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Income Tax Act 2007

Recharacterisation of certain transactions - Distribution, transmission, and gifts of property - Exceptions for residential land transferred to trustees of certain trusts or other entities

FC 10: Transfers from person to Official Assignee under Insolvency Act 2006

You could also call this:

“How property transfers to the Official Assignee during bankruptcy are treated for tax purposes”

When you are declared bankrupt or go through a special process under the Insolvency Act 2006, some of your property is given to someone called the Official Assignee. This law explains how that transfer works for tax purposes.

If you have property that you use to make money (like stock for a shop), it’s treated as if you sold it to the Official Assignee for its market value on the day you were declared bankrupt.

For some types of property used to make money, you can’t claim a tax deduction for its cost. Instead, the Official Assignee gets to use that cost for tax purposes.

If you have property that loses value over time (like a computer or machinery), it’s treated as if you sold it to the Official Assignee for its current tax value. The Official Assignee then takes over the property with the same details about when it was bought and how much it’s worth for tax purposes.

If you spent money on property before going bankrupt, but haven’t claimed all the tax deductions for that spending yet, the Official Assignee can claim those deductions instead. They can use these deductions in the same way you would have if you hadn’t gone bankrupt.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7219648.

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Part F Recharacterisation of certain transactions
Distribution, transmission, and gifts of property: Exceptions for residential land transferred to trustees of certain trusts or other entities

FC 10Transfers from person to Official Assignee under Insolvency Act 2006

  1. This section applies when a person is adjudicated bankrupt under the Insolvency Act 2006 or is subject to a procedure under Part 5 of that Act.

  2. If revenue account property of the person that is subject to section EA 1 (Trading stock, livestock, and excepted financial arrangements) vests in the Official Assignee, the transfer is treated as a disposal and acquisition of the property for an amount equal to the market value of the property on the date (the transfer date) on which the person is adjudicated bankrupt or the procedure under Part 5 of the Insolvency Act 2006 is approved by the Court.

  3. If revenue account property of the person that is subject to section EA 2 (Other revenue account property) vests in the Official Assignee,—

  4. the person does not have a deduction under section DB 23 (Cost of revenue account property) for the cost of the revenue account property; and
    1. the cost of the property for the Official Assignee for the purposes of sections DB 23 and EA 2(2) is treated as being equal to the cost of the property for the person.

      1. If depreciable property of the person vests in the Official Assignee,—

      2. the person is treated as disposing of the property for an amount equal to the adjusted tax value of the property on the transfer date:
        1. the Official Assignee is treated as acquiring the property—
          1. with an acquisition date, base value, and adjusted tax value that are the same as those quantities are for the person immediately before the transfer date; and
            1. without incurring an amount of expenditure as consideration for the transfer.

            2. Subsection (6) applies if, before the transfer date, the person incurs expenditure relating to property and, by the transfer date, deductions of the person relating to the expenditure (the unallocated deductions) are not allocated to a period ending before the transfer date.

            3. An amount of unallocated deductions is treated as not being a deduction of the person and as being a deduction of the Official Assignee that relates to property of the Official Assignee and that may be allocated by the Official Assignee—

            4. to a period beginning on or after the transfer date; and
              1. in a way that the person could have allocated the deduction but for the adjudication or procedure under the Insolvency Act 2006.

                Notes
                • Section FC 10: inserted, on , by section 100 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                • Section FC 10 list of defined terms adjusted tax value: inserted, on (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                • Section FC 10 list of defined terms amount: inserted, on (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                • Section FC 10 list of defined terms deduction: inserted, on (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                • Section FC 10 list of defined terms depreciable property: inserted, on (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                • Section FC 10 list of defined terms revenue account property: inserted, on (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).