Purchase Price Allocation Rules

If you are planning to buy or sell a business, you need to be aware of the new purchase price allocation rules that apply to business asset sales as well as commercial property sales. The new rules took effect from 1 July 2021 and impact the way parties allocate the agreed purchase price between tangible and intangible assets.

The new rules overcome the issue of vendors and purchasers allocating different prices to the same asset resulting in a tax mismatch for Inland Revenue. Under the new purchase price allocation rules, the parties either have the option of agreeing an allocation which will be applied for tax purposes by both parties, or if no agreement is made, then a legislative process applies for determining the allocation.

There is a de minimis threshold for transactions where the total consideration is less than $1 million, or if residential land and chattels are involved, the threshold is for consideration of less than $7.5 million.