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Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 1: Disposals of trading stock at below market value

You could also call this:

"Selling trading stock for less than it's worth affects your tax"

Illustration for Income Tax Act 2007

When you get rid of trading stock for no money or for less than it is worth, you are treated as getting the full market value of the stock. You are treated as getting this amount even if you did not actually get any money for the stock. The person you give the stock to is treated as spending the market value of the stock to get it. When you dispose of trading stock, it includes any interest you have in that stock. This rule does not apply in certain situations, such as when you give stock to someone who is not associated with you and they use it for farming, agriculture, or fishing that has been affected by a bad event. You can find more information about the rules that apply to trading stock by looking at the Income Tax Act 2007. You need to know what trading stock is and how it is valued to understand this rule. The market value of trading stock is what someone would normally pay for it. This rule helps make sure people pay the right amount of tax when they get rid of trading stock.

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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.

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Money and consumer rights > TaxesBusiness > Industry rules
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Part GAvoidance and non-market transactions
Market value substituted

GC 1Disposals of trading stock at below market value

  1. This section applies when a person disposes of trading stock for—

  2. no consideration:
    1. an amount that is less than the market value of the trading stock at the time of disposal.

      1. The person is treated as deriving an amount equal to the market value of the trading stock at the time of disposal.

      2. If the person disposes of the trading stock to another person, an amount equal to the market value of the trading stock at the time of disposal is treated as expenditure incurred by the other person in acquiring the trading stock.

      3. In this section, trading stock includes an interest in trading stock.

      4. This section does not apply to a disposal of trading stock—

      5. under a relationship agreement:
        1. by the 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:
          1. under a share-lending arrangement, by a share user to a share supplier or by a share supplier to a share user.

            Compare
            Notes
            • Section GC 1(4)(c): amended (with effect on 26 September 2008), on , by section 243(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section GC 1(4)(d): added (with effect on 26 September 2008), on , by section 243(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section GC 1 list of defined terms emissions unit: inserted (with effect on 26 September 2008), on , by section 243(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section GC 1 list of defined terms qualifying event: repealed (with effect on 26 September 2008), on , by section 243(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section GC 1 list of defined terms surrender: inserted (with effect on 26 September 2008), on , by section 243(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section GC 1: substituted (with effect on 1 April 2008), on , by section 54(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).