Tax Specialsts Auckland
Chartered Accountants


Tax Alert October 2009

Associated Persons – Land Provisions

Following our newsletter last year on this subject, we provide the following update.

The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill received Royal Assent on 6 October 2009. The Act makes significant changes to the definitions of “associated persons” in the Income Tax Act 2007. The new rules do not extend the types of land sales that are taxed. The new rules extend the meaning of associated persons and therefore will catch more investment land sales. The changes will have adverse implications for some taxpayers, particularly land dealers, developers and builders, who acquire investment properties on or after

6 October 2009.

The new associated persons rules replace the four current definitions of “associated persons” and other provisions employing a similar concept with one standardised definition that will be subject to several modifications for the purposes of the land taxing provisions. Significant changes were made to the original proposed changes, most notably the removal of section YB5 (persons and trustees for relative) for the purpose of the land provisions.

The following persons will be associated from 6 October 2009 for the purposes of land transactions:

  • Two companies (Section YB2)

Two companies are associated persons if a group of persons exists whose total voting rights in each company are 50% or greater.   For this purpose interests held by an associated person are treated as held by the other person.

  • Company and person other than company (Section YB3)

A company and a person other than a company are associated persons if a voting interest in the company of 25% or more is held by:

(a)   the person;

(b)    the person’s spouse, civil union partner, or de facto partner; (c)         the person’s infant child;

(d)   a trustee of a trust settled by the person:

(e)    a trustee of another trust which has a common settlor to the trust holding a 25% or greater voting interest.

(f)   any two or more persons referred to in paragraphs (a) to (e).

  • Two relatives (Section YB4)

Two persons are associated if they are married, in a civil union or in a de facto relationship, or if one is the infant child of the other.

  • Two trustees with common settlor (Section YB7)

Trust A and trust B are associated if the settlor of both trusts is the same person. The settlor is not necessarily the person recorded in the trust deed as the settlor. Settlors include any person who has made a transfer of value to the trust for inadequate consideration (e.g. nil or low interest rate loans). For this purpose two persons that are married, in a civil union or in a de facto relationship are treated as the same single person.

  • Trustee and settlor (Section YB8)

Trust A and a settlor of trust A are associated persons.

  • Trustee and person with a power of appointment or removal (Section YB11)

A trust and person who has a power of appointment or removal of trustees is an associated person.

  • Partnership and partner (Section YB12)

A partnership and a partner in the partnership are associated persons.

  • Tripartite relationship

Any two persons that are separately associated to a common person or entity by the tests associating them under any of the sections mentioned above excepting where the common person is associated with both the other persons only under the same provision.

Two Companies

Under the former definition of associated persons, two companies were associated by 50% or more commonality of voting interests, e.g. Company X, a land dealer, and Company Y, an investment company. If Mr X owns 100% of the development company and Mrs X owns 100% of the investment company, the two companies were not associated.


As from 6 October 2009, Company A and Company B will be associated because Mr X and Mrs X are relatives. These relatives are associated and therefore Mr X’s shareholding is treated as being held by Mrs X. The new definition includes tighter rules for aggregating the interests of associates.

A Company and a Person



Under the former definition of associated persons, the sale of rental properties by the trust will not be tainted by the activities of Kim Development Limited.

From 6 October 2009, the development company and trust will be associated under the aggregation test because the trust is associated with Kim under Section YB8. If rental properties are owned for less than 10 years and acquired post 6 October 2009, profits on sale will be taxable with the consequence that the trust is treated as holding the shares in Kim Development Limited.

Trusts with Common Settlor


Under the old definition of associated persons, the family trust was not associated with the trading trust.

From 6 October 2009 the trusts will be associated if they have a common settlor (as defined in the Income Tax Act 2007). For this purpose two persons who are married, in a civil union or de facto relationship are treated as the same single person.

It should be noted that the limited definition of relative for the purpose of land transactions coupled with non-association of trustees with beneficiaries produces some scope for structuring around these rules.