When a business disposes of trading stock for below market value, a valuation rule applies to treat it as sold (and purchased by the recipient) at the market value for tax purposes. For example, goods that are taken for the business’s own use or sold to an associated person for less than market value.
There are certain circumstances when the valuation rule will not apply. This includes disposals:
- to non-associated persons in the ordinary course of business, from 1 April 2024
- to approved donee organisations from 1 April 2024
- under a relationship agreement.
In the above situations, the discounted or zero value disposal is no longer treated as a sale at market value.
For more information see Question we’ve been asked QB 14/01 on our Tax Technical website.
You will need to keep good business records of the disposal. These resources will help.
Temporary relief measures ending 31 March 2024
Legislation made it easier for businesses to donate trading stock during the period 17 March 2020 to 31 March 2024 to approved donee organisations (which are mostly registered charities), as well as to public authorities and non-associated persons.
Normally if you give your business’s trading stock away, you pay tax as if you'd sold it. But if you've donated trading stock, this might not apply. For example, to help people affected by COVID or because of the January or February 2023 weather events.
This temporary relief means that you do not have to return deemed income as if you had sold the stock.
Disposing of stock
Disposing of stock includes donating, but it is also selling, giving away or getting rid of stock at below market value.
The temporary relief for disposal of your stock, to a person or business that is not an approved donee organisation or public authority, applies if you are not associated with the recipient. You must also show you have a business reason for disposing of the trading stock at below market value. For example, you may dispose of the trading stock for marketing purposes to increase your customer loyalty and brand awareness.
If there is no business reason for the disposal, you may have to account for deemed income. This is based on the cost or opening value of the trading stock.
It is best to talk to your tax agent if you have one, as it can be complicated.
The legislation
Find more information about the change on the Tax Policy website.
The Orders extending the relief can be found on the New Zealand legislation website.
Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2023
Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2022