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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.
Under consolidation, wholly owned (that is, 100% commonly owned) groups of companies can:
A company is eligible to be part of a consolidated group if it is:
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.
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.
Complete an Election to form a consolidated group (IR494) form.
This form has:
You must complete a Consolidated groups general election (IR495) to:
You will find these forms under "Forms and guides"
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
The group assessable income is the sum of the member companies' assessable incomes, with some special rules for:
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:
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.
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.
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.
The Taxation (Tax Administration and Remedial Matters) Act 2011 abolished gift duty from 1 October 2011.
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:
There are other provisions that, in certain circumstances, a company ceases to be a member. These circumstances are when the company:
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: