Tax change welcome, but long overdue

28 June 2006

Comments from Geof Nightingale, Ernst & Young Group Ltd

Tax change welcome, but long overdue

The Government's proposed changes to the tax rules for partnerships will finally bring us in line with our key trading partners, if adopted, says Ernst & Young tax director Geof Nightingale.

The discussion document, which outlines potential changes to tax rules on general partnerships and proposes new rules on limited partnerships, was released today.

"It has been along time coming but the Government's latest proposals will see us on a level playing field with overseas countries in attracting investment funds," says Mr Nightingale.

In simple terms the proposals will allow people to invest in limited partnerships that enable the income to be distributed before tax but have the benefits of limited liability. Losses will also flow through to partners but capped to the extent of the capital invested.

The Government will also clarify the rules apply to general partnerships.

Mr Nightingale says the changes are well overdue. Leading private equity and venture capital investment funds cite the lack of a suitable limited partnership structure in New Zealand as a major deterrent to investing here.

The need for clarification of the tax rules applying to general partnerships was first identified by the Valabh Committee in 1989, 17 years ago.

However, we're going to have to wait a bit longer yet as the Government proposes to apply the changes only from the 2009 tax year onwards.

Mr Nightingale says adopting these changes will help us compete for investment dollars with countries like the US, Australia, UK, Canada and Singapore.

The changes, if adopted, will in some cases have a major impact on the return that funds can provide to their investors. They will make New Zealand more attractive for both offshore and onshore capital and private equity investors.

The clarification of tax rules applying to general partnerships is very welcome. The proposals will lower compliance costs and reduce current uncertainty faced by many partnerships over the correct tax treatment of their business.

ENDS

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