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%
Part year loss offsets
If a shareholding change occurs partway through a year, you may be able to claim the loss even if you don't meet the requirements of the shareholder continuity test. To do this, you need to make a part year offset by filing a Companies income tax return - IR4 for the period up to the shareholding change. You'll need to provide adequate accounts for the part year.
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.
Claiming the loss
To claim the loss from a tax year, you'll need to file a Companies income tax return - IR4 that lists your loss under "Net loss to carry forward". In the following year's IR4 this will be the loss brought forward, which reduces the company's income and the amount of tax it needs to pay.