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Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 20: Effect of purchase price allocation agreement

You could also call this:

"How sale prices are split when selling things to work out tax"

Illustration for Income Tax Act 2007

When you sell something to someone, you need to work out how much of the sale price applies to each type of thing you are selling. You and the buyer must agree on the amounts and write them down before you both file your tax returns. The tax department will use these agreed amounts to work out the tax, unless they think the amounts do not reflect the true value of the things you are selling. If you and the buyer are related, and the agreed amount is less than the true value, the tax department might not use the agreed amount for some types of things you are selling. For some types of property, like buildings or equipment, the tax department will use the agreed amount if it is reasonable and you have written it down. You can find more information about the tax book value in section GC 21(13)(c). The tax department has rules to make sure the agreed amounts are fair and reflect the true value of the things you are selling. You need to follow these rules when you are selling something to someone. The rules help the tax department work out the tax you need to pay.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS519816.

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Topics:
Money and consumer rights > Taxes
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"How to split the sale price when selling multiple things and you can't agree"

Part GAvoidance and non-market transactions
Market value substituted

GC 20Effect of purchase price allocation agreement

  1. This section applies when—

  2. for consideration, a person (person A) disposes (the disposal), to another person (person B), items of property (the purchased property) that, for person A or for person B, fall into 2 or more of the following classes (the classes of purchased property)—
    1. trading stock, other than timber or a right to take timber:
      1. timber or a right to take timber:
        1. depreciable property, other than buildings:
          1. buildings that are depreciable property:
            1. financial arrangements:
              1. purchased property for which the disposal does not give rise to assessable income for person A or deductions for person B; and
              2. person A and person B have agreed, and recorded in a document, amounts of the total consideration allocated to any of the classes of purchased property before the earlier of—
                1. the day person A files a return of income in relation to their tax position for the purchased property:
                  1. the day person B files a return of income in relation to their tax position for the purchased property.

                  2. A class of purchased property—

                  3. is treated as disposed of and acquired for the relevant allocated amount; or
                    1. may be treated by the Commissioner as disposed of and acquired for an amount that reflects the relative market value of the class of purchased property, proportional to the other classes of purchased property, if the Commissioner considers the allocated amount does not reflect that value.

                      1. Subsection (2) does not apply to a class of purchased property described in subsection (1)(a)(i) or (ii) if—

                      2. person A and person B are associated persons at the time of the disposal; and
                        1. the allocated amount for the class of purchased property is less than the total market value of the items of purchased property in the class of purchased property at the time of the disposal.

                          1. Subsection (2)(b) does not apply to an item of purchased property that is an item of depreciable property, if—

                          2. the original cost of the item for person A is less than $10,000; and
                            1. the total allocated amount for the item and for any identical property is less than $1 million; and
                              1. the allocated amount for the item is—
                                1. no greater than its original cost for person A; and
                                  1. no less than its tax book value as described in section GC 21(13)(c).

                                  Notes
                                  • Section GC 20: inserted, on , by section 83(1) (and see section 83(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                  • Section GC 20(2B) heading: inserted, on , by section 83(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                  • Section GC 20(2B): inserted, on , by section 83(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                  • Section GC 20 list of defined terms associated person: inserted, on , by section 83(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).