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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 with tax"

Illustration for Income Tax Act 2007

When you are a partner in a business and you sell your share to another partner, this section applies. You are selling a financial arrangement or an excepted financial arrangement, which is explained in section EW 5(10). This only applies if the financial arrangement was necessary for the business and the business does not mainly involve holding financial arrangements. If you sell your share, the money you get from the sale is not considered income that you have to pay tax on. You also cannot claim any deductions related to the financial arrangement you sold. The partner who bought your share also cannot claim a deduction for the money they paid you. For tax purposes, the partner who bought your share is considered to have owned the financial arrangement from the start. 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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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1185082.

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"Selling short-term agreements when leaving a partnership"

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

HG 8Disposal of financial arrangements and certain excepted financial arrangements

  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 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—

  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
    1. the partnership does not derive income from a business of holding financial arrangements.

      1. 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).

      2. 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.

      3. 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.

      4. 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.

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

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

      Notes
      • Section HG 8: inserted, on , by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
      • Section HG 8(1): amended, on , 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 , 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 , 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 , 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 , 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 , 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 , 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 , 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 , 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 , 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 , 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 , by section 81(3)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).