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Income Tax Act 2007

Timing and quantifying rules - Valuation of trading stock (including dealer’s livestock)

EB 5: Transfers of trading stock within wholly-owned groups

You could also call this:

“How stock transfers between companies in the same group are treated for tax purposes”

You are part of a group of companies that are all owned by the same parent company. This is called a wholly-owned group. If your company is part of such a group, this law applies to the trading stock (items your company buys to sell) that you hold.

The law says that if one company in your group (let’s call it Company A) buys some trading stock, and then passes it to another company in the group (let’s call it Company B), there are some special rules. These rules apply if:

  1. The trading stock stays within companies in New Zealand that are part of your group.
  2. Company B has the trading stock at the end of the financial year.
  3. Both Company A and Company B are still part of the group at the end of the financial year.
  4. The financial years of Company A and Company B end on the same date, or on different dates that the Commissioner has approved.

If all these things are true, then Company B can choose to value the trading stock at the same cost that Company A paid for it.

If your company leaves the group, the law says you must treat the trading stock as if you sold it and bought it back at its market value. If you can’t work out the market value on its own, you should use the value from when your company first got the trading stock.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514293.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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EB 4: Trading stock valuation methods, or

“How to value your trading stock for tax purposes”

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EB 6: Cost, or

“How to value your closing stock at cost”

Part E Timing and quantifying rules
Valuation of trading stock (including dealer’s livestock)

EB 5Transfers of trading stock within wholly-owned groups

  1. This section applies in an income year to trading stock held by a company that is part of a wholly-owned group of companies, when—

  2. a group company (company A) originally acquires and holds the trading stock; and
    1. from the time it is acquired to the end of the income year, the trading stock is held within the group by a company or companies that are resident in New Zealand; and
      1. through transfers within the group, another group company (company B) holds the trading stock at the end of the income year; and
        1. company A and company B remain part of the group at the end of the income year; and
          1. either—
            1. the income years of company A and company B end on the same date; or
              1. they end on different dates, and the Commissioner has approved both dates as corresponding to the end of a business cycle and as necessary to avoid material distortion of net income that would occur if the income years ended on the same date.

              2. Company B may choose to value the closing stock at the cost of the trading stock to company A.

              3. If the companies stop being part of the same wholly-owned group, company B is treated as disposing of and reacquiring the trading stock for its market value at the time. If the market value of the trading stock cannot be determined separately from other property, its market value at the time company B acquired it is treated as its value.

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