Property and Tax Law: New ADLS/REINZ Addenda to Address 1 July Tax Changes

Important “purchase price allocation” (PPA) income tax rules come into effect from 1 July 2021. PPA can have a significant impact on a party’s tax position, so it is critical that advisers are aware of the changes and ensure that their client's interests are protected.

New PPA addenda are now available for affected transactions to the following ADLS/REINZ forms:

  • Agreement for Sale and Purchase of Real Estate - Eleventh Edition 2022  Download pdf
  • Agreement for Sale and Purchase of a Business - Fourth Edition 2008 (6)  Download pdf
  • Particulars and Conditions of Sale of Real Estate by Tender - Fifth Edition 2020  Download pdf

    The key features of the new PPA addenda are as follows:

    1. An agreed PPA can be recorded in a new schedule when the agreement is entered into. The schedule is flexible so that the PPA can be tailored for the relevant transaction.
    2. If there is no agreed PPA when the agreement is entered into and the new PPA income tax rules would otherwise give the vendor the right to unilaterally determine a PPA that would bind the purchaser, the addendum provisions prescribe a balanced process for a PPA to be agreed post-signing (with provision for expert determination if need be).
    3. In both of the situations above, the agreed PPA must be followed by the parties in determining their respective tax positions.

    Addenda are available for the ADLS/REINZ Real Estate, Tender and Business Agreements, but are not considered practicable for the Sale of Real Estate by Auction and Mortgagee Sale Agreements.

    Buyers need to be aware that the vendor by auction or the mortgagor in those situations may have a statutory right to unilaterally determine a PPA that binds the purchaser.

    Where PPA is potentially a material issue, transacting parties should get professional tax advice – before entering into a transaction.

    Transactions affected by the new income tax rules


    The new PPA income tax rules will apply to agreements entered into (conditional or unconditional) on or after 1 July 2021.

    The new rules will be relevant to any ‘mixed asset’ sale and purchase transaction, involving classes of asset that have different tax treatments. This will include business (asset) sales, commercial property sales, forestry and farm sales, and certain residential property sales.

    However, the harshest aspects of the new rules (discussed below) do not apply to the following transactions:

    1. Transactions limited to residential land and chattels if the total consideration is less than $7.5m.
    2. Other, lower value transactions - where the total consideration is less than $1m.

    In various situations, PPA also will not be an issue for one or both parties (eg, because all assets are revenue account assets for a party, or because a party is tax-exempt).

    Impact of the new rules – buyer beware!


    The new rules are focused on ensuring that vendor and purchaser do not adopt, at the expense of the tax base, different PPAs for the assets included in the transaction.

    Under the new rules, if the parties agree a PPA in writing, they must determine their income tax positions in accordance with that PPA. The agreed PPA can be overruled by the Commissioner only if she considers it does not reflect the relative market value of the assets.

    However, if there is no agreed PPA for a mixed asset transaction (and the residential land and lower value transaction exclusions noted above do not apply), the new rules allocate the right to determine the PPA for the transaction as follows:

    1. The vendor generally has the first, unilateral right (subject to certain constraints) to determine a PPA, within 3 months of settlement. That PPA will bind the purchaser.
    2. If the vendor does not have or exercise that right, the purchaser has a unilateral right to determine a PPA, within 6 months of settlement. That PPA will bind the vendor.
    3. If the parties do not exercise those rights, the Commissioner has the right to determine a PPA that will bind both vendor and purchaser.

    Buyers in particular need to be aware of the new statutory default position that, absent an agreed PPA, a vendor can unilaterally determine a PPA that may significantly impact the purchaser’s tax position (eg, by giving the purchaser a lower-than-expected cost base for depreciable property or revenue account assets).

    As noted above, the new PPA addenda to the ADLS/REINZ Real Estate, Tender and Business Agreements address the new rules by providing for the parties to agree and record a PPA when an agreement is entered into and also by prescribing a balanced process for a PPA to be agreed post-signing (rather than leaving the vendor with the right to unilaterally determine a PPA).

    CPD On-Demand: New Tax Rules for Property or Business Transactions

    For further insights, an On-Demand recording of an ADLS webinar held on the topic on 4 February 2021 is available. Purchase this on-demand recording here.

    The addenda and this notice were prepared by Simpson Grierson tax law experts Barney Cumberland and Nick Bland. ADLS would like to thank them for their expert advice and patience as various aspects of the provisions of these addenda were tested.

    ADLS would also like to thank the lead drafters (for the real estate related agreements, being Thomas Gibbons and, for the business agreement, Elise Markwick).

    Finally, ADLS would like to express its deep gratitude towards the ADLS Documents & Precedents Sub-Committee and, in particular, its Convenor, Tim Jones, for their enormous support and contribution in preparing the addenda.