If your business is operating at a loss Mēnā he moningaro te mahi a tō pakihi

Your business is operating at a loss if you’re spending more money than you’re making.

Businesses often operate at a loss temporarily when starting out or in periods of growth. This is okay if you’ve got enough in the bank to cover the costs of running your business until your income picks up.

But if your business is frequently operating at a loss because of slow sales, you’ll need to make some changes to how your business is running. Consider talking to an advisor for help.

You’re operating at a loss if:

• you don’t have enough money to pay your bills
• your bank balance is negative, and you don’t know how to get it positive again
• you’re not selling as much as you had planned.

If you claim a loss in your tax return, you can carry it forward to lower your income in the next tax year, reducing your tax bill.

Sole traders and partnerships

Report the loss in your individual income tax return (IR3). Inland Revenue will then let you know the amount that can be carried forward to the next tax year. If the loss is bigger than your income, you can use the difference to lower your taxable income in following years.

Companies

In most cases, companies operating at a loss don’t have to pay income tax.

A company may be able to transfer its loss to another company or carry the loss forward to future years. To carry the tax loss forward:

• report it in your company’s income tax return (IR4)
• meet the shareholder continuity test.

If you’re considering bringing losses forward for tax purposes, talk to a tax adviser.