HG 7Disposal of depreciable property

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 an item of depreciable property that is not depreciable intangible property, and the total cost of the item when it was first acquired by the partners of the partnership is $200,000 or less.

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

3. The exiting partner is denied any deduction in relation to the depreciable property for the income year in which the disposal of the depreciable property 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 depreciable property.

5. For the purposes of calculating the income tax liability of an entering partner for the part of the income year after the disposal of the depreciable property 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 depreciable property, 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.