Income Tax Act 2007 section 409

Business successions between partnerships

Section 409 ensures that tax relief on loan interest continues when a partnership is dissolved and a new partnership is formed to carry on the same business, provided the borrower remains a member of the successor partnership.

• Where an individual has borrowed to invest in a partnership and that partnership is dissolved, interest relief is not automatically lost if a successor partnership takes over the business.
• The new partnership must be formed on the dissolution of the old one and must carry on the whole or part of the old partnership's undertaking, with the individual as a member.
• If these conditions are met, the tax rules treat the old and new partnerships as the same partnership, preserving the individual's entitlement to interest relief on the original loan.
• Salaried partners and similar roles are treated as partners for the purpose of determining whether the individual is a member of the new partnership.