Income Tax Act 2007

Taxation of certain entities - Joint venturers, partners, and partnerships

HG 4: Disposal upon final dissolution

You could also call this:

"What happens to your partnership shares when it ends for good"

When a partnership is finally dissolved, you are treated as selling all your interests in the partnership to someone else. You are then treated as buying them back for the same price. Anything you receive when the partnership is dissolved is ignored. If you sell your interests to someone you are not associated with, this rule does not apply to that sale. The rule also does not apply if you are in a relationship with the other partner and the partnership is dissolved because one of you dies. In that case, if all your interests are transferred to the other partner, and the transfer is subject to rules about relationship property, this rule does not apply. This rule overrides other rules in the Income Tax Act 2007, such as sections HG 5 to HG 10. If you are in a limited partnership, the price of your interests must take into account any adjustments for credit impairment. You can find more information about transfers of relationship property in subpart FB or FC.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1185062.

This page was last updated on 29 January 2026 — View changes

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HG 3: General provisions relating to disposals, or

"General rules for selling things and how they affect your taxes"

HG 5: Disposal of partner’s interests, or

"Selling your partner's share of a business: what you need to know about tax"

Part HTaxation of certain entities
Joint venturers, partners, and partnerships

HG 4Disposal upon final dissolution

This section applies when a partnership is finally dissolved by agreement of the partners, court order, or otherwise, and the partnership's business ignoring section HG 2 will not continue to be carried on in partnership.
A partner of the partnership is treated as disposing of all of their partner's interests in the partnership, immediately before the dissolution, to a single third party for a payment equal to the interests' market value. The partner is treated as re-acquiring all of their partner's interests immediately after the dissolution, from the third party for a payment equal to the interests' market value.
Anything received by a partner in relation to the final dissolution of the partnership is ignored.
This section does not apply to the extent to which a partner of the partnership disposes of their partner's interests in the partnership to persons who are not associated with them. For the purposes of testing association, the partner's partnership capacity is ignored.
This section does not apply if—
immediately before the dissolution, there are only 2 partners of the partnership and they are married to each other, in a civil union together, or in a de facto relationship together; and
the dissolution is caused by death of a partner, or the dissolution relates to the settlement of relationship property; and
on dissolution, all partner's interests of 1 person are transferred, ignoring any intervening transfer to an executor or administrator, to the other person; and
the transfers of those partner's interests are subject to provisions in subpart FB or FC (which relate to transfers of relationship property and gifts), and those provisions treat the transfers as disposals for amounts that are not the interests' market values.

This section overrides sections HG 5 to HG 10.
In this section, in relation to a limited partnership, the market value of a partner’s interest in a financial arrangement as debtor must take into account the amount of any adjustment for credit impairment.

Notes

Section HG 4: substituted (with effect on 1 April 2008), on 6 October 2009, by section 270(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 4(4): amended (with effect on 1 April 2008), on 28 March 2024, by section 100(1) (and see section 100(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section HG 4(7) heading: inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 122(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HG 4(7): inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 122(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HG 4 list of defined terms financial arrangement: inserted, on 29 March 2018 (with effect on 1 April 2011), by section 122(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).