HG 5Disposal of partner’s interests

1. 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:

2. In the formula,—

3. disposal payment is the total amount of consideration paid or payable to the exiting partner for the current interests:
4. 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:
5. 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:
6. 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.

7. The disposal payment described in subsection (2)(a) is excluded income of the exiting partner.

8. 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).

9. An entering partner is denied any deduction for the disposal payment described in subsection (2)(a).

10. 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.

11. This section does not apply for the partners of a small partnership if section HG 3(2) applies.

12. This section does not apply for the partners of a partnership if section HG 3(1) applies.