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Income Tax Act 2007

Recharacterisation of certain transactions - Transfers of relationship property

FB 13: Trading stock

You could also call this:

"What happens to taxes when you transfer trading stock during a relationship property settlement"

Illustration for Income Tax Act 2007

When you transfer trading stock as part of a relationship property settlement, it affects your taxes. You treat the transfer as if you sold the stock and the other person bought it. The price is the value of the stock at a certain time, which is explained in section EB 3. If you got the stock during the year, the price is what you paid for it. If you did not use the stock for your business, the price is also what you paid for it. If the person who gets the stock does not use it for their business and then sells it, it is treated as if they used it for their business. There are special rules for certain livestock, which are explained in sections FB 14 and FB 17. This rule overrides other rules about selling stock for too little money, which are in sections GC 1 and GC 2.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516353.

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Part FRecharacterisation of certain transactions
Transfers of relationship property

FB 13Trading stock

  1. This section applies for the purposes of subpart EB (Valuation of trading stock (including dealer’s livestock)) when trading stock is transferred on a settlement of relationship property.

  2. If the transferor used trading stock in carrying on a business and held the trading stock at the start of the year of transfer, the transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount equal to the greater of—

  3. the value of the trading stock under section EB 3 (Valuation of trading stock) for the transferor at the end of the income year before the year of transfer; or
    1. the value of the trading stock under section EB 3 for the transferee at the end of the year of transfer.

      1. If the transferor used the trading stock in carrying on a business and acquired the trading stock during the year of transfer, the transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount equal to the cost of the trading stock to the transferor.

      2. If the transferor did not use the trading stock in the carrying on of a business, the transfer is treated as a disposal by the transferor and acquisition by the transferee for an amount equal to the cost of the trading stock to the transferor.

      3. If, after a transfer under subsection (2) or (3), the trading stock was not used by the transferee in the carrying on of a business and they dispose of the trading stock at any time, the disposal is treated as a disposal of trading stock used by the transferee in the carrying on of a business.

      4. For the purposes of subsection (2), trading stock does not include specified livestock unless it is used in a dealing operation and sections FB 14 and FB 17 apply.

      5. This section overrides sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration).

      Compare
      Notes
      • Section FB 13 list of defined terms dispose: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).