Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 1: Certain disposals of trading stock at below market value

You could also call this:

"Selling trading stock cheaply or giving it away"

When you get rid of trading stock for little or no money, this law applies. You are treated as having made money equal to the market value of the trading stock. If you give the trading stock to someone else, they are treated as having spent money to get it, equal to its market value. When you get rid of trading stock, it can be for no money or for less than it is worth. This law applies if you take the trading stock for yourself, or if you give it to someone you are associated with. It also applies if you get rid of the trading stock outside of your normal business. If someone else gets the trading stock from you, they are treated as having spent its market value. Trading stock includes having a share in something that is trading stock. This law does not apply in some situations, such as when you give trading stock to a charity or under certain agreements. It also does not apply if you are affected by a bad event, like a flood, and you give trading stock to someone to help them with their farming business. You can find more information about these situations in section GC 20(2) or GC 21(7).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517069.

This page was last updated on 5 April 2026 — View changes

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Part GAvoidance and non-market transactions
Market value substituted

GC 1Certain disposals of trading stock at below market value

This section applies when—
a person (person A) disposes of trading stock for—
1. no consideration; or
2. an amount that is less than the market value of the trading stock at the time of the disposal; and
1 or more of the following apply:
1. the disposal is effected by person A taking the trading stock for their own use or consumption:
2. the disposal is not made by person A in the course of carrying on a business for the purpose of deriving their assessable income, or their excluded income, or a combination of their assessable income and excluded income:
3. the disposal is to an associated person.

Person A is treated as deriving an amount equal to the market value of the trading stock at the time of the disposal.
If person A disposes of the trading stock to another person, an amount equal to the market value of the trading stock at the time of the disposal is treated as expenditure incurred by the other person in acquiring the trading stock.
In this section, trading stock includes an interest in trading stock.
This section does not apply to a disposal of trading stock—
to a donee organisation:
under a relationship agreement:
by a person to another person, who is not associated with them, for use by the other person in a farming, agricultural, or fishing business that is affected by a self-assessed adverse event:
under a share-lending arrangement, by a share user to a share supplier or by a share supplier to a share user:
to which section GC 20(2) or GC 21(7) applies.

Notes

Section GC 1: replaced, on 1 April 2024, by section 82(1) (and see section 82(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).