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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:

“Rules for selling partnership interests with financial arrangements”

When you sell some or all of your partner’s interests in a partnership, this law applies if those interests include certain financial arrangements. The financial arrangements must have been necessary for the partnership’s business, and the partnership can’t be in the business of holding financial arrangements.

If you’re the partner leaving the partnership, the money you get for selling these financial arrangements isn’t counted as income. You don’t have to do a special calculation called a base price adjustment. You also can’t claim any deductions related to these financial arrangements for the year you sell them or any years after that.

If you’re the partner joining the partnership and buying these interests, you can’t claim any deductions for the money you pay for these financial arrangements.

After the sale, the new partner is treated as if they had owned the financial arrangements from the beginning, not the partner who left.

This law doesn’t apply to small partnerships in some cases. There’s also another law, section HG 4, 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=DLM1185082.

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Part H Taxation of certain entities
Joint venturers, partners, and partnerships

HG 8Disposal of financial arrangements and certain excepted financial arrangements

  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 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. Section HG 4 overrides this section.

      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 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 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).