As of 1 July 2021, Inland Revenue introduced the purchase price allocation (PPA) rules, which apply to the purchase of assets, such as commercial property, forestry land or a business.
Previously there has been no requirement for vendors or purchasers to agree on the allocated purchase price when buying and selling a business, land or buildings. Vendors and purchasers could adopt different positions in their tax return, thus being “mis-matched”.
The new legislation now means vendors and purchasers allocate purchase prices consistently for income tax purposes. Where the vendors and purchasers have agreed on how the sale price is allocated between taxable, depreciable, and non-taxable assets then, these values should be used for tax purposes.
In the absence of prior agreement between the parties, the new rules enable the vendor to set the PPA, provided they do so within three months of settlement.
If the vendor does not have, or exercise that right, the purchaser has a right to determine a PPA within six months of settlement.
There are certain exceptions to the new rules:
total purchase price for the assets is less than $1 million or
the sale of residential land and chattels is exempt unless the purchase price is $7.5 million or more.
Get in touch with Richard Matson, or Jeff Walters for help in understanding the new PPA rules. We can ensure you understand the tax and legal consequences.