Niue development

2009 legislation allows the threshold for loss grouping to be varied in relation to Niue development projects, to assist in the development of the Niuean economy.

Section IC 13 of the Income Tax Act 2007

New section IC 13 allows the 66% common ownership threshold for loss grouping to be varied by Order in Council in relation to Niue development projects. This power has been introduced with a view to assisting in the development of the Niuean economy.

Background

Under section IC 3, losses incurred by one company can be offset against the profits of another company only if there is at least 66% common ownership of the two companies. This is intended to allow the ultimate shareholders of a group of companies to obtain immediate relief for a loss, while ensuring, as far as practicable, that the people who enjoy the relief are those who actually bore the economic loss in the first place.

Key features

New section IC 13 allows the percentage thresholds in sections IC 2(2), IC 3 and IC 5(1)(a) to be varied by Order in Council in relation to Niue development companies.

An order may be made if the Governor General is satisfied that a company:

  • is carrying on a business that has been or is carried on wholly or mainly for the development of Niue and/or has been or is important to the development of Niue; and
  • has incurred expenditure wholly or mainly in deriving income from Niue or in the course of carrying on a business or enterprise in Niue for the purpose of deriving income.

The order must name the company or companies with a tax loss to which the varied threshold should apply (referred to as company A in subpart IC). The relaxation of the common ownership threshold would be effected by substituting a lower figure for the percentage figure specified in paragraphs (a) and (b) of section IC 3(1).

Section IC 6(1) provides that the common ownership requirement applies for the commonality period. This is the period beginning from the start of the income year in which company A incurs the loss and ending at the end of the income year in which company B (the company to which the loss is made available) uses that loss. An order under section IC 13 may specify a period or periods for which it applies. If no period is specified, the order applies for the whole commonality period.

Application date

The amendment comes into force on 1 April 2008.