Utilising Company Tax Losses
Grange Associates Ltd - 5 September 2012
Company tax losses can be utilised in one of two ways. Losses
may either be carried forward indefinitely to be utilised in future tax years or made available to another
company by way of grouping losses.
For a company to carry its losses forward, there is a shareholder
continuity requirement of 49%. The losses may only be carried forward if there is a group of
shareholders who collectively hold minimum interests in the company of at least
Where a group of companies meet the following requirements, they are
able to utilise losses between the companies within the group.
To qualify as a “group”, there must be shareholders holding common
interests of 66% in the companies.
Grouped companies must continually be members of the same group from
the start of the period the tax losses were generated until the end of the period in which the tax
losses are utilised in the group.
The loss company must satisfy the 49% continuity rules for the carry
forward of the tax loss from the time it was generated until it is
Once the above requirements have been met, the losses can then be
utilised either by a loss offset or a subvention payment within the group.
A loss offset is limited to the recipient company’s profit and is
recorded in both companies’ tax returns. The profit company deducts the loss in its tax return and the
loss company indicates in its tax return the amount of the loss it has made available to the profit
Instead of a loss offset, a subvention payment can be made. This
requires the profit company to make a payment to the loss company as a form of compensation for the tax
losses it is able to utilise. The subvention payment cannot exceed the cumulative tax loss of the loss
company. Recently it has been clarified that any subvention payments do not have to be physically paid,
rather that the ordinary definition of payment would apply, which only requires a discharge of obligation
Any grouping of losses, either by loss offset or subvention must be
notified to the IRD by the loss company in their tax return no later than 31 March after the tax year of the
grouping. The IRD however, does have discretion to grant an extension of
Part Year Losses
If there has been a breach of the continuity or commonality rules
discussed above, part year accounts can be prepared to establish the losses available up until the date of
the breach, which can then be utilised by the group for that part year. However, any losses in excess
of the part year’s net income will be forfeited.
All information is correct at the date of article
publication. Please note we provide the information as a service only. Accordingly, the contents are
not intended as a substitute for specific professional advice and should not be relied upon for that
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