You may be able to carry a loss forward if at least 49% of your company's voting shares do not change hands during the year the loss was made, as well as the year it'll offset income. This is the shareholder continuity test.
If you want to carry losses forward for several years in a row, you'll have to check shareholder continuity for each year.
If one of the shareholders of your company is another company, you may need to work out the voting interests of the people who own the shareholding company. You will not need to do this if your company has more than 24 non-associated shareholder or if the shareholding company holds less than 10% of your company.
Calculating voting interests
If your company has shares with different voting rights, you'll need to calculate each shareholders voting interests based on their shareholder decision making rights and the number of shares they have. There are 4 issues in which a shareholder may have decision making rights.
- The constitution of the company.
- A variation in the capital of the company.
- The appointment of a director.
To work out the voting interests of each shareholder, you need to work out the percentage of the company's shares they hold which give them the right to vote on each of these four issues. Add these 4 values together and divide them by 4 to work out their total voting rights.
Example - Bike City Ltd
Bike City Ltd has 200 shares on issue. Tane holds 100 of shares that give him the right to vote in all decisions the company makes. Tane's mother, Aroha, holds 100 shares that only give her the right to vote on company decisions related to dividends.
Tane holds 50% of the shares which give a shareholder the right to vote on decisions related to dividends and 100% of the shares that allow them to vote on decisions related to the other three issues. Their voting interest is:
(50 + 100 + 100 + 100) ÷ 4 = 87.5%
Aroha holds 50% of the shares which give a shareholder the right to vote on decisions related to dividends and 0% of the shares for each other issue. Her voting interest is:
(50 + 0 + 0 + 0) ÷ 4 = 12.5%
Market value circumstances
The voting interest requirement of the shareholder continuity test does not apply if your company has a market value circumstance, such as:
- the company having on issue a profit related or substituting debenture to which section FA 2 or FA 2B of the Income Tax Act 2007 applies
- the company having on issue a share on which the payment of a dividend is guaranteed by another person
- certain options over the company’s shares being on issue.
Instead, the company can only carry a loss forward if shares with a market value of at least 49% do not change hands during the continuity period.
Part-year loss offsets
If a shareholding change occurs partway through a tax year, you may want to carry forward a loss in either, or both, of the following ways.
- You might choose to claim the loss from a previous year against the company income for the part of the tax year before the change.
- You may also want to carry forward a loss from after the change to a future tax year.
However, you cannot claim a loss from before the shareholding change against income earned after the change.
|The loss you're claiming||How to claim the loss in your Companies income tax return - IR4|
A loss carried forward from a previous year.
You can claim this loss against company income earned for the part of the year before the change in shareholding.
A loss from after the change in shareholding.
You can carry this loss forward to a future tax year.
Providing adequate accounts for part-year loss offsets
For either or both these ways, you'll need to send us adequate accounts by uploading them as attachments with your Companies income tax return – IR4. They must show that a loss:
- carried forward from a previous year is only being offset against income earned before the change in shareholding
- to be carried forward to a future year only occurred after the change in shareholding.
As part of your attachments, you'll need to show us:
- when the shareholding change occurred
- the income and expenses that relate to the periods before and after the change.
File a Companies income tax return – IR4 to either claim or carry forward losses or do both. These reduce a company’s income and the amount of tax it needs to pay.
To claim a loss for the tax year it happened in, make sure you write the correct amount under ‘Amount claimed this year’.
To carry forward a loss, you'll need to list the correct amount under 'Net loss to carry forward'. In the following year's IR4 tax return, this will be the loss brought forward.