You can transfer losses from one company to another if:
- at least 66% of the voting shares in both companies are held by one group of people, and these have not changed hands during the continuity period
- at least 49% of the loss company’s voting shares did not change hands during the continuity period for the loss that is being transferred
- the loss company is either incorporated in New Zealand or is carrying on business in New Zealand through a fixed establishment, and is not treated as non-resident by reason of a double tax agreement
- the loss transferred to the profit company is no greater than the profit company’s net income
- the payment and notification requirements are met.
If one of the shareholders of the loss company or profit company is another company you may have to work out the voting interests of the people who own the shareholding company.You will not have to do this if the loss or profit company has more than 25 non-associated shareholders or if the shareholding company holds less than 10% of the loss or profit company.
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 66% don’t change hands during the continuity period.
Loss offset elections and subvention payments
Losses can be transferred by either loss offset election or subvention payment.
To make a loss offset election the loss company can complete the appropriate boxes in its IR4 return or send the Commissioner a notice of election. Loss offset elections need to be filed by the due date for the IR4 that applies to the income year the loss offset election is for. You cannot reverse a loss offset once it has been made.
Subvention payments are payments by a profit company to a loss company. If the loss company agrees to receive a subvention payment, the profit company’s net income and the loss company’s net loss are reduced by the same amount. The subvention payment cannot exceed the loss company's loss. The payment must be made before the due date of the IR4 for the income year the subvention payment relates to.
If your company doesn’t meet the shareholder continuity test it generally will not be able to offset a loss to another company. However, if the shareholding change occurs part-way through a year you may be able to claim the loss. To do this you need to make a part-year offset by filing an IR4 for the period up to the shareholding change and providing adequate accounts for the part-year.
A company can transfer imputation credits to the company receiving the benefit of the loss grouping. These can be worth up to 28% of the loss offset and/or subvention payment. Imputation credits can be transferred from the company that provides the benefit of the loss grouping. Alternatively, they can be transferred from a company in a commonly owned group that has at least a 66% ownership interest in the company receiving the benefit of the loss grouping.
An election to transfer imputation credits must be sent to us electronically. We need to receive it within the timeframe for electing to enter into a loss grouping transaction.