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IR7 Question 21 Other income

If you invested capital in a partnership or LTC but didn’t take an active part in the day-to-day operation or management of the business, any earnings would be considered passive income. Enter this amount at Question 21. Don’t enter it here if you’ve already included it at another Question on your return.

Also at Question 21 show any other income the partnership or LTC received, for example, sale of:

  • land and/or buildings

  • non-FIF shares or other property

  • securities.

If the partnership or LTC received any of the income listed above, please read the following.

Income from sale of land and/or buildings

Profits from the sale of land and/or buildings are taxable if the partnership or LTC:

  • buys a property for the purpose or intention of resale

  • buys and sells land and/or buildings as a business

  • trades as a builder and improves a property before selling it

  • develops or subdivides land and sells sections

  • has a change of zoning on its property, and sells it within 10 years of buying it

  • purchased a residential property on or after 1 October 2015 and sold/disposed of it within two years, whether the intention at the time of purchase was for resale or not.

If the partnership or LTC is a New Zealand tax resident it will need to pay tax on its worldwide income under New Zealand tax law. This includes any property sales worldwide whether caught under the bright-line test for residential property sales or the other property rules.

Complete a Property sale information (IR833) form for each property sold/disposed of and include it with the return. The form explains how to calculate and correctly return the resulting profit or loss. The form can be downloaded from the Inland Revenue website (search keyword: IR833). Complete the form even if the details have been included in a Financial statements summary (IR10) or set of accounts. Include the taxable profits in Box 21B.

Income from sale of non-FIF shares or other property

Profits from the sale of shares and other property are taxable if the partnership or LTC buys:

  • and sells shares or other property as a business

  • shares or other property for resale

  • shares or property to make a profit.

List the details of gross income and expenses from these sales on a separate sheet of paper and attach it to the top of page 3 of your IR7. Include the total profits in Box 21B.

Selling or disposing of assets

If the partnership or LTC sold or disposed of a depreciated asset for more than its adjusted tax value, you may need to account for depreciation recovered.

You can use the depreciation calculator on the Inland Revenue website to get a complete depreciation schedule for any asset. The schedule includes the amount to claim in the year of purchase and any adjustment in the year of sale. For further information please read Depreciation – a guide for businesses (IR260), and either Depreciation rates (IR265) or Historic depreciation rates (IR267).

Losses from sale of land, buildings, shares or other property

If the partnership or LTC has made a loss and you can show that if the partnership or LTC had made a profit it would have been taxable, the partnership or LTC may be able to claim the loss as an expense. Include the total loss at Box 21B.

Write the details of the loss on a separate sheet of paper and attach it to the top of page 3 of your IR7. Include details of other profits or losses made from similar sales, whether in this tax year or earlier.

Financial arrangements

A partner or owner must account for income from financial arrangements on an accrual basis. Financial arrangements include government stock, local authority stock, mortgage bonds, futures contracts and deferred property settlements.

Changes to the rules for the treatment of financial arrangements have split the rules into two sets. Generally, the first set applies to financial arrangements entered into before 20 May 1999 and the second applies to financial arrangements entered into, on or after that date.

Both sets of rules require the income or expenditure to be spread over the term of the financial arrangement. Both sets of rules allow some exceptions from these spreading provisions if the partner or owner is a cash-basis holder (under the first set of rules), or a cash-basis person (under the second set of rules).

The partner or owner is a cash-basis holder if, before 20 May 1999:

  • they held financial arrangements of $600,000 or less in value, or

  • the income derived from the financial arrangements was $70,000 or less, and

  • the difference between the person’s gross income calculated under the cash basis and that calculated under the accrual method is no more than $20,000.

The partner or owner is a cash-basis person if, from 20 May 1999:

  • the value of all financial arrangements added together is less than $1 million, or

  • the absolute value (the value no matter whether it’s a positive or a negative figure) calculated under the accrual rules in the income year from the financial arrangement is less than $100,000, and

  • in comparing the gross income and expenditure using a spreading method under the accrual rules with the cash-basis income and expenditure, the result is less than $40,000.

To determine whether the partner or owner is a cash-basis holder or cash-basis person, they must take into account their share of the financial arrangement, or their share in the gross income or expenditure under the financial arrangement the partnership or LTC is a party to.

Sale or maturity of financial arrangements

Whether or not the exemption from the spreading methods applies, when a financial arrangement matures, is sold, remitted or transferred, you must do a “wash-up” calculation, known as a base price adjustment. The calculation ensures the total gains or losses from the financial arrangement are accounted for.

If you need any information about calculating a base price adjustment, please call Inland Revenue on 0800 443 773.

If there was more than one amount of RLWT deducted, show the combined amount, less any RLWT paid back to the LTC and/or transferred to outstanding amounts during the income year.

Show the name of the LTC’s withholder(s) in the “name of payer” box.

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