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Consolidating your company

Consolidation is where two or more companies owned by the same shareholders can be treated as a single economic entity. Companies that are a wholly owned group of companies may elect to be treated as a consolidated group of companies.

 Benefits of consolidating your company

Under consolidation, wholly owned (that is, 100% commonly owned) groups of companies can:

  • transfer assets within the consolidation group, with deferred income tax liabilities
  • pay exempt dividends between companies
  • claim deductions for administration and other costs of holding companies that may not be deductible to the holding company that incurred the expenditure
  • use losses incurred by group members by referring to shareholder continuity of the group, not of the individual member
  • offset imputation credits within the group, even though ordinary imputation credit rules don't permit the grouping of imputation credits.

 Companies that are eligible to consolidate

A company is eligible to be part of a consolidated group if it is:

  • a New Zealand resident company and not treated as non-resident for double tax agreement purposes
  • incorporated in New Zealand or carrying on a business in New Zealand through a fixed establishment
  • not exempt from income tax
  • not a foreign, LTC or LAQC company
  • not treated as a non-resident under a double tax agreement
  • not liable to pay income tax in any other tax jurisdiction.
Note  

All companies in a consolidated group must have the same tax balance date.

No company can be a member of more than one consolidated group at the same time.

 Applying to become consolidated

In most cases a company will be treated as a member of a consolidated group from the start of the income year that we receive the election to consolidate.

There are special rules for newly incorporated or newly acquired companies.

The election to be treated as a consolidated group member must be made in writing within 63 days of the start of that income year. In any other case, the company will be treated as a consolidated group member from the start of the following income year.

How to apply

Complete an Election to form a consolidated group (IR494) form.

This form has:

  • a declaration that each company be jointly and severally liable for the group's tax, including provisional tax, PAYE, RWT, ESCT and FBT
  • an election of an agent or nominated company of the group.

You must complete a Consolidated groups general election (IR495) to:

  • change the nominated company, or
  • join an existing consolidated group, or
  • limit joint and several liability to one or more of the group's companies. However, the company (or companies) liable for the group's tax, must show us that they have sufficient assets to meet the group's tax liability.

You will find these forms under "Forms and guides"

 Tax issues for consolidated groups

A consolidated group files only one tax return, which includes the income of all the companies in the group. The group will file that tax return under an IRD number that is separate from the individual companies' numbers. The member companies won't have to file separate returns except in the cases of part-year consolidation, where a company enters or leaves an existing consolidated group part-way through an income year.

The group will usually receive only one income tax assessment, but there will be separate assessments for a part-year consolidation. Each company in the consolidated group will be liable for its share of any tax liability that is calculated in a period it was a member of the group

Calculating group assessable income

The group assessable income is the sum of the member companies' assessable incomes, with some special rules for:

  • the treatment of the consolidated group as a single company
  • intra-group transactions, eg transfers of trading stock and items of income or expenditure
  • determining thresholds on a group level.

Loss carry-forward and grouping

The loss carry-forward and grouping provisions apply (with modifications) to a consolidated group as if it were one company. The loss brought forward balance in the group's first return is nil. Any pre-consolidation losses remain with the individual member however. Subject to certain rules, the member's pre-consolidation losses may be offset against group assessable income. Any loss the consolidated group incurs is treated as a group loss.

Any member's pre-consolidation losses not offset against group assessable income may be either:

  • carried forward for offset against further income when the member leaves the group, or
  • offset to a company 66% commonly owned with it, including another consolidated group.

The consolidated group losses and pre-consolidated group losses carried forward are offset on a "first in, first out" basis. Where these losses are incurred in the same income year, the losses are distributed on a pro rata basis.

Imputation credits

The consolidated group must maintain its own separate imputation credit account (ICA) covering the group's activities. The opening balance of a newly formed group ICA is nil. An existing consolidated group's balance is the closing balance of the preceding imputation year.

The ICA of each member of the group is maintained separately from the group ICA. The individual ICAs will generally record the balance to the date of consolidation.

Gift duty

Asset transfers within a consolidated group aren't subject to gift duty and they don't become liable to gift duty later when the asset is transferred out of the group.

Note  

The Taxation (Tax Administration and Remedial Matters) Act 2011 abolished gift duty from 1 October 2011.

 Leaving the consolidated group

A company can leave a consolidated group voluntarily by sending us an election, on an IR495 form - go to "Forms and guides".

They will cease to be treated as a member from either the beginning of:

  • the income year after the year we receive the notice (if requested), or
  • the income year in which we receive the notice (in all other cases).

There are other provisions that, in certain circumstances, a company ceases to be a member. These circumstances are when the company:

  • loses its eligible company status, or
  • is no longer entitled to be a member of the same consolidated group as the nominated company, or
  • belongs to a consolidated group that ceases to have a nominated company.

Find out more

Find out more about consolidated groups and foreign losses

Read about the consolidation rules in our Tax Information Bulletin, Vol 4, No 5, (December 1992) p3

You can also ask your tax advisor or call us on:

  • 0800 457 773 if you're a corporate customer
  • 0800 377 774 if you're a  business customer.