Property Partnership Options - Which Trading Vehicle?
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Articles by Matthew Gilligan
Partnership really means two or more people or entities coming together in a common undertaking or enterprise.
You can trade your partnership through various trading vehicles including companies/LAQCs, joint ventures, general partnership, special partnerships, limited partnerships, or trusts. Each trading vehicle should have an agreement created between the partners to the investment defining their rights and obligations. In a company for example, this is done in the shareholders agreement. In a partnership, the partnership agreement. In a joint venture, the joint venture agreement etc.
Which Trading Vehicle?
Choosing the right structure is a combination of assessing many factors and choosing the vehicle that delivers maximum benefits for your particular circumstances. While a more detailed discussion on asset protection and tax structures is explored elsewhere on this site, a brief review of things to consider would include the following (looking at partnerships from a property investor's context):
1. Asset protection implications (including limited liability vs unlimited liability for actions of the partnership, and liability for the banking obligations of the partnership by the partners): LAQCs for example require shareholders that are electing into the LAQC regime to personally guarantee the IRD for income tax.
This can be managed for small shareholders, but is one asset protection consideration in the mix. Another thing to review is your proposed structure creating wealth outside of a trust, and if so, is it possible to both have your losses accessible and contain capital gains inside your trust for asset protection and avoiding future gifting problems?
2. Flexibility of ownership: Can you change partners without triggering depreciation recovered? 'Yes' for an LAQC, 'No' for most partnership circumstances.
3. Flow through of tax losses: Will the trading vehicle let you access the losses?
4. Flow through of capital gains: Will the trading vehicle allow easy access to capital gains at the end of the investment, or do you have to liquidate? (For example, a company will require liquidation to access capital gains tax exempt in NZ, unless it is a qualifying company.)
5. Cross border tax considerations: For those investing offshore or cross border, have you thought through the complex tax issues that arise? Like capital gains tax, non resident withholding tax, the implication of the New Zealand accrual rules and foreign exchange movements, and double tax on dividend income.
Generally there is a simple and effective structure for most circumstances. Contact us if you require assistance with any matter above.
Matthew Gilligan
Director
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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Gilligan Rowe and Associates is a chartered accounting firm specialising in property, asset planning, legal structures, taxation and compliance.
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