SALE/PURCHASE OF A BUSINESS OR PROPERTY:
PURCHASE PRICE ALLOCATION
From 1 July 2021 new rules require both parties to the sale and purchase of 2 or more assets with different tax treatments to allocate the same amounts for each asset. These amounts will normally be in line with the market value.
If there is no agreement on amounts allocated and certain thresholds are exceeded, the seller will have 3 months from the date of settlement to determine an allocation and notify this to both the buyer and Inland Revenue. If after 3 months the seller has not made a notification, then the buyer has 3 months to notify the seller and Inland Revenue. Notifications to Inland Revenue can be made through myIR and should include the phrase “Purchase price allocation” in the subject line. The notification should include both parties’ names, IR number, date of agreement and settlement, transaction value and price allocation at the level of asset classes that are subject to particular income or deduction rules. When neither party determines and notifies an allocation, then the Commissioner may determine the allocation.
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LOSS CARRY FORWARD:
NEW BUSINESS CONTINUITY TEST FOR COMPANIES
From the 2020/2021 income year a new business continuity test applies to losses carried forward. The existing loss carry forward rules requiring 49% shareholder continuity continue to apply. Companies that meet the shareholder continuity test do not need to meet the business continuity test.
The business continuity test allows a company to carry forward losses after a change in ownership (where there has been a breach in shareholder continuity) so long as the underlying business continues. That is, there is no “major change” in the business activities for either 5 years after the change in ownership or the period when the losses are used up (whichever is earlier). Whether there is a “major change” will depend on the extent the same assets, activities and operations continue to be used to generate income for the company.
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