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Income Tax Act 2007

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

HG 6: Disposal of trading stock

You could also call this:

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

When you leave a partnership and sell your part of the business to someone else, this law applies if the partnership's turnover is $3,000,000 or less, ignoring what section HG 2 says. You do not have to pay tax on the money you get from selling your trading stock. The amount you get for your trading stock is not considered income for you.

If you are the person buying into the partnership, you cannot claim a deduction for the money you pay for the trading stock. For tax purposes, you are treated as if you had the trading stock all along, not the person who sold it to you. This law does not apply to small partnerships if section HG 3(2) or section HG 3(1) applies.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1185075.

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

HG 6Disposal of trading stock

  1. This section applies when an exiting partner disposes of some or all of their partner’s interests in a partnership to an entering partner, to the extent to which those interests include trading stock that is not livestock, and, for the income year of disposal, the total turnover of the partnership, ignoring section HG 2, is $3,000,000 or less.

  2. The amount of consideration paid or payable to the exiting partner for the trading stock is excluded income of the exiting partner.

  3. The exiting partner is denied any deduction in relation to the trading stock for the income year in which the disposal of the trading stock occurs and later income years, to the extent to which the entering partner is allowed a deduction because of subsection (5).

  4. The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the trading stock.

  5. For the purposes of calculating the income tax liability of an entering partner, the entering partner is treated as if they had acquired and held the trading stock, not the exiting partner.

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

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

Notes
  • Section HG 6: inserted, on , by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
  • Section HG 6(1): amended, on , by section 79(1)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
  • Section HG 6(1): amended, on , by section 79(1)(b) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
  • Section HG 6(1): amended, on , by section 135(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
  • Section HG 6(6): amended (with effect on 1 April 2008), on , by section 272(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
  • Section HG 6(7) heading: replaced (with effect on 1 April 2008), on , by section 79(2) (and see section 79(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
  • Section HG 6(7): replaced (with effect on 1 April 2008), on , by section 79(2) (and see section 79(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
  • Section HG 6 list of defined terms amount: inserted, on , by section 79(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
  • Section HG 6 list of defined terms exiting partner: inserted, on , by section 135(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
  • Section HG 6 list of defined terms income year: inserted, on , by section 79(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
  • Section HG 6 list of defined terms pay: inserted, on , by section 79(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).