Income Tax Act 2007

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

HG 5: Disposal of partner’s interests

You could also call this:

"Selling your part of a business: what happens with tax"

When you leave a partnership, you might sell your share to someone else. This section of the law applies if you sell your share and a certain calculation is less than zero. The calculation is based on what you get paid for your share, what you got paid before, and the value of the partnership.

If you sell your share, the money you get is not considered income that you have to pay tax on. However, you cannot claim any losses related to the share you sold. The person who buys your share cannot claim the cost of buying it as a loss either. For tax purposes, the buyer is treated as if they owned the share from the beginning, but this does not apply to some specific tax losses, like those carried forward under section HG 12.

This section does not apply to small partnerships if section HG 3(2) applies, or to any partnership if section HG 3(1) applies.

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This page was last updated on 20 May 2025

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1185064.

HG 4: Disposal upon final dissolution, or

"Selling your share of a partnership when it ends"

HG 6: Disposal of trading stock, or

"Selling your part of a business: what happens to the tax on your trading stock"

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

HG 5Disposal of partner’s interests

This section applies when an exiting partner disposes of some or all of their partner’s interests (the current interests) in a partnership to an entering partner, if the amount calculated using the following formula is less than zero:
$disposal payment + previous payments− (gross tax value − liabilities) − $50,000.$

Where:
In the formula,—
disposal payment is the total amount of consideration paid or payable to the exiting partner for the current interests:
previous payments is the total amount of consideration paid or payable to the exiting partner for other disposals of some or all of their partner’s interests (the other interests) that have occurred in the year before the disposal of the current interests:
gross tax value is the total of—
1. the value under this Act of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are revenue account property or depreciable property:
2. the market value of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are not revenue account property or depreciable property:
liabilities is the amount of liabilities under generally accepted accounting practice at the time the relevant interest is disposed of, calculated by reference to the exiting partner’s partnership share for the relevant interest.

The disposal payment described in subsection (2)(a) is excluded income of the exiting partner.
The exiting partner is denied any deduction in relation to the current interests for the income year in which the disposal of the interests occurs and later income years to the extent to which the entering partner is allowed a deduction because of subsection (6).
An entering partner is denied any deduction for the disposal payment described in subsection (2)(a).
For the purposes of calculating the income and deductions of an entering partner for the part of the income year after the disposal of the interests occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had originally acquired and held the current interests, not the exiting partner. However, this subsection does not apply to a deduction carried forward under section HG 12.
This section does not apply for the partners of a small partnership if section HG 3(2) applies.
This section does not apply for the partners of a partnership if section HG 3(1) applies.

Notes

Section HG 5: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 5(1): amended, on 30 March 2025, by section 78(1)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5(1): amended, on 30 March 2025, by section 78(1)(b) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5(1): amended, on 30 March 2017, by section 134(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 5(2)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 271(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5(2)(c)(i): amended, on 30 March 2025, by section 78(2)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5(2)(c)(ii): amended, on 30 March 2025, by section 78(2)(b) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 271(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5(8) heading: replaced (with effect on 1 April 2008), on 29 March 2025, by section 78(3) (and see section 78(5) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5(8): replaced (with effect on 1 April 2008), on 29 March 2025, by section 78(3) (and see section 78(5) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5 list of defined terms amount: inserted, on 30 March 2025, by section 78(4) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5 list of defined terms depreciable property: inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5 list of defined terms exiting partner: inserted, on 30 March 2017, by section 134(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 5 list of defined terms financial arrangement: inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5 list of defined terms income: inserted, on 30 March 2025, by section 78(4) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5 list of defined terms income year: inserted, on 30 March 2025, by section 78(4) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5 list of defined terms pay: inserted, on 30 March 2025, by section 78(4) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 5 list of defined terms revenue account property: inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5 list of defined terms small partnership: inserted, on 30 March 2025, by section 78(4) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).