When a business in New Zealand changes ownership, it risks losing its ability to carry forward accumulated tax losses — unless it qualifies under the business continuity rules. These rules were designed to encourage growth and innovation by allowing companies to retain valuable tax losses, even when ownership changes, provided the business itself continues in a similar form.
For Australian businesses with New Zealand operations, understanding how these rules apply is critical. Missteps could mean the loss of valuable deductions, or worse — breaching NZ tax law.
What Are the Business Continuity Rules?
Introduced in 2020, the business continuity rules allow a company to carry forward prior-year tax losses despite a breach in shareholder continuity, as long as there has been no major change in the nature of the company’s business activities during the “continuity period.”
A “major change” generally means a substantial shift in what the business actually does — for example, moving from manufacturing to software development. Minor operational adjustments or diversification, however, are usually acceptable.
These rules are contained in sections IB 1–IB 5 of the Income Tax Act 2007, and they replaced the more rigid ownership continuity test that previously restricted loss carry-forwards after a change of control.
Anti-Avoidance Safeguards
Inland Revenue’s recent Interpretation Statement IS 25/14 (May 2025) highlights how the Commissioner will apply specific anti-avoidance provisions (ss GB 3BA, GB 3BAB, and GB 3BAC) to prevent the misuse of loss carry-forwards.
These provisions are designed to:
- Stop pre-emptive activity changes aimed at artificially qualifying for the business continuity rules (s GB 3BA);
- Prevent trading or transferring of tax losses between unrelated companies (ss GB 3BAB and GB 3BAC); and
- Support the loss grouping provisions that define when one company may make losses available to another.
In short, Inland Revenue is ensuring that only genuine business continuity qualifies for loss carry-forwards — not strategic restructures designed purely to access tax benefits.
What This Means for Australian Businesses in NZ
For Australian-owned companies operating subsidiaries or branches in New Zealand, these rules can provide flexibility when restructuring or taking on new investors. However, any transaction that affects ownership or business activity must be carefully reviewed.
If the New Zealand entity continues to operate in substantially the same way, tax losses can generally be preserved. But if there’s a significant change in the nature of operations — or if Inland Revenue views an arrangement as tax-driven — losses may be denied under the anti-avoidance rules.
Our Insight
We often see Australian clients inadvertently risk losing NZ tax losses during restructures or expansions. Before making ownership or operational changes, it’s crucial to confirm whether your business activities will still satisfy the continuity test — and whether any anti-avoidance provisions might apply.
At NZ Tax Accountants, our Australian-based team of New Zealand tax specialists helps small and family-owned businesses navigate cross-border obligations confidently. If your business operates in New Zealand or plans to restructure, contact us today to ensure your tax losses remain protected — and compliant.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.