2011 amendment to the loss grouping tax rules restricting a listed portfolio investment entity to grouping only with its own wholly-owned subsidiaries.

Section IC 3 of the Income Tax Act 2007; and section 55(1)(a) of the Goods and Services Act 1985

The Act has amended the loss grouping tax rules in order to restrict a listed PIE (a type of portfolio investment entity that is a listed company) to grouping only with its own wholly-owned subsidiaries.


Under the tax rules for grouping tax losses and credits, a listed PIE was previously allowed to use its parent company's tax losses to offset its taxable income.

We were concerned about the potential for New Zealand companies with tax losses that would otherwise be difficult to use, to establish structures involving listed PIEs that could utilise these losses. This could be achieved by a loss-making New Zealand company that wanted to raise capital from the retail sector establishing a listed PIE. The listed PIE would raise funds, in the form of preference shares, from retail investors. It would then lend these funds to its loss-making parent - with the parent paying interest to the listed PIE.

This structure raises policy concerns as it undermines the company tax and imputation system. Under the previous tax grouping rules, the listed PIE would be able to offset the interest income it received against its parent's losses and thereby reduce or eliminate its tax liability. Under the PIE rules, this could provide the PIE investors with a tax-free return and would provide the parent with a mechanism to utilise its tax losses.

The amendment ensures that listed PIEs are treated in a similar manner to multi-rate PIEs under the loss grouping rules (the latter are confined to grouping tax losses with land-owning subsidiaries or other multi-rate PIEs).

Key features

Section IC 3(1) has been amended to exclude a listed PIE from the phrase "a group of companies". New section IC 3(2C) provides that a listed PIE can only group with its own wholly-owned subsidiaries.

A consequential change has been made to section 55(1)(a) of the Goods and Services Act 1985 to ensure this limitation does not prevent a group of companies that includes a listed PIE from grouping for GST purposes provided the companies meet the other relevant criteria.

Application date

The amendment applies from 29 August 2011.