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Income Tax Act 2007

Recharacterisation of certain transactions - Transfers of relationship property

FB 21: Depreciable property

You could also call this:

"What happens to items that lose value when you split them in a relationship settlement"

Illustration for Income Tax Act 2007

When you transfer an item of property as part of a relationship settlement, it is treated as if you sold it and the other person bought it. The price of the transfer is the cost of the item if you bought it that year, or its adjusted tax value at the start of the year. You are considered to have disposed of the item and the other person is considered to have acquired it. If the item is something that can depreciate, like a building or a machine, the other person can claim depreciation losses on it from the date of transfer. They are treated as if they had the same depreciation losses as you did before the transfer. However, they cannot claim more depreciation losses than you would have if you had kept the item. If the item is a building, the other person's depreciation losses are based on what you originally paid for it. If you made changes to the item in the year of transfer, it is treated as if the other person made those changes. For depreciation rates, the item is treated as if the other person acquired or erected it when you did, if it was new or had not been used before. You can find more information about depreciation rates in section EE 31(2)(b) or EZ 23(4).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516370.

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Part FRecharacterisation of certain transactions
Transfers of relationship property

FB 21Depreciable property

  1. This section applies when a person who is allowed a deduction for an amount of depreciation loss for an item of property transfers the item on a settlement of relationship property.

  2. Repealed

  3. The transfer is treated as a disposal and acquisition for an amount equal to, as applicable,—

  4. if the transferor acquired the item in the year of transfer, the cost of the item to them; or
    1. in any other case, the adjusted tax value of the item measured at the start of the year of transfer.

      1. In relation to amounts of depreciation loss for the item, the transferee—

      2. has an amount of depreciation loss for the item from the date of transfer, whether or not the transferor has in fact had an amount of depreciation loss:
        1. is treated as having had an amount of depreciation loss equal to all amounts of depreciation loss that the transferor had for the item in income years before the year of transfer:
          1. does not have a greater amount of depreciation loss than that which the transferor would have had if they had kept the item.

            1. If the item is a building, the transferee’s amount of depreciation loss must be determined having regard to the original cost of the building to the transferor.

            2. If the item has been acquired, erected, installed, altered, extended, improved, or attached by the transferor in the year of transfer, the item is treated as if it were acquired, erected, installed, altered, extended, improved, or attached by the transferee in the income year.

            3. For the purposes of determining the rate that applies to the item under section EE 31(2)(b) or EZ 23(4) (which relate to depreciation rates for new assets), if either of the following conditions applied to the item when the transferor acquired or erected it, the condition is treated as applying to the item at the date of transfer:

            4. the item had not previously been used by a person, or acquired or held by a person for their use; and
              1. if the item is a building or part of a building, it had not previously been occupied.

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                Notes
                • Section FB 21(2) heading: repealed, on , pursuant to section 70(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                • Section FB 21(2): repealed, on , by section 70(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                • Section FB 21 list of defined terms property: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section FB 21 list of defined terms resident mining operator: repealed, on , by section 70(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).