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Inland Revenue

Tax Policy

PUBLISHED 7 August 2007

Bill introduces partnership reforms

A bill tabled in Parliament today introduces new tax rules for limited partnerships and updates the tax rules on general partnerships. The changes are part of the Limited Partnerships Bill, which also introduces new regulatory rules for limited partnerships that will make it easier for New Zealand firms to have access to venture capital investment. For more information see the government's media statements, and the commentary on Parts 5 and 6 of the bill – associated tax changes. A copy of the bill is published here courtesy of Legislation Direct.


Hon Dr Michael Cullen/Hon Peter Dunne
Hon Lianne Dalziel

Hon Dr Michael Cullen
Minister of Finance

Hon Peter Dunne
Minister of Revenue

New tax rules for limited and general partnerships

Legislation is being introduced to provide new tax rules for limited partnerships and update the tax rules on general partnerships, Finance Minister Michael Cullen and Revenue Minister Peter Dunne said today.

The changes are part of the Limited Partnerships Bill, tabled today, 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," said the Ministers.

"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 new rules also cover tax aspects of entering 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.

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

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

A commentary on the tax changes is available at

Mike Jaspers, press secretary to Dr Cullen, 04 471 9412 or 021 270 9013
Ted Sheehan, press secretary to Peter Dunne, 04 470 6985, 021 638 920

Hon Lianne Dalziel
Minister of Commerce, Minister for Small Business,
Minister of Women’s Affairs, MP for Christchurch East

New bill encourages venture capital investment

New Zealand firms will have easier access to investment capital under a bill to establish new regime of limited partnerships tabled in parliament today by Commerce Minister Lianne Dalziel.

Limited partnerships are an internationally preferred structure for investing in venture capital.

"Venture capital provides a valuable source of funding for new companies and early stage expansion capital, but the absence of an internationally recognised legal and tax structure is an impediment to foreign venture capital investment here," Lianne Dalziel said.

"In a highly competitive international venture capital market, New Zealand is disadvantaged by size and distance. This makes it particularly important that we adopt a limited partnership structure that is consistent with international norms and that provides the form of legal and tax structure that is recognised and accepted by investors. This bill provides such a structure and encourages the development of the venture capital industry in New Zealand," Lianne Dalziel said.

The key regulatory features of the bill include:

  • "General" partners who are liable for the debts and obligations of the partnership;
  • "Limited" partners whose liability is limited to the amount of their investment, so long as they do not take part in the management of the partnership;
  • Provision for 'safe harbour' activities so that limited partners are able to participate in strategic activities without this affecting their liability; and
  • Providing a separate legal personality for limited partnerships.

"While limited partnerships can encourage venture capital investment, they are not exclusively designed for that, and may be used as a flexible alternative to a company or other legal form," Lianne Dalziel said.

The limited partnership will receive "flow through" tax treatment, meaning the partnership itself is not taxed. Instead each partner is taxed individually at that partner's personal tax rate. The addition of a separate legal personality requires changes to tax rules to enable limited partnerships to receive "flow through" tax treatment rather than being treated as a company, and this would be done concurrently, Lianne Dalziel said.

Contact: Elspeth (Ellie) McIntyre, Press Secretary, ph 04 471 9397 cell 021 227 9397
All Lianne Dalziel's media statements and speeches are at