Tax Updates: 20 April 2026

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at [email protected].

Deferred Property Settlements & Financial Arrangements

This week, I thought I would comment on the release of a recent Technical Decision Summary TDS 26/03. Firstly, to remind you that these are now published by Inland Revenue (IR). And secondly, as a reminder to consider the potential application of the financial arrangement rules whenever your client has a deferred property settlement.

With respect to the first reminder, and particularly with regard to those more interpretative issues (like tax residency permanent place of abode, s.CB 12 work more than minor, GST tax activity being carried on etc), we used to be a little in the dark as to IR’s thinking when it came to those issues in dispute, which almost got to Court. They didn’t, for one reason or another — more recently because the Tax Council Office (TCO) either decides for the taxpayer (in which case the dispute is closed) or against the taxpayer, who decides not to take the dispute through the Court.

When a case reaches TCO and a decision is released, IR publishes those decisions (taxpayer references omitted naturally) which give you insight to what types of issues are triggering disputes between IR and the taxpayer, what each side’s position on those issues are, and most importantly, how TCO rules on the issue. For any of you advising on tax related issues, I strongly recommend that you keep an eye out for these publications, either by subscribing to IR’s update services or visiting their Tax Technical website regularly to check for latest updates. The releases are usually only eight to nine pages in length, so not overly taxing.

Regarding the second reminder, TDS 26/03 deals with a private ruling application about a sale and subdivision of land, a “lowest price” clause in the sale and purchase agreement, and whether there was any financial arrangement income or loss. The arrangement was with respect to an agreement for the sale and purchase of land, which was structured as a staged subdivision with settlement and payment for each lot occurring in eight stages over eight years. The sale and purchase agreement (SPA) included a “lowest price” clause, stating that the agreed price is the lowest price for tax purposes under s EW 32(3).

The key point for you to take away from this article is if your client is involved in a deferred settlement that deferral is likely to be considered a financial arrangement. Where an agreement for the sale and purchase of property or services is a financial arrangement, s EW 32 applies to calculate the amount of consideration paid in property (the land) for the purposes of the financial arrangement’s rules. If the amount determined by s EW 32 is less than the amount paid in money, your client (if the vendor) is treated as deriving financial arrangement interest income.

Essentially, s EW 32(3) provides that the value of property in a financial arrangement is the lowest price the parties would have agreed on, if payment had been required in full at the time the first right in the property was transferred. This provision is designed to isolate any interest component in deferred settlement arrangements.

The common trick to avoid any financial arrangement income is to use a “lowest value clause” in the SPA, under which the determination of the lowest price, and thus the interest component of a deferred property settlement, is a matter of negotiation between the parties. IR will not impute interest where it is genuinely agreed between the parties that no interest will be paid, and in this respect, may consider objective facts to determine whether the parties have agreed to the price they assert.

I won’t spoil the surprise of the TDS 26/03 outcome for you — it’s a brief 4-pager, so obviously lacks a lot of detail — but as with all these things, it just adds to the list of trigger points already in your brain, so you can identify potential issues as they arise for your client and not be standing at the bottom of the cliff trying to clean up the mess when IR comes knocking.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.