What is the best Structure for Investment Property Partnerships? by Paul Easton

Partnership simply is the joining together of two or more individuals or entities in a common undertaking or enterprise.


From an accounting, taxation and legal point of view, you can trade your partnership through various trading vehicles including companies and loss attributing qualifying companies, joint ventures, special partnerships, general partnership, limited partnerships, or even Trusts.



Each trading vehicle should have an agreement created between the partners to the investment outlining their obligations and their rights.



In a company for example, this is done in a standard shareholders agreement. In a partnership, the partnership agreement.



In a joint venture, the joint venture agreement etc. Which Trading Vehicle? Selecting the correct structure is a mix of analysing many factors and choosing the vehicle that produces the most benefits for your situation.



A brief summary of things to consider would include the following (regarding partnerships from a property investor's context):



1. The Implications of Asset Protection (including limited liability versus unlimited liability for actions of the partnership, and liability for the banking obligations of the partnership by the partners)



LAQC's require shareholders that are electing into the LAQC regime to personally guarantee the IRD for income tax.



This can be managed easily for small shareholders, but asset protection consideration that must be looked at.



Also to be reviewed is the question of if your proposed structure is 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? The answer is '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 unless it is a qualifying company to access capital gains tax exempt in NZ).



5. Cross border tax considerations: for those investing off shore or cross-border, comlex tax issues could arrise? 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.



In general as specialist property investment accountants, we recommend the use of an expert chartered accountant to help you with these issues.