Income Tax Act 2007

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

HG 8: Disposal of financial arrangements and certain excepted financial arrangements

You could also call this:

"Selling your share of a business: what happens to the financial arrangements and tax"

When you are a partner in a business and you sell your share to someone else, this section applies to you. You are selling some or all of your interests in the business, which include financial arrangements or excepted financial arrangements, as described in section EW 5(10). The business must have entered into the financial arrangement for a necessary and incidental purpose.

If you sell your share, the amount you get for the financial arrangement is not considered income that you have to pay tax on. You also cannot claim any deductions for the financial arrangement. The person buying your share cannot claim a deduction for the amount they paid you.

For tax purposes, the buyer is treated as if they had the financial arrangement, not you, after the sale. This section does not apply to small partnerships if section HG 3(2) applies, or to partnerships 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=DLM1185082.

HG 7: Disposal of depreciable property, or

"Selling partnership assets worth $200,000 or less: what you need to know"

HG 9: Disposal of short-term agreements for sale and purchase, or

"Selling your share of a business: what you can and can't claim on tax"

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

HG 8Disposal of financial arrangements and certain excepted financial arrangements

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 a financial arrangement or an excepted financial arrangement described in section EW 5(10) (What is an excepted financial arrangement?) and, ignoring section HG 2—
the purpose for which the financial arrangement or excepted financial arrangement was entered into was necessary and incidental to the business of the partnership; and
the partnership does not derive income from a business of holding financial arrangements.

The amount of consideration paid or payable to the exiting partner for the relevant financial arrangement or excepted financial arrangement is excluded income of the exiting partner. The exiting partner is, for the relevant financial arrangement, a party that is not required to calculate a base price adjustment, despite section EW 29 (When calculation of base price adjustment required).
The exiting partner is denied any deduction in relation to the relevant financial arrangement or excepted financial arrangement for the income year in which the disposal of the financial arrangement or excepted financial arrangement occurs and later income years.
The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the relevant financial arrangement or excepted financial arrangement.
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 relevant financial arrangement or excepted financial arrangement occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had acquired and held the financial arrangement or excepted financial arrangement, not the exiting partner.
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 8: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 8(1): amended, on 30 March 2025, by section 81(1)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8(1): amended, on 30 March 2025, by section 81(1)(b) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8(1): amended, on 30 March 2017, by section 137(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 8(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 274(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 8(7) heading: replaced (with effect on 1 April 2008), on 29 March 2025, by section 81(2) (and see section 81(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8(7): replaced (with effect on 1 April 2008), on 29 March 2025, by section 81(2) (and see section 81(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8 list of defined terms amount: inserted, on 30 March 2025, by section 81(3)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8 list of defined terms disposal: repealed, on 30 March 2025, by section 81(3)(b) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8 list of defined terms dispose: inserted, on 30 March 2025, by section 81(3)(b) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8 list of defined terms exiting partner: inserted, on 30 March 2017, by section 137(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 8 list of defined terms income year: inserted, on 30 March 2025, by section 81(3)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section HG 8 list of defined terms pay: inserted, on 30 March 2025, by section 81(3)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).