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Income Tax Act 2007

Income - Recoveries

CG 7B: Disposals or applications after earlier deductions

You could also call this:

“Tax implications when benefiting from previously deducted expenses”

This law is about what happens when you spend money on something that doesn’t work out, but then you end up getting something useful from it anyway.

If you’ve claimed a tax deduction for money you spent on an application that didn’t succeed, and then you get some property because of that spending, this law applies to you. It also applies if you use that property to apply for a patent, design registration, resource consent, or plant variety rights.

If you sell the property, you might have to count some of the money you get as income in the year you sell it. The amount you count as income depends on how much you sell it for compared to how much you claimed as a deduction earlier.

If you use the property to apply for a patent, design registration, resource consent, or plant variety rights, you have to count the amount you originally claimed as a deduction as income in the year you make the application or get the grant.

This law makes sure that if you benefit from something you’ve already claimed as a tax deduction, you have to pay tax on that benefit.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6191701.

Topics:
Money and consumer rights > Taxes
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CG 7: Recoveries after deduction of payments under lease, or

“Income from selling a leased asset you later bought”

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CG 7C: Disposal or rerecognition of derecognised non-depreciable assets, or

“Rules for selling or restating hidden assets after claiming tax deductions”

Part C Income
Recoveries

CG 7BDisposals or applications after earlier deductions

  1. This section applies when a person—

  2. has a deduction under section DB 19, DB 37, or DB 40BA (which relate to expenditure on abortive or failed applications) for expenditure; and
    1. acquires property (the application property) as a result of the expenditure; and
      1. disposes of the application property for consideration or uses the application property in the lodging of a patent application with a complete specification or a design registration application, or in obtaining the grant of a resource consent or plant variety rights.

        1. The person has income of the amount described in—

        2. subsection (3), if the application property is disposed of for consideration, in the income year of the disposal; or
          1. subsection (4), if the application property is used in the lodging of a patent application with a complete specification or a design registration application, or in obtaining the grant of a resource consent or plant variety rights, in the income year of the lodgement or grant.

            1. The amount is—

            2. the amount of the consideration derived for the disposal that is not income under another provision of this Act, if that amount is less than the total amount of deductions referred to in subsection (1)(a); or
              1. the total amount of deductions referred to in subsection (1)(a), if paragraph (a) does not apply.

                1. The amount is the total amount of deductions referred to in subsection (1)(a) for expenditure incurred in acquiring the application property.

                Notes
                • Section CG 7B: inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on , by section 19(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                • Section CG 7B(1)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 79(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section CG 7B(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 79(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section CG 7B list of defined terms design registration application: inserted (with effect on 1 April 2015), on , by section 79(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).