The rules on the carry-forward of tax losses have been eased to the delight of growing start-up companies and their investors.

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The previous tax law, which was said to be among the most restrictive in the OECD, was changed last month to make it easier for start-up companies to make use of business losses in their early years, when investment could result in big changes to their shareholder register.

The original rule had a business continuity test, which included a requirement that tax losses in past years could only be used if 49 percent of the shareholders then were still on the register.

Simpson Grierson tax partner Barney Cumberland said the restrictive approach had acted as an impediment to capital raising for early and growth stages when businesses typically made losses.

“It’s something that sort of has been on the agenda for a while and various lobby groups like the Angel Association and New Zealand Venture Capital Association have sort of been pushing for the change for some time,” Cumberland said.

He said the Covid-19 pandemic had been a catalyst for changes to that law, which was developed under urgency and came into effect in late March.

The changes allow businesses to carry forward losses, even if there is less than 49 percent shareholder continuity, unless there is a “major change” in the nature of the company’s business activities.

It applies retrospectively from the beginning of the 2020-21 tax year and covers losses incurred from as early as the 2013-14 tax year.