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Income Tax Act 2007

Taxation of certain entities - Look-through companies

HB 8: Disposal of financial arrangements and certain excepted financial arrangements

You could also call this:

“Rules for selling ownership in a look-through company with financial arrangements”

When you sell some or all of your ownership in a look-through company, this law applies if your ownership includes certain financial arrangements. It applies when these arrangements were necessary for the company’s business, and the company doesn’t usually deal with financial arrangements.

If this law applies to you, the money you get for selling these financial arrangements isn’t counted as income you need to pay tax on. You also don’t need to do a special calculation called a base price adjustment.

You can’t claim any tax deductions for these financial arrangements in the year you sell them or in future years.

The person buying your ownership can’t claim a tax deduction for the money they pay you for these financial arrangements.

After the sale, for tax purposes, the buyer is treated as if they had owned these financial arrangements from the beginning, not you.

There’s another rule, section HB 4, that can override this one.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3683720.

Topics:
Money and consumer rights > Taxes
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“Rules for selling your share in a look-through company with depreciable property”

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“Rules for selling or buying short-term agreements in a look-through company”

Part H Taxation of certain entities
Look-through companies

HB 8Disposal of financial arrangements and certain excepted financial arrangements

  1. This section applies when a person (the exiting owner) disposes of some or all of their owner’s interests for a look-through company, to the extent to which those interests include a financial arrangement or an excepted financial arrangement described in section EW 5(10) (What is an excepted financial arrangement?) and, ignoring section HB 1,—

  2. the purpose for which the financial arrangement or excepted financial arrangement was entered into was necessary and incidental to the business of the look-through company; and
    1. the look-through company does not have a business of holding financial arrangements.

      1. The amount of consideration paid or payable to the exiting owner for the relevant financial arrangement or excepted financial arrangement is excluded income of the exiting owner. The exiting owner is, for the relevant financial arrangement, a party that is not required to calculate a base price adjustment, despite section EW 29 (When calculation of base price adjustment required).

      2. The exiting owner is denied a deduction in relation to the relevant financial arrangement or excepted financial arrangement for the income year in which the disposal of the financial arrangement or excepted financial arrangement occurs and later income years.

      3. The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the relevant financial arrangement or excepted financial arrangement.

      4. For the purposes of calculating the income tax liability of an entering owner for the part of the income year after the disposal of the relevant financial arrangement or excepted financial arrangement occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had acquired and held the financial arrangement or excepted financial arrangement, not the exiting owner.

      5. Section HB 4 overrides this section.

      Notes
      • Section HB 8: inserted, on (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
      • Section HB 8(1)(b): amended (with effect on 1 April 2011), on , by section 79 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).