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Guide To Associated Persons Definitions For Income Tax Purposes - IR 620

This guide explains the associated persons definition for income tax purposes.

The associated persons rules in the Income Tax Act 2007 are designed to ensure the tax treatment of transactions involving associated persons don’t:

  • create a tax benefit;
  • use the tax system to subsidise the cost of what are effectively private transactions;
  • disguise the nature of a business or private transaction; and
  • disguise the person(s) involved in the transaction.

Generally, transactions that are non-arm’s length need to be considered under the associated persons rules to ensure that they are treated the same from a tax perspective as if the transaction was made by two independent parties.

Property Tax Accountant NZ

There are 11 tests to determine if two persons are associated.

  1. Two companies
  2. Company and person other than a company
  3. Two relatives
  4. Person and a trustee for a relative
  5. Trustee and a beneficiary
  6. Two trustees of separate trusts with a common settlor
  7. Trustee and a settlor
  8. Settlor and a beneficiary
  9. Trustee and a person with power of appointment or removal
  10. Partnership and a partner
  11. Tripartite relationship

The associated persons tests can be broad, for instance the associated persons rule can deem two parties as associated persons where they are associated with the same third party, despite the two parties are not associated (i.e. tripartite relationship). Each of the above tests shall be considered to determine whether the entities/persons are associated.

There are certain exemptions to the associated persons rule for land provisions.

Guide To Associated Persons Definitions For Income Tax Purposes – IR 620

IR 620

Please note the guide(s)/form(s) were the latest version at the time this web page was finalised. If you need the latest form/guide, please visit IRD’s website at here.

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