Write-off -date of measurement of net loss

Section 177C(6) of the Tax Administration Act 1994

Introduction

Net losses will be allowed to be measured on the basis of the last return filed by a taxpayer rather than according to the taxpayer's return of income for the income year immediately before the income year in which the outstanding tax is written off.

Background

The Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002 introduced the new taxpayer financial relief rules. Under section 177C(5), if the Commissioner writes off outstanding tax for a taxpayer who has net losses, any net losses of the taxpayer are reduced, in whole or in part, in proportion to the amount written off. Section 177C(6) provided that the net losses were measured "according to the taxpayer's return of income for the income year immediately before the income year in which the outstanding tax is written off".

In applying the legislation, Inland Revenue encountered two practical problems. First, where there were returns outstanding these returns were then requested, which lead to delays in finalising cases. Second, where a case was being considered just after a balance date but before the due date for the return, any decision made in relation to write-off had to be followed up after the return had been filed, to ensure that any losses had been properly extinguished.

Key features

An amendment has been made to section 177C(6) to allow net losses to be measured based on the last return filed by the taxpayer.

Application date

The amendment applies to tax that is written off from the date of enactment.