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New Zealand: Purchase price allocation proposals for vendors, purchasers

New Zealand: Purchase price allocation proposals

Inland Revenue released an official issues paper concerning purchase price allocations.


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In the issues paper—Purchase Price Allocation: An officials issues paper [PDF 366 KB]—Inland Revenue expressed a concern that vendors and purchasers can take different positions on the value of assets sold, thereby creating a potential for tax “mis-matches” because the vendor’s valuation may result in less taxable income being returned, while the purchaser’s valuation may result in a higher depreciation base or deductions.

The issues paper proposes as a solution that the parties would agree to the allocation of the purchase price to the various items sold (based on market values). If they agree, the parties then would use the agreed values in their tax returns. However, if the parties do not agree, the vendor would able to choose the allocation and would need to notify the purchaser and Inland Revenue. If the vendor does not do these steps, the purchaser could allocate the purchase price (and must notify the vendor and Inland Revenue). Both parties would be required to use the chosen allocation.

Past commercial practice has been for parties to agree on the transaction—what is being sold and for how much. Each party then considers how the purchase price is to be allocated to different items. Most commonly, for a sale of land and buildings, the purchaser allocates the price to depreciable items such as fixtures and fittings and plant, rather than to non-depreciable buildings and land. 

KPMG observation

Tax professionals have observed that the proposals in the issues paper effectively "outsource" Inland Revenue's review of purchase price allocations to the parties. The issues paper proposes that Inland Revenue would retain the ability to dispute the purchase price allocation, if it considers the allocation to not be market-value based or is otherwise inappropriate.

Read a December 2019 report prepared by the KPMG member firm in New Zealand

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