Associated Persons must be disclosed

The IRD have announced some changes around disclosing the names of associated persons when preparing financial statements. From the 2015-16 tax year, transactions between associated persons must be disclosed in financial statements.

What type of transactions would be disclosed? 

  • interest expense on loans from associates
  • loans or other advances to associates
  • expenses for services provided by associates including wages, salaries, management fees, and payments for other services provided to the company
  • expenses to associates for rent and leases
  • expenses to associates to acquire intangibles or for their use including royalty payments

The idea is to ensure that the transaction is treated the same as two people in a standard arms length transaction at market value.

Just what is an associated person? 

The net is cast pretty wide on the definition of associated persons. It can include:

  •  a company and a person other than a company
  •  two relatives
  •  a person and a trustee for a relative
  •  a trustee and a beneficiary
  •  trustees with a common settlor
  •  a trustee and a settlor
  •  a settlor and a beneficiary
  •  a trustee and a person with the power of appointment or removal of the trustee
  •  a partnership and a partner
  •  a look-through company and a director or employee holding an interest in that company, and
  •  two persons who are each associated with the same third person (tripartite test)

The list is not exhaustive.


Why are these changes being made?

The purpose of the disclosure is to make any associated persons transactions transparent to any user of the financial reports. One of those users could potentially be Inland Revenue.

To recap, the key reason is that transactions between associated persons should be on the basis of an ‘arms-length’ transaction. Income tax law has mandated this for some time. Essentially that means that any transactions should be done at the market price, particularly land transactions (including buildings) and private transactions. It might also mean that a prescribed rate of interest should be charged for any loans.


This area of tax law is complex. If you think you might be impacted by an associated person transaction, you should always seek professional advice unique to your circumstances. We would be very happy to help.