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New Zealand Updates Tax Rules For Limited And General Partnerships

by Mary Swire,, Hong Kong

13 August 2007

Legislation is being introduced to provide new tax rules for limited partnerships and update the tax rules on general partnerships, New Zealand's Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced last week.

The changes are part of the Limited Partnerships Bill, tabled on August 7, which introduces new regulatory rules for limited partnerships that will make it easier for New Zealand firms to have access to investment capital.

“Limited partnerships are commonly used in many other countries as a vehicle for venture capital investment into other countries, so it makes sense to have New Zealand tax rules that facilitate this kind of investment here,” explained the Ministers.

They continued:

“The tax rules proposed in this bill are investment-friendly and will enable New Zealand to be more competitive in attracting venture capital. At the same time, the bill clarifies and modernises the tax rules on partnerships generally."

“Limited partnerships will not be taxed at the partnership level. Instead, each partner will be taxed individually, in proportion to his or her share of the partnership income, in the same way that income from general partnerships is taxed. Limited partners’ tax losses in any given year will be restricted to the level of their economic loss in that year."

The Ministers explained that the new rules also cover tax aspects of entering into and leaving all partnerships, whether general or limited.

"They include requiring exiting partners to account for tax in certain circumstances and clarifying the extent to which selling partners must realise gains on underlying partnership assets," they stated.

Under the new rules, partners will be required to account for tax on exiting a partnership only if the amount of the disposal proceeds from the partnership interest exceeds the total net tax book value of their share of the partnership property by more than NZ$50,000 (US$37,300).

"Last year’s discussion document on the subject suggested that the cut-off point should be NZ$20,000, but submissions on the proposal convinced us that NZ$50,000 would be a more realistic threshold," Cullen and Dunne stated.

“We welcome these proposed changes, which will bring clarity and certainty to New Zealand’s tax rules on partnerships generally," they concluded.

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