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Income Tax Act 2007

Recharacterisation of certain transactions - Transfers of relationship property

FB 19: Leased assets

You could also call this:

“Tax rules for leased assets that were claimed as deductions”

When you lease, rent, or hire equipment like machinery, vehicles, or temporary buildings, and you can claim a tax deduction for the payments, this law applies to you. It also applies if you or someone connected to you buys the leased item and then transfers it as part of a relationship property settlement.

If the person who receives the item sells it for more than its value at the time of transfer, they might have to pay tax on some of the profit. The amount of tax depends on how much profit they make and how much you were able to claim as a tax deduction when you were leasing it.

The ‘transfer amount’ is important in working out if there’s any tax to pay. It’s either the adjusted tax value of the item at the start of the transfer year, or its base value if it was bought during that year.

This rule is explained in more detail in section FA 5, which talks about what happens when you buy and sell assets after claiming lease payments as tax deductions.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516365.

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Part F Recharacterisation of certain transactions
Transfers of relationship property

FB 19Leased assets

  1. This section applies when—

  2. a person leases, rents, or hires plant, machinery, or other equipment, including a motor vehicle or a temporary building; and
    1. they are allowed a deduction in an income year for an amount paid under the agreement to lease, rent, or hire; and
      1. they acquire the lease asset at any time, or a person associated with them acquires the asset; and
        1. either they, or the associated person, transfer the asset on a settlement of relationship property.

          1. If the transferee disposes of the asset for an amount that is more than the transfer amount, they are treated as deriving income as described in section FA 5 (Assets acquired and disposed of after deduction of payments under lease) in the income year of the disposal of the asset equal to the lesser of—

          2. the amount by which the amount derived on disposal is more than the transfer amount; or
            1. the sum of the amounts for which the transferor has been allowed a deduction.

              1. In this section, the transfer amount is the amount that equals, as applicable,—

              2. the adjusted tax value of the asset at the start of the year of transfer; or
                1. if the asset was acquired by the transferor or the associated person during the year of transfer, the base value of the asset.

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