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Income Tax Act 2007

Recharacterisation of certain transactions - Consolidated groups of companies - Accounting for particular property

FM 15: Amortising property and revenue account property

You could also call this:

“Rules for transferring property between companies in the same group”

When a company transfers property to another company in the same group, there are special rules about how to treat that property for tax purposes. This applies to things that lose value over time, like equipment, or things the company plans to sell for profit.

If you transfer the whole pool of property that’s being depreciated together, the new company gets it at the adjusted tax value. If you transfer only part of a pool, the new company gets it at either its market value or the adjusted tax value of the whole pool, whichever is less.

For other types of property, the new company gets it at the original cost plus any money spent on improving it or securing legal rights to it.

The new company is treated as if it had been allowed the same deductions for depreciation or amortisation as the first company.

There are special rules for land that’s been owned for less than two years. The new company is treated as having owned the land for the same amount of time as the first company.

These rules don’t apply to Kāinga Ora–Homes and Communities or companies in its group.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516657.

Topics:

Money and consumer rights > Taxes

Business > Industry rules

FM 14: Part-year financial statements, or

“How to prepare financial statements for parts of a tax year when companies join or leave tax groups”

FM 16: Land or business: certain farming or forestry expenditure, or

“Farming and forestry expense claims for company groups when land or business changes hands”

Part F Recharacterisation of certain transactions
Consolidated groups of companies: Accounting for particular property

FM 15Amortising property and revenue account property

This section applies—
when property is transferred from a company (company A) to another company (company B) and both companies are in the same consolidated group at the time the transfer takes place, and the property transferred is—
1. amortising property; or
2. revenue account property, but not trading stock or a financial arrangement to which the financial arrangements rules apply; and
to determine the income and deductions on a later disposal of property, or in relation to the depreciation or amortisation of the acquisition cost of the property under this Act.

Company B is treated as acquiring the property on the date it was acquired by company A for the amount set out in subsections (3) to (5).
For the purposes of section CB 6A (Disposal within 2 years: bright-line test for residential land), in relation to property that is land, company B is treated as having the same bright-line start date as company A for that land.
When the property forms the whole of a pool of property that is depreciated by company A under sections EE 20 to EE 24 (which relate to depreciation loss calculated under the pool method), the amount in subsection (2) is the adjusted tax value of the pool immediately before the property is transferred to company B.
When the property forms only part of a pool of property that is depreciated by company A under sections EE 20 to EE 24, the amount in subsection (2) is the lesser of—
the market value of the property transferred to company B; and
the adjusted tax value of the whole of the pool immediately before the property is transferred to company B.

If subsections (3) and (4) do not apply, the amount in subsection (2) is the sum of the following amounts of expenditure incurred by company A before the property is transferred to company B for which no deduction has been allowed other than by the depreciation or amortisation of the acquisition cost of the property under section EE 1, EZ 7, or EZ 8 (which relate to depreciation), or another amortisation provision of this Act:
the original acquisition cost of the property:
expenditure incurred—
1. in acquiring or improving the property; or
2. in securing or improving company A’s legal rights to the property.

Subsection (7) applies—
for the purposes of sections EE 46 to EE 52 (which relate to disposals and depreciation recovery income); and
to property referred to in subsection (1)(b) other than pooled property; and
in relation to an amount of depreciation loss or amortisation of acquisition cost up to the time the property is transferred from company A to company B.

Company B is treated as allowed the pre-transfer deductions that company A is allowed for amounts of depreciation loss under section EZ 7 or EZ 8, or for an amount of expenditure or loss under another amortisation provision of this Act.
Subsections (1) to (7) do not apply to Kāinga Ora–Homes and Communities or a company in the same consolidated group as Kāinga Ora–Homes and Communities.

Compare

2004 No 35 s FD 10(1), (2)

Notes

Section FM 15(2B) heading: inserted (with effect on 1 April 2019), on 30 March 2022, by section 108(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FM 15(2B): replaced, on 1 July 2024, by section 127 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section FM 15(5)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FM 15(5)(b)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FM 15(8) heading: inserted (with effect on 1 July 2017), on 18 March 2019, by section 202 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FM 15(8) heading: amended (with effect on 1 October 2019), on 23 March 2020, by section 190 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FM 15(8): inserted (with effect on 1 July 2017), on 18 March 2019, by section 202 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FM 15(8): amended (with effect on 1 October 2019), on 23 March 2020, by section 190 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FM 15 list of defined terms bright-line acquisition date: repealed, on 1 July 2024, by section 127 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section FM 15 list of defined terms bright-line start date: inserted, on 1 July 2024, by section 127 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section FM 15 list of defined terms Kāinga Ora–Homes and Communities: inserted (with effect on 1 October 2019), on 23 March 2020, by section 190 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FM 15 list of defined terms land: inserted (with effect on 1 April 2019), on 30 March 2022, by section 108(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).