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Income Tax Act 2007

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

HG 7: Disposal of depreciable property

You could also call this:

“Rules for selling or buying a partner's share in property that loses value over time”

When you sell some or all of your partner’s share in a partnership, this law applies if that share includes property that can lose value over time (called depreciable property). This only applies if the property isn’t something you can’t touch (like a trademark) and if it originally cost $200,000 or less when the partners bought it.

If you’re the partner leaving, you don’t have to pay tax on the money you get for this property. However, you can’t claim any tax deductions for it in the year you sell it or in future years.

If you’re the partner joining, you can’t claim a tax deduction for the money you pay for this property. But, for tax purposes, you’re treated as if you bought and owned the property from the start, instead of the partner who left.

This law doesn’t apply to small partnerships in some cases. There’s also another rule that can override this one.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1185078.

Topics:
Money and consumer rights > Taxes
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Part H Taxation of certain entities
Joint venturers, partners, and partnerships

HG 7Disposal of depreciable property

  1. This section applies when a person disposes of some or all of their partner’s interests in a partnership, 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. Section HG 4 overrides this section.

Notes
  • Section HG 7: inserted, on , by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
  • Section HG 7(1): amended, on , by section 136(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
  • Section HG 7(6): amended (with effect on 1 April 2008), on , by section 273(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
  • Section HG 7 list of defined terms exiting partner: inserted, on , by section 136(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).