The consultation is set to conclude on 19 September 2025.

New Zealand’s Inland Revenue (IR) has initiated a public consultation on the draft Income tax – Public private partnership projects and business continuity test for losses PUB00521 on 11 August 2025, to clarify how the business continuity test (BCT) applies when public private partnership (PPP) projects move from the design and construction (D&C) phase to the operation and maintenance (O&M) phase.

The draft explains how corporate contractors or corporate limited partners can carry forward tax losses incurred during the D&C phase, even if there is a change in shareholding.

The general rule is that a company must satisfy the 49% ownership continuity test to carry forward its tax losses. The BCT acts as a secondary test, permitting a company to carry a loss forward if it has a breach in ownership continuity.

One of the requirements to satisfy this test is that there is no major change (other than a permitted major change) in the nature of the business activities of the company under s IB 3(2)(c). If a breach occurs in the ownership continuity of a corporate Contractor or a corporate limited partner of an LP Contractor during the D&C Phase of a PPP project, to rely on the BCT to carry forward the relevant corporate entity’s losses, the transition from the D&C Phase to the O&M Phase must either: not be a major change in the nature of the Contractor’s business activities; or  if it is a major change, be a permitted major change under s IB 3(5)(d).

The draft notes that the transition from D&C to O&M could be considered a “major change” in the nature of the contractor’s business activities. However, because the two phases are closely linked economically, legally, and financially, this change is treated as a “permitted major change.” This means that tax losses can still be carried forward, provided all other BCT requirements are met and the Income Tax Act 2007’s anti-avoidance rules do not apply.

IR also clarifies that the same rules apply if the contractor subcontracts the physical work to another party. The guidance is seen as important for supporting the government’s push for PPPs to deliver infrastructure projects.

The consultation is set to conclude on 19 September 2025.