Transfers of Land Within a Consolidated Group Clarified

Inland Revenue has issued Technical Decision Summary TDS 25/13, addressing how land transfers within a consolidated tax group are treated under the Income Tax Act 2007. The ruling confirms that certain land sales by entities within a consolidated group do not give rise to taxable income under sections CB 6 and CA 1(2), provided the transactions meet specific criteria.

Background:

The case involved a tax consolidated group comprising a holding company, an operating entity (Company A), and several inactive sister companies. Company A held business land on capital account, and it also had pre-consolidation tax losses available for carry-forward.

All group entities were ultimately owned by Person A, who directly owned the holding company and, through it, indirectly controlled the subsidiaries. In an effort to diversify investments and reduce concentration risk, Person A decided to realise value from Company A’s land holdings. This involved:

Initial Sale: Company A sold a parcel of land to the holding company at cost. The holding company then sold it to a third party at market value, intending to distribute the resulting capital gain (via liquidation) back to Person A.
Further Sales: Additional land, that was already divided into numerous lots, was to be sold at cost by Company A to the sister companies, which would immediately on-sell the land to external buyers at market value. These sales were structured across multiple entities to facilitate marketing and distribution.
Retained Land Strategy: A final portion of land owned by Company A was earmarked for long-term holding. It would be sold to newly created, wholly-owned sister companies, which would lease it back to Company A for ongoing trading purposes.
Purpose for liquidating the holding company was to access the capital gains from initial sale of land and the shares in sister companies out of the Holding company to Person A.

Tax Council Office concluded:

Sections CB 6 and CA 1(2) did not apply to the land sales made to third parties. Therefore, the profits from those sales were not taxable.
The group’s intragroup land transfers were not affected by FC 1 and FC 2, allowing the land to be transferred at cost rather than market value. Because the entities were part of a consolidated group, they are treated as a single economic unit, meaning a company cannot distribute value to itself.
Section BG 1 (anti-avoidance) did not apply. Inland Revenue accepted the commercial rationale behind the structure, including investment diversification and asset management goals.

Takeaway:

This decision provides useful clarity for groups considering asset realignments within a consolidated tax structure. When carefully managed and supported by genuine commercial motives, intragroup land transfers may not trigger tax liabilities—even where assets are ultimately sold to third parties for profit.

May 2025