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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:

“Rules for selling or giving away business stock for less than its value”

When you sell or give away trading stock, which is stuff you normally sell as part of your business, there are some special rules you need to know about. These rules apply when you give the stock away for free or sell it for less than what it’s worth.

You need to be careful if you take the trading stock for yourself, if you’re not selling it as part of your normal business, or if you’re giving it to someone connected to you (like a family member or friend).

If any of these things happen, the law says you have to pretend you sold the trading stock for what it’s really worth, even if you didn’t actually get that much money for it. This means you might have to pay tax on money you didn’t actually receive.

If you give the trading stock to someone else, they have to pretend they paid full price for it, even if they didn’t.

Remember, trading stock can also include things that are part of your trading stock, not just the whole item.

There are some exceptions to these rules. You don’t have to worry about them if you’re giving the trading stock to a charity, if it’s part of a relationship agreement, if you’re helping out a farmer or fisher who’s having a tough time, if it’s part of a special share-lending deal, or if some other specific tax rules apply.

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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.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part G Avoidance and non-market transactions
Market value substituted

GC 1Certain disposals of trading stock at below market value

  1. This section applies when—

  2. a person (person A) disposes of trading stock for—
    1. no consideration; or
      1. an amount that is less than the market value of the trading stock at the time of the disposal; and
      2. 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:
          1. 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:
            1. the disposal is to an associated person.

            2. Person A is treated as deriving an amount equal to the market value of the trading stock at the time of the disposal.

            3. 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.

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

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

            6. to a donee organisation:
              1. under a relationship agreement:
                1. 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:
                  1. under a share-lending arrangement, by a share user to a share supplier or by a share supplier to a share user:
                    1. to which section GC 20(2) or GC 21(7) applies.

                      Notes
                      • Section GC 1: replaced, on , 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).