Section HB 5 — Income Tax Act 2007: Disposal of owner’s interests

HB 5 Disposal of owner’s interests When this section applies (1) This section applies when a person (the exiting owner ) disposes of some or all of their owner's interests (the current interests ) for a look-through company, if the amount calculated using the formula is less than zero— disposal payment + previous payments − (gross tax value − liabilities) − $50,000. Definition of items in formula (2) In the formula,— (a) disposal payment is the total amount of consideration paid or payable to the exiting owner for the current interests: (b) previous payments is the total amount of consideration paid or payable to the exiting owner for other disposals of some or all of their owner’s interests (the other interests ) that have occurred in the year before the disposal of the current interests: (c) gross tax value is the total of–– (i) the value under this Act of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are revenue account property or depreciable property or financial arrangements: (ii) the market value of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are not revenue account property or depreciable property or financial arrangements: (d) liabilities is the amount of liabilities under generally accepted accounting practice at the time the relevant interest is disposed of, calculated by reference to the exiting owner’s ownership share for the relevant interest. Exiting owner: excluded payment (3) The disposal payment described in subsection (2)(a) is excluded income of the exiting owner. Exiting owner: no deduction (4) The exiting owner is denied a deduction in relation to the current interests for the income year in which the disposal of the interests occurs and later income years to the extent to which the entering owner is allowed a deduction because of subsection (6). Entering owner: no deduction (5) An entering owner is denied a deduction for the disposal payment described in subsection (2)(a). Entering owner: stepping in (6) For the purposes of calculating the income and deductions of an entering owner for the part of the income year after the disposal of the interests occurs and later income years (the post-disposal periods ), the entering owner is treated for the post-disposal periods as if they had originally acquired and held the current interests, not the exiting owner. However, this subsection does not apply to a deduction carried forward under section HB 12 . Relationship with section HB 4 (7) Section HB 4 overrides this section. Defined in this Act: deduction , depreciable property , dispose , entering owner , excluded income , financial arrangement , income tax liability , look-through company , owner's interests , pay , return of income , revenue account property , year Section HB 5: inserted, on 1 April 2011 (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).