Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Valuation of livestock - Other methods

EC 26B: Entering partners' cost base

You could also call this:

“How to calculate the cost of inherited livestock for new partners in a business”

When you become a new partner in a business that owns female breeding livestock, there are special rules about how to calculate the cost of that livestock for tax purposes. These rules apply when you and your partners use either the cost price method or the national standard cost scheme to value your livestock.

When you join the partnership, you’re treated as if you bought the livestock for the same price that the previous partner paid. This is called your ‘existing cost base’.

Each year after you join, you need to add a bit more to this cost base. You do this using a special calculation. The calculation takes into account how much more you paid for the livestock compared to the previous partner, and spreads this extra cost over several years.

The number of years you spread the cost over depends on whether any partners joined or left the partnership in the same year you did. If partners changed, you spread the cost over 4 years. If no partners changed, you spread it over 5 years.

This rule helps to make sure that the cost of the livestock for tax purposes increases gradually over time, rather than all at once when you join the partnership.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2537909.

Topics:

Money and consumer rights > Taxes

EC 26: Bailee’s treatment of livestock, or

“How borrowed livestock is counted for tax purposes”

EC 27: Some definitions, or

“Explains what long-term and short-term livestock bailment means”

Part E Timing and quantifying rules
Valuation of livestock: Other methods

EC 26BEntering partners' cost base

This section applies when an entering partner has acquired specified livestock that includes female breeding livestock for which section HG 10 (Disposal of livestock) applies, and the partners use the cost price method or the national standard cost scheme.
For the specified livestock, the entering partner is treated as having the same existing cost base that the exiting partner would have had for the purposes of the cost price method or national standard cost scheme for an income year, if they had not disposed of the interests.
For the purposes of determining the value of the specified livestock at the end of an income year for the purposes of section EC 2, the entering partner must add to the existing cost base, described in subsection (2), the amount for the income year (the current year) calculated using the following formula:
$livestock cost base difference × current year count ÷ allowed years.$

Where:
In the formula,—
livestock cost base difference is the cost base that the entering partner would have for the specified livestock at the end of the income year in which the acquisition of the specified livestock occurred, ignoring subsection (2) reduced by the entering partner's existing cost base for the specified livestock at the end of that year, described in subsection (2). It must be a positive number:
current year count,—
1. is the allowed years reduced by the number of years between the current year and the income year in which the entering partner's acquisition of the specified livestock occurred, ignoring years in which the partners do not use the cost price method or national standard cost scheme (for example: current year count is 1, if the allowed years is 4, and the acquisition of the specified livestock occurred in the 2010–11 income year, and the current year is the 2013–14 income year, and the relevant method or scheme was used for all relevant income years):
2. may equal the allowed years (for example: the current year is the same year as the income year in which the entering partner's acquisition of the specified livestock occurred), but must not be a negative number:
allowed years is—
1. 4, if the partners acquire or dispose of any partnership interests that include any livestock after the entering partner's acquisition of the specified livestock and before the end of the income year in which that acquisition occurred; or
2. 5, if the partners do not acquire or dispose of any partnership interests that include any livestock after the entering partner's acquisition of the specified livestock and before the end of the income year in which that acquisition occurred.

Notes

Section EC 26B: inserted (with effect on 1 April 2009), on 6 October 2009, by section 114(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EC 26B list of defined terms entering partner: inserted, on 30 March 2017, by section 56 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EC 26B list of defined terms exiting partner: inserted, on 30 March 2017, by section 56 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).