New Zealand Limited Partnerships

New Zealand Limited Partnerships are separate legal entities in law but are disregarded for tax purposes. Partners have limited liability as long as they do not participate in the management of the Limited Partnership. Management of the Limited Partnership is conducted by the general partner. Limited Partnerships are a suitable Fund or Syndicate structure in a range of circumstances. They are also recognised internationally and are often preferred by non-NZ resident investors.

Funds and Syndicates which are structured as Limited Partnerships are disregarded for tax purposes. This means that for tax purposes a share of the Limited Partnership’s net taxable income is allocated to you based on your limited partnership interest. The Limited Partnership is not a taxpayer. Instead, you will be responsible for your own tax on your share of the Limited Partnership’s income.

The Manager will send you an annual limited partner tax statement at the end of each financial year which will summarise your share of the Limited Partnership’s gross income, expenses, and net taxable income.

You benefit directly from the tax deductions of the Fund or Syndicate, including tax depreciation and unrestricted interest deductions. New Zealand does not generally tax capital gains on commercial real estate investments. The 10-year bright-line test that applies to residential property investment does not apply to commercial property. Gains realised on the sale of real estate investments are tax free if the investment was made for the purpose of deriving rental income and long-term capital growth.

There are a number of specific tax rules which treat certain capital gains as income. For example, there are tax rules that apply to speculators, land developers, dealers and investors who purchase property with the intention of selling it. These rules should not apply to your Fund or Syndicate which will acquire real estate for the purpose of deriving rental income and long- term capital growth.

In summary, Limited Partnerships provide a number of advantages to investors, including:

  1. Limited liability for limited partners
  2. Whilst a separate legal entity, it is disregarded for tax purposes
  3. The Manager calculates your share of the Limited Partnership’s net income.
  4. You retain control over your taxes, including the payment of tax at your applicable tax rate
  5. You benefit directly from the tax deductions of the Fund or Syndicate, including tax depreciation. This means that your taxable income may be less than your partnership distributions.
  6. Unrestricted interest deductions on debt used to finance commercial real estate.
  7. Capital gains realised by the Fund or Syndicate may be distributed to investors tax-free.
Randolph van der Burgh
September 19, 2021

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