New tax rules to impact sale negotiations?

Legislation currently before Parliament, and likely to be passed later in the year has the potential to add another layer of complexity to price negotiations for commercial property sales. Under the proposed legislation the price allocation (of improvements compared to the overall property value) will impact both buyers and sellers. Under current law, the parties can take independent views of the split between land and improvements. This means  potentially the seller can take the view that the market value of improvements is the same as it’s tax book value, which makes the disposal tax-neutral. However, currently the purchaser can take the view that the improvements are worth more, and accordingly claim depreciation on the higher amount. The gap between these two amounts means the IRD is missing out on tax take. Which is what the legislation is trying to correct.

To get it right for both parties will mean  there needs to be a written purchase price allocation as part of the deal negotiation. Which means an additional aspect to finalising any Sale and Purchase agreement.