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Business asset sales rules tightened

The rules for how business assets are valued, when they are sold as a bundle, is being tightened.

These new Purchase Price Allocation (PPA) rules, which come in to force on 1 July, apply to the sale of assets such as commercial property, forestry land or a business.

Business asset sales are a mix of taxable assets, depreciable assets like plant or machinery, and non-taxable assets like business goodwill.

Generally, if the allocation includes a higher proportion of taxable and depreciable assets then buyer will benefit/ because they can claim expenses and depreciation. But if there’s a higher proportion of non-taxable assets in the mix the seller will benefit as this reduces their taxable income.

The new rules make it clear that both the buyer and the seller have to make the same allocation.  The rules also set out the process that must be followed if the buyer and seller can’t agree an allocation, which includes notifying Inland Revenue. 

The new rules bring consistency to agreements for the disposal and acquisition of property and must reflect market values for the various assets involved in the sale.

For more information, see Setting up an asset sale on the IRD website.

The rules also apply to sales of residential land for $7.5M or more, but only if neither buyer nor seller is an owner-occupier in relation to the land.   The rules don’t apply to sales of businesses by way of shares.

Last updated: 21 Jun 2021
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