Tax Loss Carry-Forward Rules in New Zealand

If your business or investments make a loss in one year, New Zealand tax law allows you to carry that loss forward to offset income in future years. This can significantly reduce your future tax bills — but there are rules about how and when you can use those losses.

How Loss Carry-Forward Works

When your allowable deductions exceed your income in a tax year, you have a net tax loss. Rather than wasting this loss, you can carry it forward to reduce taxable income in subsequent years.

Example: Your rental property makes a $10,000 loss in 2025-26. In 2026-27, your rental earns $15,000 profit. You can offset the carried-forward loss against this income, paying tax on only $5,000.

Estimate tax after losses Income Tax Calculator PAYE tax by bracket for annual income, IRD 2025-26 & 2026-27 Open →

Key Principles

No Carry-Back

New Zealand does not allow losses to be carried back to previous years. Losses can only be carried forward to future years. This differs from some other countries.

No Time Limit

For most taxpayers, losses can be carried forward indefinitely. There’s no expiry date — you can use losses accumulated years ago against current income.

Offset Against Any Income

For individuals, carried-forward losses from one source can generally be offset against any taxable income in future years — not just income from the same source.

Rules for Companies

Companies face additional rules around loss carry-forward, primarily the ownership continuity requirement:

Ownership Continuity

A company can only carry forward losses if there has been no change in ownership of more than 49% since the loss was incurred. This prevents companies from being sold primarily for their tax losses.

Example: Company A has $200,000 of accumulated losses. If 60% of the shares change hands, the losses are forfeited because the ownership continuity threshold has been breached.

Business Continuity Test

A business continuity test (BCT), available from the 2020-21 income year, may allow losses to be carried forward even if ownership continuity is broken, provided the company continues to carry on the same or a similar business — no major change to core business activities, products/services, assets used, or key suppliers/staff — for a defined window: broadly, from just before the ownership change through to the earlier of the losses being fully used or the fifth anniversary of the ownership breach. This test was introduced to provide more flexibility for genuine business restructures rather than blocking loss carry-forward outright on any ownership change.

Rules for Individuals

Individual loss carry-forward is more straightforward — there’s no shareholder-style continuity test for individuals or sole traders:

• A business or investment loss first nets against your other income in the same year (salary, other business income, etc.) when you file your return — it isn’t automatically pushed to next year
• Only the unused balance after that same-year netting carries forward, and it can then be offset against your total income (not just income from the same source) in future years, indefinitely
• Losses from self-employment, rental properties, or investments can be carried forward
• You must file an IR3 tax return to claim and carry forward losses

Partnerships and Look-Through Companies

In partnerships and look-through companies (LTCs), losses flow through to the individual partners or shareholders. Each partner carries forward their share of the loss individually.

For LTC owners, there are loss limitation rules that restrict the amount of loss you can claim to the economic basis of your investment in the LTC.

Ring-Fencing of Rental Losses

Since the 2019-20 income year (1 April 2019 for most taxpayers with a standard 31 March balance date), residential rental property losses are ring-fenced under subpart EL of the Income Tax Act 2007. This means rental losses can only be offset against:

• Rental income from other residential properties
• Future residential rental income

They cannot be used to offset salary, business income, or other non-rental income. This rule was introduced to reduce the tax incentive for property speculation.

Recording and Claiming Losses

• Report losses in your IR3 tax return each year
• Maintain records of accumulated losses and how they’re applied
• IRD tracks your loss balances, but keeping your own records ensures accuracy

Sources

• Tax losses — IRD
• Rental income and losses — IRD
• Shareholder continuity test — IRD
• Business continuity test — IRD