Losses may be carried forward indefinitely provided that the company maintains 49% continuity of ownership. Losses of a subsidiary, however, are preserved in the case of a spin-off (i.e., the shares are transferred to shareholders of its parent company). No loss carrybacks are allowed.

In May 2021, New Zealand introduced the business continuity test for the carrying forward of losses in case of capital restructuring. If the business continuity test is met in the capital restructuring, then the carry forward of losses is allowed except in cases involving a ‘major change'. A ‘major change’ in the nature of the company's business activities is determined having regard to the assets used and other relevant factors such as business processes, use of suppliers, markets supplied to, and type of product or service supplied.

However, the following changes are not considered to be part of a ‘major change’:

Increase in efficiency;
Increase in the scale of the business;
Keeping pace with developing technology; and
Rationalizing the company's product or service range by introducing new items produced using the same or largely the same assets of the company (excluding land but including fixtures to land) or of a kind relating to those already being produced or previously produced.

Hence, in a capital restructuring involving the above changes, the business continuity test is considered to be met and losses can be carried forward.

The business continuity test applies from the income year 2020-21 and will apply to losses incurred from the income year 2014 onwards. Previously, companies had to maintain 49% shareholder continuity in order to avail carry forward of losses.

COVID-19 Emergency Measures

Carry-back of Losses

In response to the COVID -19 pandemic, effective 15 April 2020, losses incurred in the income years 2019-20 or 2020-21 can be carried back for one year to provide cash flow for businesses. Companies with losses are entitled to a refund of tax paid in the previous year.

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