Section HG 5 — Income Tax Act 2007: Disposal of partner’s interests

HG 5 Disposal of partner’s interests When this section applies (1) This section applies when a person (the exiting partner ) disposes of some or all of their partner’s interests (the current interests ) in a partnership, if the amount calculated using the following 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 partner for the current interests: (b) previous payments is the total amount of consideration paid or payable to the exiting partner for other disposals of some or all of their partner’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 arrangments: (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 partner’s partnership share for the relevant interest. Exiting partner: excluded payment (3) The disposal payment described in subsection (2)(a) is excluded income of the exiting partner. Exiting partner: no deduction (4) The exiting partner is denied any 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 partner is allowed a deduction because of subsection (6). Entering partner: no deduction (5) An entering partner is denied any deduction for the disposal payment described in subsection (2)(a). Entering partner: stepping in (6) For the purposes of calculating the income and deductions of an entering partner for the part of the income year after the disposal of the interests occurs and later income years (the post-disposal periods ), the entering partner is treated for the post-disposal periods as if they had originally acquired and held the current interests, not the exiting partner. However, this subsection does not apply to a deduction carried forward under section HG 12 . Exclusion by election (7) This section does not apply for the partners of a small partnership if section HG 3(2) applies. Relationship with section HG 4 (8) Section HG 4 overrides this section. Defined in this Act: deduction , depreciable property , dispose , entering partner , excluded income , financial arrangement , income tax liability , partner , partner’s interests , partnership , partnership share , return of income , revenue account property , year Section HG 5: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2). Section HG 5(2)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 271(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section HG 5(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 271(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section HG 5 list of defined terms depreciable property : inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section HG 5 list of defined terms financial arrangement : inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section HG 5 list of defined terms revenue account property : inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).