Commissioner’s operational position on QB 17/09 - Is there a full or partial disposal when an asset is contributed to a partnership as a capital contribution?

The Commissioner of Inland Revenue has released QB 17/09 - Is there a full or partial disposal when an asset is contributed to a partnership as a capital contribution?

QB 17/09 clarifies the Commissioner’s position due to uncertainty about whether there is a full or partial disposal of an asset where a person contributes an asset they own to a partnership as a capital contribution. Both of these approaches were previously accepted by the Commissioner.

The Commissioner’s position, as confirmed in QB 17/09, on the full or partial disposal issue is that there is a full disposal of the asset. This means, for example, that where the asset disposed of is either depreciable property or revenue account property (which includes trading stock) for the person, the person may have an amount of depreciation recovery income or depreciation loss, or income or loss, calculated on the basis that the person has fully disposed of the asset.

As the Commissioner’s position has changed, the Commissioner will apply the following transitional operational position:

1. Where a person has applied a partial disposal approach (prior to the date of publication of QB 17/09) to a particular asset contributed to a partnership, and that asset is still held by the partnership, they can continue to apply that approach to the asset provided that:
    
   • the partial disposal is recorded/noted in the person’s relevant accounts for each year until the asset has been disposed of by the partnership; and
   • the person must account for any applicable tax liabilities on the retained part of the asset when the partnership disposes of the asset.


2. Where a person has previously applied a full disposal approach to a particular asset already contributed to a partnership, they will continue to apply this approach with no change.


3. Where a person wants to contribute a new asset to a partnership, they must use the full disposal approach from the date of publication of QB 17/09.