward loss balances: companies) may apply to treat a company as not meeting the requirements of subsection (2) or (3).
Some definitions
(6) In this section,—
continuity period means the period of time from the start of the income year that corresponds to the tax year in which a tax loss component is included in the tax loss to the end of the income year that corresponds to the tax year in which the company uses the tax loss component
minimum market value interest, for a person and a period, means the lowest market value interest they have in the company during the continuity period
minimum voting interest, for a person and a period, means the lowest voting interest they have in the company during the continuity period.
Defined in this Act: company, continuity period, corresponding income year, group of persons, income year, loss balance, market value circumstance, market value interest, minimum market value interest, minimum voting interest, tax loss component, tax year, voting interest,
Compare: 2004 No 35 s IF 1(1)
IA 6 Restrictions on companies grouping tax losses
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Groups of companies
(1) A company that is part of a group of companies may use a tax loss under subpart IC (Grouping tax losses) only if it meets the requirements of section IC 5 (Company B using company A’s tax loss).
Consolidated groups
(2) Subpart ID (Use of tax losses by consolidated groups) applies to the grouping of tax losses by a consolidated group of companies.
Avoidance arrangements
(3) Section GB 4 (Arrangements for grouping tax losses: companies) may apply to treat a company as not meeting the requirements referred to in subsection (1).
Defined in this Act: company, consolidated group, group of companies, tax loss,
Compare: 2004 No 35 ss IG 1(1), GC 4
IA 7 Restrictions relating to ring-fenced tax losses
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Non-application of sections IA 2 to IA 4
(1) Sections IA 2 to IA 4 (the general rules) do not apply to an amount referred to in subsections (2) to (8).
Tax losses of LAQCs
(2) The general rules do not apply to a loss-attributing qualifying company’s (LAQC) net loss calculated under section BC 4 (Net income and net loss). The provisions that deal with this net loss are sections HA 24 to HA 27 (which relate to tax losses of LAQCs).
Policyholder net losses
(3) The general rules do not apply to a life insurer’s policyholder net loss under section EY 43(10) (Policyholder income formula). The provision that deals with this net loss is section IT 1 (Life insurers’ policyholder net losses).
Investment funds’ excess expenditure
(4) The general rules do not apply to excess expenditure of an investment fund under sections DV 5 and DV 7 (which relate to investment funds) except for—
(a) the amount under section DV 5(4)(a) that the fund must treat as a tax loss component under section IA 2(4)(a)(i); and
(b) the amount under section DV 7(2) that the fund chooses to treat as a tax loss component under section IA 2(4)(a)(ii).
Attributed CFC net losses
(5) The general rules do not apply to an attributed CFC net loss except a surplus under section IQ 2(3) (Ring-fencing cap on attributed CFC net losses). The provisions that deal with this net loss are sections IQ 2, IQ 4, and IQ 6 to IQ 9 (which relate to foreign losses).
FIF net losses
(6) The general rules do not apply to a FIF net loss except a surplus under section IQ 3 (Ring-fencing cap on FIF net losses). The provisions that deal with this net loss are sections IQ 3, IQ 5, and IQ 6 to IQ 9.
Mining net losses
(7) The general rules do not apply to a net loss of a mining company, a resident mining operator, or a non-resident mining operator to the extent to which the net loss relates to a mining permit area. The provisions that deal with these net losses are sections IS 1 to IS 4 and IS 6 (which relate to mining companies’ tax losses).
Petroleum net losses
(8) The general rules do not apply to a petroleum mining company’s net loss to the extent to which the net loss relates to a permit area. The provisions that deal with this net loss are sections IS 5, IZ 2, and IZ 3 (which relate to petroleum mining companies’ use of loss balances).
Amounts remitted
(9) The general rules do not apply to an amount that an associated person has remitted as a condition of a new start grant under section CX 48 (Amounts remitted as condition of new start grant) or EW 46 (Consideration when debtor released as condition of new start grant).
Net losses of portfolio tax rate entities
(10) The general rules do not apply to a portfolio tax rate entity’s net loss that does not pay tax under section HL 23 (Payments of tax by portfolio tax rate entity choosing to pay provisional tax).
Defined in this Act: amount, associated person, attributed CFC net loss, FIF net loss, LAQC, life insurer, loss-attributing qualifying company, mining company, mining permit area, net loss, new start grant, non-resident mining operator, pay, permit area, petroleum mining company, policyholder net loss, portfolio tax rate entity, resident mining operator, tax, tax loss component,
Compare: 2004 No 35 ss DV 5(4)(b), DV 7(2), EY 42(10), HG 16, IE 1(2BB), (2C), IE 3(5), IE 4(6), IG 4(4), IG 5(4), IG 7(2), (3), IH 1, IH 2(1), IH 3–IH 5, II 1(1), (2)
IA 8 Restrictions relating to schedular income
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Certain schedular income
(1) For the purposes of section BC 7 (Income tax liability of person with schedular income), a person must not take a tax loss into account in calculating a schedular income tax liability for a tax year for income described in the following paragraphs of the definition of schedular income:
(a) paragraph (c), which relates to non-resident entertainers; or
(b) paragraph (f), for non-resident passive income described in section RB 3 (Schedular income tax liability for filing taxpayers for non-resident passive income); or
(c) paragraph (g), which relates to non-resident shippers; or
(d) paragraph (h), which relates to non-resident film renters; or
(e) paragraph (i), which relates to non-resident general insurers.
Grouping tax losses
(2) For the purposes of subsection (1), a company that is part of a group of companies must not take a tax loss of another company in the same group into account under section IC 5 or ID 2 (which relate to companies’ use of tax losses) in calculating a schedular income tax liability for the tax year.
Relationship with sections IA 3 to IA 7
(3) This section overrides sections IA 3 to IA 7.
Defined in this Act: company, general insurance, group of companies, income, insurer, non-resident, non-resident entertainer, non-resident passive income, schedular income, schedular income tax liability, tax loss, tax year,
Compare: 2004 No 35 s ID 1(1)
IA 9 Ordering rules
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Tax loss components
(1) Tax loss components that are included in a tax loss must be used in the order in which they arose.
Ring-fenced tax losses
(2) Ring-fenced tax losses must be used in the order in which they arose.
Losses in same tax year: consolidated groups and amalgamated companies
(3) For a consolidated group or on the amalgamation of companies, tax loss components that the consolidated group or the companies have for the same tax year must be used in the order decided, as applicable, by the consolidated group or the amalgamated company, who must also notify the Commissioner of the decision. Without notification, the amounts must be used on a pro rata basis.
Defined in this Act: amalgamated company, amalgamation, amount, Commissioner, company, consolidated group, notify, ring-fenced tax loss, tax loss, tax loss component, tax year,
Compare: 2004 No 35 ss IE 1(3)(b), IF 5, IG 6(5)
IA 10 Amended assessments
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When this section applies
(1) This section applies if, in a tax year, the Commissioner amends under section 113 of the Tax Administration Act 1994 a person’s assessment for an earlier tax year, and the amendment adjusts the amount of a tax loss component or a ring-fenced tax loss for the earlier tax year.
Reduced losses
(2) If the amount is reduced in the adjustment, the person must reduce their loss balance or ring-fenced tax loss for the earlier tax year by the amount of the adjustment. If the loss balance or ring-fenced tax loss has been used in earlier tax years, they must similarly apply the reduction to the use of the loss balance or ring-fenced tax loss.
Increased losses
(3) If the amount is increased in the adjustment, the person must add an amount to their loss balance or ring-fenced tax loss for the earlier tax year.
Defined in this Act: amount, assessment, Commissioner, loss balance, ring-fenced tax loss, tax loss component, tax year,
Subpart IC—Grouping tax losses
Introductory provisions
IC 1 Company A making tax loss available to company B
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When this subpart applies
(1) This subpart applies if 1 company that is part of a group of companies (company A) has a tax loss for a tax year that it makes available to another group company (company B) to subtract from its net income for the tax year.
Requirements for grouping tax losses
(2) The amount of a tax loss that company A has for a tax year may be made available to company B to subtract from its net income for the tax year only if—
(a) the threshold levels in section IC 2 are met; and
(b) the companies meet all the requirements of section IC 5.
Losing continuity or commonality in tax year
(3) If company A or company B fail to meet 1 or both of the threshold levels referred to in subsection (2)(a), a tax loss may not be grouped unless section IP 4 or IP 5 (which relate to the grouping of part-year losses) applies.
References to years
(4) In this subpart, a reference to a tax year of a company includes a reference to a non-standard accounting year of the company that corresponds with the tax year.
Relationship with sections IA 3 and IA 4
(5) This section overrides sections IA 3 and IA 4 (which relate to the general use of tax losses).
Defined in this Act: amount, company, group of companies, net income, non-standard accounting year, tax loss, tax year,
Compare: 2004 No 35 ss IG 1(1), (3), IG 2(1), (2)(c), (e)
IC 2 Threshold levels for grouping tax losses in tax year
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Company A: continuity of ownership
(1) Company A may group a tax loss in a tax year under section IC 5 only if the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) are met.
Company A and company B: common ownership
(2) In addition to meeting the requirements referred to in subsection (1), company A and company B must have the required common ownership under section IC 3 for the period referred to in section IC 6.
Part years: relationship with subpart IP
(3) Subpart IP (Meeting requirements for part-years) applies in a tax year that is part of the commonality period if the following requirements are met for the relevant part-year:
(a) continuity of ownership in company A for the purposes of subsection (1); and
(b) common ownership of company A and company B for the purposes of subsection (2).
Defined in this Act: commonality period, company, tax loss, tax year,
Compare: 2004 No 35 ss IG 1(1), (3), IG 2(1), (2)(c), (e)
IC 3 Common ownership: group of companies
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Meaning
(1) A group of companies means 2 or more companies, none of which is a portfolio tax rate entity, in relation to which a group of persons holds—
(a) common voting interests that add up to at least 66%; and
(b) if a market value circumstance exists for a company that is part of a group of companies, common market value interests that add up to at least 66%.
Part of group at time or for period
(2) A company is treated as part of a group of companies at a particular time or for a particular period if the minimum common interests referred to in subsection (1) exist at the relevant time or are kept for the whole of the relevant period. But it is not necessary that the group of persons holding the interests stays the same for the whole of the relevant period.
Measuring common voting interests
(3) In subsection (1)(a), if the percentage interests are the same for each company, a person’s common voting interest in the relevant companies at a particular time is the percentage of their voting interests under section YC 2 (Voting interests) in each of the companies at that time. If the percentage interests in the companies differ, the percentage that counts is the lowest percentage voting interest in each of the companies for the period.
Measuring common market value interests
(4) In subsection (1)(b), if the percentage interests are the same for each company, a person’s common market value interest in the relevant companies at a particular time is the percentage of their market value interests under section YC 3 (Market value interests) in each of the companies at that time. If the percentage interests in the companies differ, the percentage that counts is the lowest percentage market value interest in each of the companies for the period.
Defined in this Act: common market value interest, common voting interest, company, group of companies, group of persons, market value circumstance, market value interest, portfolio tax rate entity, voting interest,
Compare: 2004 No 35 s IG 1(2), (5)
IC 4 Common ownership: wholly-owned groups of companies
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Interests held
(1) A wholly-owned group of companies means 2 or more companies in relation to which a group of persons holds, for the relevant period,—
(a) common voting interests that add up to 100%; and
(b) if a market value circumstance exists for a company that is part of a group of companies, common market value interests that add up to 100%.
Employees’ share purchase schemes
(2) In subsection (1), company shares held by the trustee of, or by employees or former employees of the company as a consequence of the operation of, a share purchase scheme are disregarded to the extent to which they represent voting interests in the company that add up to no more than 3%, or, as applicable, market value interests in the company that add up to no more than 3%.
Defined in this Act: common market value interest, common voting interest, company, employee, group of companies, group of persons, market value circumstance, market value interest, share, share purchase scheme, trustee, voting interest, wholly-owned group of companies,
Compare: 2004 No 35 s IG 1(3)
Requirements and methods
IC 5 Company B using company A’s tax loss
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Requirements
(1) Company A may make a tax loss available to company B to subtract from its net income under section IA 3(2) (Using tax losses in tax year) only if—
(a) company A and company B have minimum common ownership for the relevant period as set out in sections IC 2(2) and IC 6; and
(b) company A meets the residence requirements of section IC 7; and
(c) company A has the required continuity of ownership under section IC 2(1) and, if it applies, section IC 10(2)(a); and
(d) the amount falls within the limits set by section IC 8(1) and (2); and
(e) the payment and notification requirements of section IC 9 are met.
Method: election or subvention payment
(2) Having met all the requirements set out in subsection (1), company A may—
(a) choose to make a tax loss that it has in a tax year available to company B to use in the tax year, notifying the Commissioner as described in section IC 9; or
(b) agree with company B that company B should bear the amount of company A’s tax loss, or take a share in it, in return for a payment by company B to company A by the date set out in section IC 9; or
(c) apply both paragraphs (a) and (b) in relation to the tax loss.
Amounts used in tax year
(3) Company B must subtract the amount of the tax loss referred to in subsection (2)(a) or the payment referred to in subsection (2)(b), as applicable, from its net income for the tax year in relation to which company A makes the amount available or receives the payment.
When decisions made
(4) If company A chooses to make the amount available to company B under subsection (2)(a), the decision is irrevocable.
Nature of payment
(5) To the extent to which an amount of tax loss is subtracted from net income, a payment from company B to company A under subsection (2)(b) is not a dividend.
Part-year tax losses
(6) Sections IP 4 and IP 5 (which relate to losses in part-years) modify this section for part-year calculations.
Tax years before 1981–82 and between 1981–82 and 1991–92
(7) section IZ 7 (Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92) modifies the requirements of—
(a) subsection (1)(a) for a tax loss component that arises in tax years between 1981–82 and 1991–92; and
(b) subsection (1)(b) for a tax loss component that arises in tax years before the 1991–92 tax year; and
(c) subsection (1)(a) for a tax loss component that arises in tax years before the 1981–82 tax year.
Defined in this Act: amount, Commissioner, company, dividend, net income, notify, pay, tax loss, tax loss component, tax year,
Compare: 2004 No 35 s IG 2(2)
IC 6 Common ownership for period
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Commonality period
(1) For the purposes of section IC 2(2), common ownership under section IC 3 must exist from the start of the income year in which company A has a tax loss component that is included in the tax loss to the end of the income year in which company B subtracts the amount of the tax loss component from its net income. In this Part, this length of time is called the commonality period.
Multiple net losses
(2) The requirement set out in subsection (1) applies to net losses as they arise in an income year on an individual basis.
When companies have different balance dates
(3) If the balance dates of company A and company B are different, section IC 10(2)(b) applies to extend the commonality period.
Relationship with section IZ 7
(4) section IZ 7(1) and (2) (Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92) overrides subsections (1) and (2).
Defined in this Act: commonality period, company, income year, net income, tax loss, tax loss component,
Compare: 2004 No 35 ss IG 1(1), (2), IG 2(2)(c), (4)(d)(ii), (5)(c)(ii)
IC 7 Residence of company A
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Incorporation or carrying on business
(1) Company A, for the commonality period, must be either—
(a) incorporated in New Zealand; or
(b) carrying on a business in New Zealand through a fixed establishment in New Zealand.
Residence in New Zealand
(2) In addition to meeting the requirements of subsection (1), company A, for the commonality period, must not be a company resident in New Zealand that is—
(a) treated under a double tax agreement, and for the purposes of the agreement, as not resident in New Zealand; or
(b) liable by the law of another country or territory to income tax in that country or territory through domicile, residence, or place of incorporation.
Relationship with section IZ 7
(3) Section IZ 7(4) (Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92) overrides this section.
Defined in this Act: business, commonality period, company, double tax agreement, fixed establishment, income tax, New Zealand, resident in New Zealand,
Compare: 2004 No 35 s IG 2(2)(d), (11)
IC 8 Limitations on amounts used
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Limit on amounts
(1) A tax loss made available, or a payment made, under section IC 5(2) must be no more than the amount that would be company B’s net income for the tax year in which it subtracts the amount of the tax loss.
Limit for payments
(2) An amount that company B agrees to pay company A under section IC 5(2)(b) must be no more than the amount of company A’s tax loss.
No accounting for amount by companies
(3) Company A and company B must ignore this section in calculating their net incomes, but for the purposes of grouping tax losses, company B’s net income is found after taking into account—
(a) first, its own losses; and
(b) secondly, a tax loss made available to company B by another company.
Defined in this Act: amount, company, loss, net income, pay, tax loss, tax year,
Compare: 2004 No 35 s IG 2(2)(f), (g)
IC 9 Date for payment and notice to Commissioner
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Last date for payment
(1) A payment under section IC 5(2)(b) must be made no later than the extended return date, or by a later date if the Commissioner allows.
Date and method for notifying Commissioner
(2) Company A must notify the Commissioner of an election or payment under section IC 5(2) by the extended return date or, if applicable, the later date allowed by the Commissioner. The notification may be made in the company’s annual return of income.
Extended return date
(3) In subsections (1) and (2), extended return date means the 31 March that, for company A and the tax year in which the amount of the tax loss is subtracted, is the latest date to which the time for providing the return of income may be extended under section 37(5) of the Tax Administration Act 1994.
Defined in this Act: amount, Commissioner, company, extended return date, notify, pay, return of income, tax loss, tax year,
Compare: 2004 No 35 s IG 2(2)(g), (3)
IC 10 When companies have different balance dates
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When this section applies
(1) This section applies in a tax year when company A and company B do not have the same balance date.
Extensions for continuity and common ownership
(2) If company B’s income year ends after the last day of company A’s income year, for section IC 5 to apply to a tax loss in a corresponding tax year,—
(a) continuity of ownership in company A under section IC 2(1) must extend to the end of company B’s income year; and
(b) common ownership of company A and company B under section IC 3 or IC 4 must extend to the end of company B’s income year.
Part-year tax losses
(3) This section applies for part-year calculations through section IP 2(2) (Group companies’ common span).
Defined in this Act: company, income year, tax loss, tax year,
Compare: 2004 No 35 s IG 2(2)(c), (e)
IC 11 Reduction of amounts used by companies
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When this section applies
(1) This section applies in a tax year if—
(a) company A has a tax loss for the tax year that is made available to, and subtracted by, more than 1 company that is part of the group of companies; and
(b) the Commissioner determines under section 113 of the Tax Administration Act 1994 that the actual total tax loss for the tax year is less than the sum of the amounts subtracted by the companies in the group, and notifies company A.
Reduced amounts
(2) The relevant companies must reduce the amounts they subtracted either in the way company A allocates under subsection (3) or, if no allocation is made, proportionately under subsection (4).
Company A’s allocation
(3) Company A may choose how the amount by which the total must be reduced is allocated between or among the companies. But if company A allocates an amount to a company that is no longer part of the group at the time of the allocation, and the amount is more than a proportionate amount, the allocation is disregarded. Subsection (6) sets out the notice requirements for this subsection.
Proportionate amounts
(4) If company A does not allocate the amounts by which the total must be reduced, the amounts subtracted by the group companies are reduced in the same proportion as that by which the total amount was reduced in determining the actual total tax loss.
Subvention payments
(5) If the reduction results in a payment under section IC 5(2)(b) being treated as a dividend, the dividend is reduced to the extent to which the payment is repaid by company A within the notification period referred to in subsection (6).
Notifying Commissioner
(6) For the purposes of subsections (3) and (5), company A must notify the Commissioner of the allocation within 6 months after the date on which the Commissioner notifies company A that the reduction is required. However, the Commissioner may agree to extend this notification period.
Defined in this Act: amount, Commissioner, company, dividend, group of companies, notify, tax loss, tax year,
Compare: 2004 No 35 s IG 2(7)
IC 12 Bad debts or decline in value of shares
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When this section applies
(1) This section applies to companies that are part of a group of companies in the tax year of deduction and in later tax years if—
(a) a company other than company A in the group has a deduction under section DB 31 (Bad debts) for a bad debt or a decline in the value of shares; and
(b) the amount of the debt or the payment for the subscription of the shares has been taken into account in calculating company A’s tax loss for a tax year; and
(c) the relevant tax year in which the deduction is made is the 1993–94 tax year or a later tax year.
No additions to loss balances
(2) The amount of the tax loss cannot be added to the loss balance, except to the extent to which the tax loss is more than the total amount of the deduction.
Determining decline in value of shares
(3) For the purposes of this section, shares are treated as declining in value if,—
(a) on the disposal of the shares, the amount for which they were disposed of is less than the deduction for the cost of the shares; or
(b) when the shares have not been disposed of, their value as calculated under subpart EB (Valuation of trading stock (including dealer’s livestock)) or otherwise declines.
Defined in this Act: amount, company, deduction, group of companies, loss balance, pay, share, tax loss, tax year,
Compare: 2004 No 35 s IG 2(6)
Subpart ID—Use of tax losses by consolidated groups
ID 1 Treatment of tax losses by consolidated groups
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Consolidated group’s net losses
(1) A tax loss of a consolidated group of companies is treated as the consolidated group’s tax loss, not the tax loss of a company that is part of the consolidated group. Subparts IA and IC (which relate to the general use and grouping of tax losses), as modified by this subpart, apply as if the consolidated group were 1 company.
Ring-fenced tax losses
(2) Nothing in this subpart applies to a consolidated group whose companies are mining companies.
Defined in this Act: company, consolidated group, mining company, tax loss,
Compare: 2004 No 35 s IG 6(1A)–(3)
ID 2 Pre-consolidation losses: general treatment
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When this section applies
(1) This section applies in a tax year when a company that meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) and is part of a consolidated group has a pre-consolidation loss balance carried forward to the tax year.
First use
(2) The first use of the loss balance must be to make the amount of the loss balance available to the consolidated group to subtract from its net income, so far as it extends, for the tax year.
Second use
(3) If, after subsection (2) is applied, some of the loss balance remains, the company may choose to do 1 or more of the following:
(a) subtract the remaining amount from its net income for the tax year:
(b) make the remaining amount available to another consolidated group to subtract from its net income for the tax year:
(c) make the remaining amount available under section IC 5 (Company B using company A’s tax loss).
Third use
(4) If, after subsections (2) and (3) are applied, a loss balance remains, the remaining amount is carried forward to the next tax year.
Relationship with sections IA 3, IA 4, IC 5, and provisions in this subpart
(5) This section overrides sections IA 3, IA 4, and IC 5 (which relate to the general use and grouping of tax losses). Sections ID 3 to ID 5 override this section.
Defined in this Act: amount, company, consolidated group, net income, loss balance, tax year,
Compare: 2004 No 35 s IG 6(4), (6), (7)
ID 3 Pre-consolidation losses: use by group companies
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When this section applies
(1) This section applies in a tax year if—
(a) a company (company A) that is part of a consolidated group has a loss balance to which section ID 2 applies; and
(b) the company was, in the continuity period relating to the loss balance, part of the same group of companies as 1 or more companies that are in the consolidated group in the tax year in which the loss balance is used.
Limit on amount available
(2) The amount made available under section ID 2(2) to the consolidated group is limited as follows:
(a) if all the companies, including company A, in the consolidated group meet the requirements of section IC 6(1) (Common ownership for period): the amount available is limited to the amount of the loss balance to the extent of the net income of the consolidated group for the tax year:
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(b) if some of the companies in the consolidated group meet the requirements of section IC 6(1): the amount available is limited to the total of—
(i) the amount that company A could subtract from its net income for the tax year if it were not in the tax year part of a consolidated group; and
(ii) the amount that could be made available under section IC 5 (Company B using company A’s tax loss) to the other group companies in the tax year, ignoring the consolidation of the companies and presuming all steps required under section IC 5 were taken in order for the section to apply.
Relationship with section FM 3
(3) In subsection (2), the calculation of the consolidated group’s net income must be made in accordance with section FM 3 (Liability of consolidated groups and group companies).
Relationship with section ID 2
(4) This section overrides section ID 2.
Defined in this Act: amount, company, consolidated group, continuity period, group of companies, loss balance, net income, tax year,
Compare: 2004 No 35 s IG 6(6)
ID 4 Pre-consolidation losses on entry: part-year rule
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When this section applies
(1) This section applies if a company that is part of a consolidated group has a loss balance to which section ID 2 applies in a tax year when the company joins the consolidated group.
Limit on amount available
(2) The amount of the loss balance to be made available to the consolidated group under section ID 2(2) is the lesser of the amount the company establishes in financial statements under subsection (3), or the amount calculated using the formula in subsection (4), but in either case, it must not be more than the limit set out in section ID 3(2).
Financial statements
(3) The company may establish the amount to be made available by providing the Commissioner, at the time of providing the consolidated group’s return of income, with adequate financial statements that—
(a) relate to the part of the tax year when the company was part of the consolidated group; and
(b) disclose the amount that would be the net income attributable to the part of the tax year when the company was part of the consolidated group, determined on a fair and reasonable basis of attribution.
Formula
(4) The amount that may be made available under section ID 2(2) and referred to in subsection (2) is calculated using the formula—
unused amount − (part-year net income + part-year net loss).
Definition of items in formula
(5) In the formula,—
(a) unused amount is the loss balance carried forward from an earlier tax year or years that would be subtracted from the consolidated group’s net income for the tax year in the absence of ID 3 or this section:
(b) part-year net income is the company’s net income for the part of the tax year before the company joins the consolidated group:
(c) part-year net loss is the amount of a pre-consolidation tax loss that must be subtracted under section ID 2 from the net income of another consolidated group of which the company was part in the tax year before joining the consolidated group referred to in subsection (1).
Relationship with section ID 2
(6) This section overrides section ID 2.
Defined in this Act: amount, Commissioner, company, consolidated group, loss balance, net income, return of income, tax loss, tax year,
Compare: 2004 No 35 s IG 6(7)
ID 5 Pre-consolidation losses on exit: part-year rule
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When this section applies
(1) This section applies if a company that is part of a consolidated group has a loss balance to which section ID 2 applies in a tax year when the company leaves the consolidated group.
Limit on amount available
(2) In addition to the amount available under section IP 3(3) (Continuity breach: tax loss components of companies carried forward) but subject to the limit in section ID 3(2), the amount of the company’s loss balance that is carried forward to the tax year must be no more than the consolidated group’s net income for the relevant part of the tax year. For part-year calculations, seesubpart IP (Meeting requirements for part-years).
Financial statements
(3) The consolidated group must provide the Commissioner with adequate financial statements that disclose the amount that would be the consolidated group’s net income for the relevant part of the tax year, determined on a fair and reasonable basis of attribution. The statements must be filed with the consolidated group’s return of income for the tax year.
Continuity requirements
(4) For the purposes of this section, the company must meet the threshold level set out in section IC 2(1) (Threshold levels for grouping tax losses in tax year) for the relevant part of the tax year.
Relationship with section ID 2
(5) This section overrides section ID 2.
Defined in this Act: amount, Commissioner, company, consolidated group, loss balance, net income, return of income, tax year,
Compare: 2004 No 35 s IG 6(8)
Subpart IE—Treatment of tax losses on amalgamation of companies
IE 1 When this subpart applies
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This subpart applies if, in an amalgamation,—
(a) either the amalgamating company or the amalgamated company has, before the date of the amalgamation, a tax loss component or ring-fenced tax loss:
(b) a company that is part of a group of companies has a tax loss for the tax year of amalgamation that may be made available to the amalgamated company to subtract from its net income for the tax year.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, group of companies, net income, ring-fenced tax loss, tax loss, tax loss component, tax year,
Compare: 2004 No 35 ss IF 4–IF 6
IE 2 Treatment of tax losses by amalgamating company
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When this section applies
(1) This section applies if an amalgamating company that meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) ends its existence on a resident’s restricted amalgamation, and has a tax loss for a tax year that—
(a) has not, before the date of amalgamation, been used by the company; and
(b) could be made available and subtracted from the amalgamated company’s net income for the part of the tax year that ends with the date of amalgamation.
Attributing losses to amalgamated company
(2) If the amalgamated company meets the requirements of section IE 5, the tax loss is attributed to the amalgamated company. The amalgamated company may, after the date of amalgamation, subtract the amount of the tax loss from its net income for the tax year, or make it available to another company to subtract from its net income for the tax year.
Other amalgamating companies
(3) In subsection (1)(b), the amalgamated company includes a company that has amalgamated with the amalgamating company before or during the tax year in which the amount is used. The tax year referred to in that subsection means the tax year of the relevant company.
New companies
(4) Subsection (1)(b) does not apply if the amalgamated company is incorporated only on the amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amount, company, net income, resident’s restricted amalgamation, tax loss, tax year,
Compare: 2004 No 35 s IF 4
IE 3 Treatment of tax losses by amalgamated company
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When this section applies
(1) This section applies if an amalgamated company that meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) has a loss balance carried forward to the tax year in which the amalgamation takes place, and the loss balance—
(a) has not, before the date of amalgamation, been used by the company; and
(b) could be made available under and subtracted by each amalgamating company from the net income attributable to the part of the relevant company’s tax year that ends with the date of amalgamation.
Loss balances carried forward
(2) If the requirements of sections IA 5, IC 2, and IC 5 (which relate to the use and grouping of tax losses) are met, the amalgamated company’s loss balance is carried forward to the tax year in which the amalgamation takes place or to a later tax year.
Attributed CFC net losses and FIF net losses
(3) For the purposes of subsection (1)(b), if the tax loss is an attributed controlled foreign company (CFC) net loss or a foreign investment fund (FIF) net loss, it may be made available only to a wholly-owned group of companies.
Relationship with sections IA 3 and IA 4
(4) This section overrides sections IA 3 and IA 4 (which relate to the general use of tax losses).
Defined in this Act: amalgamated company, amalgamating company, amalgamation, attributed CFC net loss, FIF net loss, loss balance, net income, tax loss, tax year, wholly-owned group of companies,
Compare: 2004 No 35 s IF 6
IE 4 Group companies’ treatment of tax losses on amalgamation
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When this section applies
(1) This section applies on an amalgamation if a company that is part of a group of companies—
(a) meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward); and
(b) has a tax loss for part of a tax year before the date of amalgamation; and
(c) may use the tax loss under section IC 5, IQ 4, or IQ 5 (which relate to a company’s use of another company’s loss, including foreign losses).
Use by amalgamated company
(2) The amount of the tax loss may be subtracted from the net income of the amalgamated company for the tax year only if both the company and the amalgamated company, and each company that before or during the amalgamation amalgamated with the amalgamated company, meet the requirements of subparts IA, IC, and IQ (which relate to the general loss rules and certain foreign losses) that allow companies to group tax losses.
Defined in this Act: amalgamated company, amalgamation, amount, company, group of companies, net income, tax loss, tax year,
Compare: 2004 No 35 s IG 9
IE 5 Applying the continuity provisions when companies amalgamate
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The provisions of this Act apply as if the amalgamated company did not exist separately before amalgamation, and was instead the amalgamating companies with the same holders of shares and options over shares, each with the same number and class of shares and options over shares, as they held in the amalgamating company, to determine whether a tax loss or loss balance,—
(a) may be used or is carried forward under sections IA 3 and IA 4 (which relate to the general use of tax losses):
(b) may be subtracted from the net income of another company under section IC 5, IQ 4, or IQ 5 (which relate to a company’s use of another company’s loss, including foreign losses):
(c) in the case of a group company, may be subtracted from the net income of the amalgamated company under section IC 5, IQ 4, or IQ 5.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, company, loss balance, net income, share, tax loss,
Compare: 2004 No 35 ss IF 4, IG 8, IG 9
Subpart IP—Meeting requirements for part-years
Introductory provisions
IP 1 When this subpart applies
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Breaches of continuity and commonality
(1) This subpart applies if either or both the following breaches occur:
(a) when commonality of ownership required by section IC 5(1)(a) (Company B using company A’s tax loss) is lost during a tax year (a commonality breach):
(b) when continuity of ownership required by section IA 5(1) (Restrictions on companies’ loss balances carried forward) is broken during a tax year (a continuity breach).
Relationship with subparts IA, IC, and ID: part-year calculations
(2) The general rules for the treatment of tax losses in subparts IA, IC, and ID (which relate to the general use and grouping of tax losses) apply, as modified or overridden by the provisions of this subpart, to—
(a) a part-year tax loss as if it were a tax loss for a tax year:
(b) part-year net income as if it were net income for a tax year:
(c) the common span as if the period of time were a tax year.
Defined in this Act: common span, net income, tax loss, tax year,
Compare: 2004 No 35 s IG 2(4)(e), (f), (5)(e), (f)
IP 2 Group companies’ common span
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Common span
(1) In this subpart, the corresponding parts of company A’s income year and company B’s income year when the requirements for commonality of ownership under section IC 5(1)(a) (Company B using company A’s tax loss) are met is called the common span.
Common span when balance dates differ
(2) If the income years of company A and company B do not end on the same date, the common span is that part of company B’s income year or income years in which the requirements for commonality are met. IC 10(2)(b) (When companies have different balance dates) may apply to extend the period.
Calculating group companies’ tax losses
(3) For the purposes of this subpart and the grouping of tax losses, the amount of a tax loss component is found after taking into account any amount of the tax loss component subtracted from the net income of any group company.
Defined in this Act: amount, common span, company, income year, net income, tax loss, tax loss component,
Compare: 2004 No 35 s IG 2(2)(e), (4)(c), (d), (5)(b), (c)
Tax loss components carried forward
IP 3 Continuity breach: tax loss components of companies carried forward
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When this section applies
(1) This section applies for the purposes of section IA 4 (Using loss balances carried forward to tax year) if a breach occurs in the requirements for continuity of ownership of section IA 5 (Restrictions on companies’ loss balances carried forward) that enable a tax loss component included in a company’s loss balance to be carried forward to or from a tax year.
Tax loss components for earlier income years
(2) Despite the breach, a tax loss component arising in an earlier income year is carried forward to a tax year (year A) to the extent to which—
(a) the requirements for continuity of ownership would be met if the continuity period included only part of the income year of the company that corresponds to year A; and
(b) the company has net income for part of the corresponding income year; and
(c) 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.
Limit on tax loss components carried forward to year A
(3) 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 IP 5 applies.
Tax loss components of year of breach
(4) Despite the breach, a tax loss component is carried forward to the tax year (year B) from year A to the extent to which—
(a) the requirements for continuity of ownership would be met if the continuity period included only part of the income year that corresponds to year A; and
(b) the company provides the Commissioner with adequate financial statements under section IP 6 calculating the amount of the company’s net loss for the part of year A.
Limit on tax loss components carried forward to year B
(5) The amount of the tax loss component carried forward under subsection (4) must be the least of—
(a) the part-year net loss calculated under subsection (4)(b):
(b) if the company has net income for year A, zero:
(c) if the company has a net loss for year A, the company’s net loss for year A.
Defined in this Act: amount, Commissioner, company, continuity period, corresponding income year, income year, loss balance, net income, net loss, tax loss component, tax year,
Compare: 2004 No 35 s IF 1(2), (3)
Grouping part-year tax losses
IP 4 Breach in income year in which tax loss component arises
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When this section applies
(1) This section applies for the purposes of sections IA 6 and IC 5 (which relate to the use and grouping of tax losses) when company A has a tax loss component arising in an income year in which either the continuity or commonality requirements for grouping tax losses are breached.
Modified requirements
(2) The tax loss component is included in a tax loss that company A makes available under section IA 3(2) (Using tax losses in tax year) to company B only to the extent to which the following requirements, which modify those set out in section IC 5 (Company B using company A’s tax loss), are met:
(a) the tax loss component arises in the common span; and
(b) continuity of ownership in company A under section IC 2(1) (Threshold levels for grouping tax losses in tax year) applies from the beginning to the end of the common span; and
(c) company A and company B provide the Commissioner with adequate financial statements under section IP 6; and
(d) company A notifies the Commissioner of the treatment of the tax loss under section IP 7.
Determining amounts
(3) For the purposes of determining the amount of tax loss that company A and company B may use, sections IC 5 and IC 8 (which relate to the treatment of tax losses by companies) apply as if the common span were a corresponding income year.
Defined in this Act: amount, Commissioner, common span, company, corresponding income year, income year, net income, notify, tax loss, tax loss component,
Compare: 2004 No 35 s IG 2(4)
IP 5 Breach in tax year in which loss balance is grouped
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When this section applies
(1) This section applies for the purposes of sections IA 6 and IC 5 (which relate to the use and grouping of tax losses) when company A has a loss balance carried forward to a tax year in which either the continuity or commonality requirements for grouping tax losses are breached.
Modified requirements
(2) The loss balance is included in a tax loss that company A makes available under section IA 3(2) (Using tax losses in tax year) to company B only to the extent to which the following requirements, which modify those set out in section IC 5 (Company B using company A’s tax loss), are met:
(a) a tax loss component included in the loss balance arises in the common span; and
(b) continuity of ownership in company A under section IC 2(1) (Threshold levels for grouping tax losses in tax year) applies in the common span; and
(c) company B provides the Commissioner with adequate financial statements under section IP 6; and
(d) company A notifies the Commissioner of the treatment of the tax loss under section IP 7.
Determining amounts
(3) For the purposes of determining the amount of the loss balance that company A and company B may use, sections IC 5 and IC 8 (which relate to the treatment of tax losses by companies) apply as if the common span were a tax year.
Defined in this Act: amount, Commissioner, common span, company, loss balance, notify, tax loss, tax loss component, tax year,
Compare: 2004 No 35 s IG 2(2)(b)–(f), (5)
Statements and notices
IP 6 Financial statements required
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Financial statements required from company: section IP 3
(1) For the purposes of this subpart, a company must provide the Commissioner with adequate financial statements under section IP 3(2)(c) and (4)(b) relating to the continuity period.
Financial statements required from company A: section IP 4
(2) For the purposes of this subpart, company A must provide the Commissioner with adequate financial statements under section IP 4(2)(c) relating to the common span, calculating the amount of the tax loss component, determined on a fair and reasonable basis of attribution.
Financial statements required from company B: sections IP 4 and IP 5
(3) For the purposes of this subpart, company B must provide the Commissioner with adequate financial statements under sections IP 4(2)(c) and IP 5(2)(c) relating to the common span, calculating the amount of the net income in the common span, determined on a fair and reasonable basis of attribution.
Different balance dates
(4) For the purposes of subsections (2) and (3), if the balance dates of company A and company B differ, the common span is taken as the period of time in the tax year in which the tax loss or loss balance is used—
(a) that includes, but is not limited to, all or part of the tax year in which company A is in the same group of companies as company B; and
(b) in which company A and company B are at all times part of the same group of companies; and
(c) in which company A meets the continuity requirements of section IC 2(1) (Threshold levels for grouping tax losses in tax year).
Applying provisions to part-year periods
(5) In preparing the financial statements described in this section, the company must, to the extent possible, apply the provisions of this Act to the common span as if it were a tax year.
Defined in this Act: amount, Commissioner, common span, company, continuity period, group of companies, loss balance, net income, notify, tax loss, tax loss component, tax year,
Compare: 2004 No 35 ss IF 1(2), (3), IG 2(4)(c), (d), (5)(c), (d), (10)
IP 7 Notices required
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Notifying Commissioner
(1) In sections IP 4(2)(d) and IP 5(2)(d), company A must notify the Commissioner by its extended return date that it intends to treat a tax loss or loss balance in the way described in the relevant section.
Meaning of extended return date
(2) In subsection (1), extended return date has the meaning set out in section IC 9 (Date for payment and notice to Commissioner), and includes a later date allowed by the Commissioner.
Defined in this Act: Commissioner, company, extended return date, loss balance, notice, notify, pay, tax loss,
Compare: 2004 No 35 s IG 2(4), (5)
Subpart IQ—Attributed controlled foreign company net losses and foreign investment fund net losses
IQ 1 General treatment
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General statement
(1) The treatment of amounts of attributed controlled foreign company (CFC) net loss and foreign investment fund (FIF) net loss is dealt with under subpart IA (General rules for tax losses) and in 92 of the Tax Administration Act 1994, as modified by this subpart.
When net losses arise
(2) An attributed CFC net loss or a FIF net loss arises on the last day of the tax year in which the loss is attributed.
Treatment of net losses by consolidated groups
(3) If a consolidated group has an amount of attributed CFC net loss or FIF net loss, no part of the amount belongs to a company that is part of the consolidated group.
Treatment of net losses on amalgamation
(4) The treatment of tax losses, including amounts of attributed CFC net loss and FIF net loss, on the amalgamation of companies is dealt with under subpart IE (Treatment of tax losses on amalgamation of companies) and the provisions of this subpart do not apply.
Defined in this Act: amalgamation, amount, attributed CFC net loss, company, consolidated group, FIF net loss, tax loss, tax year,
Compare: 2004 No 35 ss IE 3(1), IE 4(1), IF 3, IF 6, IG 4(1), IG 5(1), IG 7(1)
IQ 2 Ring-fencing cap on attributed CFC net losses
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Limit on amount
(1) If a person’s attributed CFC net loss is carried forward to a tax year, the maximum amount that they may subtract from their net income for the tax year must be no more than the total of—
(a) all attributed CFC income that they derive in the tax year in relation to a CFC resident in the country in which the loss arose; and
(b) all FIF income calculated under the branch equivalent method that they derive in the tax year in relation to a FIF resident in the country in which the loss arose.
Income only once
(2) In subsection (1), the person may take into account an amount of attributed CFC income or FIF income only to the extent to which they have not accounted for it in—
(a) calculating a deduction under sections DN 4 or DN 8 (which relate to ring-fencing caps); or
(b) establishing their entitlement to make the tax loss available under sections IC 5 (Company B using company A’s tax loss) or IQ 4; or
(c) applying subsection (1) in relation to another attributed CFC net loss.
Treatment of excess
(3) If the person cannot use all of an amount as described in subsection (1), the surplus is no longer available to them as an attributed CFC net loss, but becomes a tax loss component under section IA 2(4) (Tax losses).
Defined in this Act: amount, attributed CFC income, attributed CFC net loss, branch equivalent method, CFC, deduction, FIF, FIF income, net income, tax loss, tax loss component, tax year,
Compare: 2004 No 35 s IE 3(2), (3), (5)
IQ 3 Ring-fencing cap on FIF net losses
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Limit on amount: branch equivalent method
(1) If a person’s FIF net loss is carried forward to a tax year, and they have calculated the amount of FIF net loss under the branch equivalent method, the maximum amount that they may subtract from their net income must be no more than the total FIF income that they derive in the tax year from a FIF resident in the country in which the loss arose.
Relationship with section CQ 5
(2) Despite this section, if the person’s FIF net loss is carried forward to a tax year and section CQ 5(1)(d) or (e) (When FIF income arises) applies, they may subtract the amount from their net income for the tax year, but only to the extent to which the amount is no more than their assessable income from interests that would be interests in a FIF for the tax year in the absence of that section.
Defined in this Act: amount, assessable income, branch equivalent method, deduction, FIF, FIF income, FIF net loss, net income, tax year,
Compare: 2004 No 35 s IE 4(2)–(6)
IQ 4 Group companies using attributed CFC net losses
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What this section does
(1) This section supplements the general rules relating to the grouping of net losses when—
(a) a company that is part of a group of companies (company A) has an attributed CFC net loss for a tax year or has an amount of attributed CFC net loss carried forward under sections IA 4, IA 5, and IA 7 (which relate to the general use of tax losses); and
(b) company A is not able to use the amount under section IC 5 (Company B using company A’s tax loss).
General loss rules modified
(2) If the group of companies is a wholly-owned group of companies, subpart IC (Grouping tax losses) and section GB 4 (Arrangements for grouping tax losses: companies) apply to the attributed CFC net loss.
Ring-fencing cap rule modified
(3) Section IQ 2 applies to the attributed CFC net loss, but is supplemented as follows:
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(a) the amount of the tax loss that company A may make available to another group company (company B) in the tax year to subtract from their net income for the tax year must be no more than the total of—
(i) the amount of attributed CFC income that company B derives in the tax year from a CFC resident in the country in which the loss arose; and
(ii) the amount of FIF income calculated under the branch equivalent method that company B derives in the tax year from a FIF resident in the country in which the loss arose:
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(b) the amount of company B’s attributed CFC income or FIF income may be taken into account only to the extent to which it has not been accounted for—
(i) in calculating a deduction of company B under section DN 4 or DN 8 (which relate to ring-fencing caps on deductions); or
(ii) in establishing company B’s entitlement to use an attributed CFC net loss under section IC 5 (Company B using company A’s tax loss) or IQ 2:
(c) if company A cannot use some of the amount referred to in paragraph (a) in the tax year because company B’s net income is insufficient, the surplus is no longer available to company A as an attributed CFC net loss, but becomes, for company B, a tax loss component under section IA 2(4) (Tax losses).
Defined in this Act: amount, attributed CFC income, attributed CFC net loss, branch equivalent method, CFC, company, deduction, FIF, FIF income, group of companies, net income, net loss, tax loss, tax loss component, tax year, wholly-owned group of companies,
Compare: 2004 No 35 s IG 4
IQ 5 Group companies using FIF net losses
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What this section does
(1) This section supplements the rules relating to grouping of tax losses when—
(a) a company that is part of a group of companies (company A) has a FIF net loss for a tax year, or has an amount of FIF net loss carried forward to a tax year; and
(b) company A is not able to use the amount under section IC 5 (Company B using company A’s tax loss).
General loss rules modified
(2) If the group of companies is a wholly-owned group of companies, subpart IC (Grouping tax losses) and section GB 4 (Arrangements for grouping tax losses: companies) apply to the FIF net loss.
Ring-fencing cap rule modified
(3) Section IQ 3 applies to the FIF net loss, but is modified as follows:
(a) if the FIF net loss is calculated under the branch equivalent method, the maximum amount that may be made available in the tax year must be no more than the total FIF income that another group company derived in the tax year from a FIF resident in the country in which the loss arose:
(b) if company A cannot use some of the amount referred to in paragraph (a) in the tax year because company B’s net income is insufficient, the surplus is no longer available to company A as a FIF net loss, but becomes, for company B, a tax loss component under section IA 2(4) (Tax losses).
Defined in this Act: amount, branch equivalent method, company, deduction, FIF, FIF income, FIF net loss, group of companies, net income, tax loss, tax loss component, tax year, wholly-owned group of companies,
Compare: 2004 No 35 s IG 5
IQ 6 Pre-consolidation losses: general treatment
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When this section applies
(1) This section applies if a company that is part of a consolidated group has under section ID 2 (Pre-consolidation losses: general treatment) an attributed CFC net loss or FIF net loss carried forward to a tax year.
First use
(2) The first use of the amount must be by the company under subsection (3) or (4) in making the amount available to the consolidated group to subtract from its net income, so far as it extends, for the tax year.
CFC net losses
(3) If the amount is an attributed CFC net loss, it may be used only to the extent to which it is no more than the attributed CFC income that the consolidated group derives in the tax year from a CFC resident in the country in which the loss arose.
FIF net losses
(4) If the amount is a FIF net loss, it may be used only to the extent to which it is no more than the FIF income that the consolidated group derives in the tax year from a FIF resident in the country in which the loss arose.
Second use
(5) If, after applying subsection (2), some of the amount remains, the company may—
(a) subtract the remaining amount from its net income for the tax year; or
(b) make the remaining amount available to another consolidated group to subtract from its net income for the tax year under section IQ 4 or IQ 5; or
(c) make the remaining amount available under section IC 5 (Company B using company A’s tax loss).
Defined in this Act: amount, attributed CFC income, attributed CFC net loss, CFC, company, consolidated group, FIF, FIF income, FIF net loss, net income, tax year,
Compare: 2004 No 35 s IG 7(2)
IQ 7 When group membership lacking in loss period
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When this section applies
(1) This section applies if—
(a) a company that is part of a consolidated group has a ring-fenced tax loss consisting of either an attributed CFC net loss or FIF net loss, or both, that is carried forward to a tax year and must be used under section ID 2(2) (Pre-consolidation losses: general treatment); and
(b) the company was not part of the consolidated group in the earlier tax year; and
(c) the company and 1 or more of the companies in the consolidated group do not meet the requirements for common ownership of section IC 5(1)(a) (Company B using company A’s tax loss) for the loss period.
Limit on amount
(2) The amount that may be subtracted from the net income of the consolidated group in the tax year under section ID 2(2) must be no more than the total of—
(a) the amount of ring-fenced tax loss that the company could use to reduce its net income in the tax year under sections IA 3 to IA 5 (which relate to the general use of tax losses), and IQ 2 or IQ 3 as applicable, if it were not in the tax year part of a consolidated group; and
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(b) the amount of ring-fenced tax loss that the company could group with other companies in the group under section IC 5, and section IQ 4 or IQ 5, as applicable, determining—
(i) the net income for each of the companies using the group’s calculation of each company’s net income; and
(ii) the maximum amount of tax loss to be made available, ignoring the consolidation of the companies and presuming all steps required under those sections were taken in order for them to apply.
Relationship with section FM 3
(3) In subsection (2), the amount of net income must be calculated in accordance with section FM 3 (Liability of consolidated groups and group companies).
Meaning of loss period
(4) In this section, the loss period means the tax year in which the ring-fenced tax loss arose and any tax years falling between that tax year and the tax year in which the amount is subtracted from net income.
Defined in this Act: amount, attributed CFC net loss, company, consolidated group, FIF net loss, loss period, net income, ring-fenced tax loss, tax loss, tax year,
Compare: 2004 No 35 s IG 7(4)
IQ 8 When group membership lacking in tax year of use
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When this section applies
(1) This section applies if a company joins a consolidated group in a tax year with a ring-fenced tax loss consisting of an attributed CFC net loss or FIF net loss, or both, carried forward to the tax year, which must be used in the tax year under section ID 2(2) (Pre-consolidation losses: general treatment).
Limit on amount
(2) The amount that may be subtracted from the net income of the consolidated group for the tax year under section ID 2(2) is the lesser of—
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(a) the amount of ring-fenced tax loss that the company could subtract from—
(i) the amount that would be the company’s net income for the part of the tax year in which it was not part of a consolidated group; and
(ii) the net income for the tax year of another consolidated group of which the company was part before joining the present group; and
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(b) the amount that would be the group’s net income for the part of the tax year in which the company was part of the consolidated group, established by giving the Commissioner, at the time of providing the group’s return of income for the tax year, adequate financial statements that—
(i) relate to the part of the tax year when the company was part of the group; and
(ii) disclose the amount that would be the company’s net income for the part of the tax year in which the company was part of the consolidated group, determined on a fair and reasonable basis of attribution.
Defined in this Act: amount, attributed CFC net loss, Commissioner, company, consolidated group, FIF net loss, net income, return of income, ring-fenced tax loss, tax year,
Compare: 2004 No 35 s IG 7(5)
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IQ 9 When attributed CFC net loss becomes FIF net loss
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When this section applies
(1) This section applies if, in a tax year, a person has an attributed CFC net loss that, under section 38 of the Income Tax Amendment Act (No 2) 1993, becomes a FIF net loss.
Treatment of net losses
(2) The attributed CFC net loss is treated as a FIF net loss of the person with effect from the tax year, as if the CFC were a FIF.
Calculation methods
(3) For the purposes of subsection (2) and the calculation of the amount of the loss, the branch equivalent method is not used unless the person calculates their FIF income or net loss under the branch equivalent method in relation to the interest on the date of the transition from an attributed CFC net loss to a FIF net loss.
Defined in this Act: amount, attributed CFC net loss, branch equivalent method, CFC, FIF, FIF income, FIF net loss, tax year,
Compare: 2004 No 35 s IE 3(4)
Subpart IS—Mining companies’ and petroleum miners’ tax losses
IS 1 General treatment of mining companies’ tax losses
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Groups of companies
(1) In a tax year in which a company is a mining company, section IC 5 (Company B using company A’s tax loss) does not apply, and the company is not included in a group of companies for the purposes of the section.
Consolidated groups
(2) A tax loss of a mining company that is part of a consolidated group is dealt with under this subpart and not subpart ID (Use of tax losses by consolidated groups).
Defined in this Act: company, consolidated group, group of companies, mining company, tax loss, tax year,
Compare: 2004 No 35 ss IG 6(2), IH 4(2)
IS 2 Treatment of tax losses resulting from certain expenditure
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When this section applies
(1) This section applies if a company that is a mining company, or a resident mining operator, or a non-resident mining operator—
(a) has a tax loss for a tax year as a result of incurring mining exploration expenditure or mining development expenditure in a mining permit area; and
(b) has a loss balance carried forward to a later tax year.
Using loss balances
(2) The company may subtract the amount of the loss balance from its net income for the later tax year, even though the continuity of ownership required under section IA 5 (Restrictions on companies’ loss balances carried forward) is broken or is treated as absent under section GB 3 (Arrangements for carrying forward loss balances: companies), but only to the extent set out in subsection (3).
Limit on amount
(3) The amount subtracted under subsection (2) must be no more than the amount that would be the mining company’s net income if its only assessable income for the later tax year were from the mining permit area.
Amounts carried forward
(4) If the company cannot use all the loss balance in the later tax year, the amount is carried forward to later tax years and subsection (2) applies to the remaining balance.
Defined in this Act: amount, assessable income, company, loss balance, mining company, mining development expenditure, mining exploration expenditure, mining permit area, net income, non-resident mining operator, resident mining operator, tax loss, tax year,
Compare: 2004 No 35 ss IH 1(1), IH 5
IS 3 Holding companies’ tax losses
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When this section applies
(1) This section applies in a tax year if—
(a) a mining company has net income for the tax year after having subtracted an amount of any loss balance that is carried forward; and
(b) the company and a holding company, which is not a mining company, would be included in a wholly-owned group of companies in the absence of section IS 1(1); and
(c) the holding company has a tax loss for the tax year that it cannot make available under section IC 5 (Company B using company A’s tax loss) to another company that is part of the wholly-owned group.
Using tax losses
(2) The mining company may subtract some or all of the amount of the holding company’s tax loss from its net income, so far as it extends, for the tax year.
Determining amounts
(3) The amount of the holding company’s tax loss is found without taking into account a deduction that the holding company may have under section DU 12 (Amount written off by holding company) for an amount written off a loan from the holding company to the mining company.
Relationship with section IS 1
(4) This section overrides section IS 1(1).
Defined in this Act: amount, deduction, holding company, loan, loss balance, mining company, net income, tax loss, tax year, wholly-owned group of companies,
Compare: 2004 No 35 s IH 4(3)
IS 4 Adjustments in certain circumstances
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When this section applies
(1) This section applies if, under section IS 3, the amount of a holding company’s tax loss for a tax year is subtracted from a mining company’s net income for the tax year instead of being carried forward to a later tax year.
Adjustments by Commissioner
(2) If the holding company applies for an adjustment and the Commissioner agrees, the Commissioner may adjust the returns of income of the mining company and the holding company to reflect what is fair in the circumstances. This subsection applies in the tax year in which the holding company has the tax loss referred to in subsection (1), and to any of the 8 tax years following that tax year.
Time for applying to Commissioner
(3) The holding company must apply within 8 tax years after the end of the tax year in which the holding company has the tax loss referred to in subsection (1) or, despite the time bar, by a later date if the Commissioner allows.
Defined in this Act: amount, Commissioner, holding company, mining company, net income, return of income, tax loss, tax year, time bar,
Compare: 2004 No 35 s IH 4(3) proviso
IS 5 Petroleum miners’ tax losses
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When this section applies
(1) This section applies in a tax year in which a petroleum miner with a tax loss for the tax year—
(a) relinquishes a petroleum permit for which they have a deduction under section DT 7 (Exploratory well expenditure); or
(b) incurs expenditure on removal or restoration operations for which they have a deduction under section DT 16 (Removal or restoration operations).
Net losses reduced
(2) The petroleum miner’s tax loss is reduced by the amount of the deduction but only to the extent of the amount of the tax loss. The petroleum miner is then allowed a deduction for the amount of the reduction in an earlier tax year allocated under section EJ 14 (Spreading deduction backwards).
Petroleum mining activities outside New Zealand
(3) This section applies to a petroleum miner who undertakes petroleum mining activities that are—
(a) outside New Zealand and undertaken through a branch or a controlled foreign company (CFC); and
(b) substantially the same as the petroleum mining activities governed by this Act.
Using tax loss components
(4) A shareholder company may use a tax loss component referred to in section IZ 2(2) (Petroleum mining companies: treatment of payments from shareholders) but only in the way described in section IZ 2(3) to (6).
Defined in this Act: amount, CFC, deduction, New Zealand, petroleum miner, petroleum permit, relinquishment, removal or restoration operations, tax loss, tax year,
Compare: 2004 No 35 ss IH 2(1), IH 3
IS 6 When company stops being mining company
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For the purposes of sections IS 1 to IS 5, if a mining company whose loss balance is carried forward to a tax year stops being a mining company at or before the end of the tax year, the company is nevertheless treated for the tax year as if it had continued as a mining company.
Defined in this Act: loss balance, mining company, tax year,
Compare: 2004 No 35 ss IH 1, IH 4(1)(e)
Subpart IT—Life insurers’ net losses
IT 1 Life insurers’ policyholder net losses
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Amounts available
(1) A life insurer may use a tax loss in calculating their policyholder base income tax liability, but only to the extent to which the amount of the tax loss is no more than their policyholder net loss. Section IA 3(4) (Using tax losses in tax year) applies to any surplus amount.
Use of policyholder net losses
(2) A life insurer may use a policyholder net loss only for the purpose of calculating their policyholder base income tax liability.
Transfer of life insurance business
(3) If a life insurer transfers their life insurance business to another company in the way described in section EY 45(1) (Policyholder income formula: when life insurance business transferred), the life insurer may choose to have their policyholder net loss for the tax year of the transfer treated as the other company’s policyholder net loss instead of their own. This subsection applies to both a policyholder net loss calculated for a tax year and a loss balance carried forward to a tax year.
Notifying Commissioner
(4) If the life insurer chooses to have the policyholder net loss treated as the other company’s policyholder net loss, they must notify the Commissioner of their election.
Defined in this Act: amount, business, Commissioner, company, life insurance, life insurer, loss balance, notify, policyholder base income tax liability, policyholder net loss, tax loss, tax year,
Compare: 2004 No 35 ss II 1(3), (4), II 3
Subpart IV—Treatment of certain supplementary dividends
IV 1 Supplementary dividend holding companies
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When this section applies
(1) This section applies when a supplementary dividend holding company derives a supplementary dividend in a tax year.
Limit on amount
(2) If the company has a tax loss that is a tax loss component under section IA 2(4) (Tax losses), and is entitled to use the amount under section IA 3, IA 4, IC 5, IS 3, or IS 4 (which relate to a company’s use of tax losses), the maximum amount that it may use must be no more than the amount calculated using the formula—
Definition of items in formula
(3) In the formula,—
(a) net income is the company’s net income for the tax year:
(b) credits is the total amount of non-refundable tax credits and convertible credits that the company has available under Part L (Tax credits and other credits) to use in reducing its income tax liability:
(c) supplementary dividends is the total amount of supplementary dividends that the company derives in the tax year:
(d) tax rate is the relevant basic tax rate applying in the tax year.
Calculating credits under Part L
(4) Subsection (2) does not affect the calculation under Part L of the non-refundable tax credits and convertible credits of a supplementary dividend holding company.
Defined in this Act: amount, basic tax rate, convertible credit, income tax liability, net income, non-refundable tax credit, supplementary dividend, supplementary dividend holding company, tax loss, tax loss component, tax year,
Compare: 2004 No 35 s IF 7
Subpart IW—Use of tax losses to pay shortfall penalties
IW 1 Shortfall penalties
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When this section applies
(1) This section applies in a tax year when a person has a shortfall penalty for an income tax liability.
Persons choosing to use tax losses
(2) If the person has a tax loss for the tax year, they may use the amount of the tax loss to pay the penalty, notifying the Commissioner by the due date for payment of the penalty.
Wholly-owned groups choosing to use tax losses
(3) If a company that is part of a wholly-owned group of companies has a tax loss for a tax year, the wholly-owned group may use the amount of the tax loss to pay the penalty imposed on the company, notifying the Commissioner by the due date for the payment of the penalty.
Time of use
(4) The tax loss is used at the time of notification.
Lowest marginal tax rate and availability
(5) Each dollar of an amount of tax loss that is used under this section—
(a) is equal to 1 dollar multiplied by the rate of tax or lowest marginal rate of tax that would apply to the person in the return period to which the tax shortfall relates if the person had tax to pay:
(b) cannot, from the date the tax loss is used, be used or made available for use, or be carried forward to a later tax year.
Tax years and part-years
(6) In this section, a tax year includes a part of a tax year that may be taken into account under this Part for continuity or grouping purposes.
Defined in this Act: amount, Commissioner, company, income tax liability, notify, pay, shortfall penalty, tax, tax loss, tax year, wholly-owned group of companies,
Compare: 2004 No 35 s IG 10
Subpart IZ—Terminating provisions
IZ 1 Use of specified activity net losses
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Limit on amount
(1) A person’s specified activity net loss that is carried forward to a tax year and subtracted from the person’s net income for the tax year must be no more than the sum of the net income for the tax year from the conduct of the same specified activity that gave rise to the net loss and $10,000. If the person makes the net loss available to another person, the maximum amount that can be subtracted by the other person is $10,000.
When person conducts 2 or more specified activities
(2) For the purposes of subsection (1), if the specified activity net loss arises from the conduct of 2 or more specified activities—
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(a) the amount subtracted from the net income for the tax year must be no more than the lesser of—
(i) the sum of the person’s specified activity net income from each of the specified activities; and
(ii) $10,000; and
(b) the person may choose by notice which amounts of net income from the specified activities to subtract from their net income.
When 2 or more persons conduct specified activity
(3) If 2 or more persons conduct a specified activity, this section applies as if every reference to—
(a) a person were a reference to each person; and
(b) an amount of specified activity net loss attributable to the conduct of the specified activity were a reference to the amount of each person’s share of the amount of any joint specified activity net loss for the tax year.
Income from personal exertion and hardship
(4) The Commissioner may determine that the limit under subsection (1) does not apply, and may increase the amount of specified activity net loss that may be subtracted from a person’s net income under that subsection if—
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(a) the person is engaged mainly in conducting a specified activity as their livelihood, and they derive income from personal exertion that—
(i) is derived as a result of the conduct of the specified activity but is not income from the specified activity; and
(ii) is made for the purpose of enabling the person to meet expenditure essential for the maintenance of either them and their dependants or for the continuation of the specified activity; and
(b) the person, in the opinion of the Commissioner would suffer hardship from the application of subsections (1) to (3).
Relationship with general loss rules
(5) Subparts IA, IC, ID, IE, and IP (which relate to the general use of tax losses) apply to a specified net loss except to the extent to which subsections (1) to (3) override them.
Established activities excluded
(6) This section does not apply to a specified activity net loss that relates to an established activity.
Related activities
(7) A specified activity is related to another specified activity, and is treated as part of the other specified activity, if—
(a) it is usually conducted in association with and is complementary to the other specified activity that an existing farmer is already conducting; or
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(b) it is conducted on land that an existing farmer has owned or held under lease, licence, or other agreement for 5 years before the activity is started and—
(i) the existing farmer is carrying on the other specified activity immediately before the related activity is started; or
(ii) the existing farmer elects by notice in their return of income for the tax year in which they start the activity to have the activity treated as related; or
(iii) the Commissioner determines the activity is related.
Modification for specified activity
(8) If this section would have a more favourable effect if the following words in paragraph (c)(ii) of the definition of specified activity in section YA 1 (Definitions) were omitted, this section applies as if those words were omitted:
“not including crops for which the preparation of the land, the planting and cultivation of the tree or plant, and the harvesting of the crop are accomplished within 12 months”.
When subsections (10) and (11) apply
(9) Subsections (10) and (11) apply for the purposes of the definition of established activity in subsection (12) when—
(a) land is transferred under a settlement of relationship property; and
(b) the transferor conducted a specified activity on the land as at 1 October 1982, and the conduct of the activity constituted their livelihood or sole source of income; and
(c) the transferee conducts the same specified activity on the land.
Treatment of transferee
(10) The transferee is treated as continuing the specified activity, and that activity is treated as constituting their livelihood and sole source of income.
Date of commencement
(11) For the purposes of subsection (7), if the transferor was an existing farmer immediately before the date of transfer, the transferee is treated as having acquired the land on the date it was acquired by the transferor. However, if the transferee starts to conduct the same kind of specified activity on the land that the transferor conducted immediately before the date of transfer, the transferee is not treated as having acquired the land on that date.
Some definitions
(12) In this section,—
conduct means carry on or engage in or hold an interest in a specified activity, whether or not jointly with another person
established activity, for a person who is an existing farmer, means a specified activity, except an activity within the meaning of paragraph (j) of the definition of specified activity in section YA 1, that the person conducted on 11 October 1982, if the Commissioner considers the conduct of the specified activity constituted the livelihood of the person and their principal source of income
existing farmer means a person to whom both the following apply
(a) the person conducts in an income year 1 or more of the specified activities described in paragraphs (a) to (i) of the definition of specified activity; and
(b) the person’s livelihood and the person’s sole or principal source of income is constituted, throughout the conduct of the specified activity or the specified activities in the income year, by the conduct of the specified activity or the specified activities
income from personal exertion means income of a kind referred to in sections CB 1 and CE 1 (which relate to amounts derived from business and in connection with employment), but does not include income from a business of renting, or lending money, or making financial investments
land,—
(a) includes a lease, or an interest under a lease, of a leased area as defined in the Marine Farming Act 1971; and
(b) includes a licence, or an interest under a licence, relating to a licensed area as defined in the Marine Farming Act 1971; and
(c) includes an improvement on or in relation to the leased area or the licensed area to which a lease or licence under the Marine Farming Act 1971 relates
related activity, for a specified activity conducted by a person in a tax year, means another specified activity that is treated as a related activity under subsection (7), whether or not it is conducted on the same land as the specified activity
specified activity means—
(a) the business of animal husbandry, including bee-keeping, the breeding of horses other than bloodstock, and poultry-keeping:
(b) otherwise deriving income from livestock including bees, horses other than bloodstock, and poultry:
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(c) the business of growing trees or plants—
(i) for sale as growing trees or plants; or
(ii) for the production of flowers; or
(iii) for the production of fruit other than grapes, seeds, vegetables, or other crops, not including crops for which the preparation of the land, the planting and cultivation of the tree or plant, and the harvesting of the crop are accomplished within 12 months:
(d) the business of viticulture:
(e) the business of freshwater fish farming:
(f) the business of mussel farming:
(g) the business of rock oyster farming:
(h) the business of scallop farming:
(i) the business of sea-case salmon farming:
(j) acquiring or holding of land with a view to deriving, from some or all of the land, rents or other revenues from a lease, licence, or other agreement relating to the land
specified activity net income means, for a specified activity conducted by a person in a tax year, the result of subtracting from the sum of the income of the person allocated to that activity and the tax year the sum of the deductions of the person allocated to that activity and the tax year, if that result is a positive amount
specified activity net loss means, for a specified activity conducted by a person in a tax year preceding the 1986–87 tax year in the case of an activity referred to in paragraphs (a) to (i) of the definition of specified activity in section YA 1, and the 1990–91 tax year in the case of an activity referred to in paragraph (j) of that definition, a loss from that specified activity referred to in section 188A of the Income Tax Act 1976.
Defined in this Act: amount, business, Commissioner, conduct, deduction, established activity, existing farmer, income, income from personal exertion, land, net income, notice, related activity, return of income, settlement of relationship property, specified activity, specified activity net income, specified activity net loss, tax year,
Compare: 2004 No 35 ss FF 18, IE 2
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IZ 2 Petroleum mining companies: treatment of payments from shareholders
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When this section applies
(1) This section applies if—
(a) a tax loss arises from the allowance to a petroleum mining company in the 1990–91 tax year, or earlier tax year, of a deduction or further deduction under sections 214B(6), (13)(b), (14)(b), and (18)(c) of the Income Tax Act 1976 (or under section DZ 6(4) or (9)(c) of the Income Tax Act 1994); and
(b) a payment has been made by a company, which is at the time of the payment a shareholder of the petroleum mining company, to the petroleum mining company an amount that was used for the purposes of petroleum development expenditure of the kind referred to in section DZ 6(4) for which the deduction or further deduction referred to in paragraph (a) is allowed.
Shareholder companies’ tax loss components
(2) The shareholder company has a tax loss component equal to the amount that bears to the tax loss the same proportion as the payment bears to the petroleum development expenditure. However, the amount of the tax loss component must be no more than the total amount paid.
Elections by shareholder companies
(3) For the purposes of subsection (2), the shareholder company must make an election by notice under section 214B(22)(d) of the Income Tax Act 1976 or section DZ 6(12)(d) of the Income Tax Act 1994.
Treatment of tax losses
(4) The tax loss may not be carried forward and used except to the extent to which the amount of the tax loss is more than the total of all amounts deducted under subsection (2) in the tax year in which the tax loss arises.
Further deductions
(5) Despite subsection (4), if the tax loss arises from the allowance of a further deduction under the second proviso to section 214B(6) of the Income Tax Act 1976 or under section DZ 6(4) of the Income Tax Act 1994, the tax loss is treated as a tax loss arising in the tax year which in section DZ 6(4) is referred to as the year of cessation.
Relationship with section CV 1
(6) Section CV 1 (Group companies) does not apply to—
(a) a tax loss referred to in this section except to the extent to which it is more than the total of all amounts deducted under subsection (2) in the tax year in which the tax loss arises; or
(b) a tax loss for the 1978–79 or earlier tax year.
Defined in this Act: amount, company, deduction, group of companies, notice, petroleum development expenditure, petroleum mining company, shareholder, tax loss, tax year,
Compare: 2004 No 35 s IH 2
IZ 3 Petroleum mining companies: use of loss balances
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When this section applies
(1) This section applies when—
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(a) some or all of a loss balance of a petroleum mining company for the 1990–91 tax year or earlier tax year arises from the allowance of—
(i) a deduction of an amount of petroleum exploration expenditure that the company incurs on or before 30 September 1990 in exploring or searching for petroleum in an area that is or is subsequently comprised in an existing privilege that was a mining licence or in 2 or more such areas; or
(ii) a deduction of an amount for petroleum development expenditure that the company incurs before 30 September 1990; and
(b) at the start of a tax year following the tax year in which the tax loss arose, a loss balance relating to the permit area remains after taking into account any deductions that the petroleum mining company, or another company, has for the expenditure or any amounts the company has subtracted from its net income for earlier tax years; and
(c) the petroleum mining company was immediately before the commencement of section 214B of the Income Tax Act 1976 a company to which section 216 of that Act applied.
Using loss balances
(2) Despite section IA 5 (Restrictions on companies’ loss balances carried forward) or GB 3 (Arrangements for carrying forward loss balances: companies), the loss balance may be subtracted from the petroleum mining company’s net income for the tax year referred to in subsection (1)(b) to the extent to which it is no more than the net income of the company for the tax year if the company’s only source of assessable income were from the relevant permit area.
Loss balances carried forward
(3) If, after applying subsection (2), the company has a loss balance remaining, the amount is carried forward to the next tax year and subsection (2) applies in that tax year, and so on.
References in section
(4) For the purposes of this section,—
(a) a reference in this section to expenditure in exploring or searching for petroleum in an area that is or is subsequently comprised in an existing privilege that was a mining licence is taken as including a reference to expenditure in exploring or searching for petroleum in an area that is outside but continuous or geologically contiguous with the area, being exploring or searching that was included, whether originally or additionally, in the programme of exploring or searching as a consequence of which application was made for the existing privilege:
(b) permit area means an area, and may include more than 1 area, of an existing privilege referred to paragraph (d) of the definition of existing privilege in section 106 of the Crown Minerals Act 1991.
Relationship with section IZ 2
(5) Section IZ 2 overrides this section.
Defined in this Act: amount, assessable income, company, deduction, existing privilege, loss balance, net income, permit area, petroleum development expenditure, petroleum exploration expenditure, petroleum mining company, tax loss, tax year,
Compare: 2004 No 35 s IH 1(2)
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IZ 4 Tax losses for tax years before 1977–78 tax year
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A person’s loss balance for a tax year before the 1977–78 tax year is carried forward and may be used under section IA 4 (Using loss balances carried forward to tax year) if the person would have been entitled to have the tax loss carried forward for the purpose of assessing income tax under section 137 of the Land and Income Tax Act 1954 if the Income Tax Act 1976, the Income Tax Act 1994, the Income Tax Act 2004, and this Act had not been passed.
Defined in this Act: assessment, loss balance, tax loss, tax year,
Compare: 2004 No 35 s IF 1(5)
IZ 5 Companies’ tax losses for tax years before 1991–92 tax year
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Loss balances carried forward
(1) A company’s loss balance for a tax year before the 1991–92 tax year may be used under section IA 4 (Using loss balances carried forward to tax year) if—
(a) the company would have been entitled to have some or all of the tax loss under section 188 of the Income Tax Act 1976 carried forward to a later tax year, if that section had continued to apply in the later tax year, as modified by section 188AA of that Act and as if the continuity percentage referred to in section 188(7) of that Act were always 40%; and
(b) for the period starting on the first day of the 1992–93 tax year and ending on the last day of the later tax year, a group of persons holds total minimum voting interests in the company that add up to at least 49%.
Market value circumstances and minimum interests
(2) For the purposes of subsection (1)(b),—
(a) if, during the period a market value circumstance exists for the company, the group of persons must also hold for the period total minimum market value interests in the company that add up to at least 49%:
(b) a minimum interest of any person in the company in the period is equal to the lowest interest that the person has in the period.
Defined in this Act: company, group of persons, loss balance, market value circumstance, minimum market value interest, minimum voting interest, tax loss, tax year,
Compare: 2004 No 35 s IF 1(6)
IZ 6 Companies’ tax losses for 1990–91 and 1991–92 tax years
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When this section applies
(1) This section applies to a company that has a tax loss for the 1990–91 or 1991–92 tax year and section 188(7B) of the Income Tax Act 1976 would not have applied to prevent some or all of the tax loss being carried forward if regard were had to only part of the relevant tax year.
Part-year tax losses carried forward
(2) Section 188(7B) does not apply to prevent the part of the tax loss attributable to the relevant part-period being carried forward under section 188(2).
Financial statements
(3) For the purposes of subsection (2), the company must provide the Commissioner with adequate financial statements relating to the relevant part-period that disclose the amount that would be the tax loss for the relevant part of the tax year, on a fair and reasonable basis of attribution.
Application of subsection (7B)
(4) In subsection (1), the reference to subsection (7B) applies to the extent to which regard was required to be had to that part of the period starting with 8.00pm New Zealand Standard Time on 30 July 1991 which falls within the tax year in which the tax loss component arises, and without prejudice to the application of that subsection to the extent to which it required regard to be had to later periods.
Defined in this Act: amount, Commissioner, company, tax loss, tax loss component, tax year,
Compare: 2004 No 35 s IF 2
IZ 7 Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92
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Commonality period: between 1981–82 and 1991–92
(1) For the purposes of section IC 5(1)(a) (Company B using company A’s tax loss), if company A has a tax loss in a tax year between the 1981–82 and 1991–92 tax years, company A and company B may group the tax loss in a tax year that is later than the tax year in which the tax loss component arises only if company B is in the same group of companies as company A in the earlier tax year.
Commonality period: before 1981–82
(2) For the purposes of section IC 5(1)(a), if company A has a tax loss in a tax year before the 1981–82 tax year, company A and company B may group the tax loss in a tax year that is later than the tax year in which the tax loss component arises only if company B is in the same group of companies as company A in the tax year in which the tax loss is used.
When companies have different balance dates
(3) For the purposes of subsections (1) and (2), the tax year is extended under section IC 10(2)(b) (When companies have different balance dates) if company B’s balance date is later than company A’s balance date.
Residence of company A
(4) For the purposes of section IC 5(1)(b), if company A’s tax loss component arose in a tax year before the 1991–92 tax year, company A and company B may group the tax loss component in a tax year that is later than the tax year first referred to only if company A is, in both the earlier and the later tax year—
(a) incorporated in New Zealand, or carrying on a business in New Zealand through a fixed establishment in New Zealand; and
(b) resident in New Zealand, and not treated under a double tax agreement, and for the purposes of the agreement, as not resident in New Zealand, or liable by the law of another country or territory to income tax in that country or territory through domicile, residence, or place of incorporation.
Relationship with sections IC 5 and IC 6
(5) Subsections (1) and (2) override sections IC 5(1)(a) and IC 6 (which relate to grouping requirements) and subsection (4) overrides sections IC 5(1)(b) and IC 6.
Defined in this Act: balance date, business, company, double tax agreement, fixed establishment, group of companies, New Zealand, resident in New Zealand, tax loss, tax loss component, tax year,
Compare: 2004 No 35 s IG 2(2)(c), (d)(ii)(B)
Legislative history | |
|---|---|
| 15 November 2006 | Introduction (Bill 92-1) |
| 23 November 2006 | First reading and referral to Finance and Expenditure Committee |
| 16 July 2007 | Reported from Finance and Expenditure Committee (Bill 91-2) |
| 16 August 2007 | Second reading |
| 21 August 2007 | Committee of the whole House |
| 25 October 2007 | Third reading |
| 1 November 2007 | Royal assent |
This Act is administered by the Inland Revenue Department.
Versions
Income Tax Act 2007
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