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From GRA: LAQC's Out - Limited Partnerships In

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  • From GRA: LAQC's Out - Limited Partnerships In

    Investors should be aware that the partnership law reform bill has been passed and gained royal ascent in March. The Act has embodied limited partnerships into NZ law effective from 1 May 2008.

    Essentially a limited partner and general partner form a limited partnership's make up. The limited partner gets a statutory limitation of liability. The general partner has unlimited liability. The general partner manages the affairs of the partnership, the limited partner supplies capital. They can share profits as they like.

    The nice thing is you get flow through of losses and income to both partners at rates you set. Loss flow though is limited to cash injected or economic exposure. So no cash injected does not stop flow through of losses as many have speculated, - if you have guaranteed the loans.

    This structure will re-write the way GRA structures clients. It has huge advantages for investors who are salaried and self employed.

    For salaried investors, it is our view that we can stream capital growth to a Trust and losses to the individual. No more gifting of capital growth ! LAQC's can't do this. We are seeking a binding ruling on this now from IRD, before we launch it to clients.

    For self employed investors, profit can be streamed untaxed to a Trust and offset property losses that may otherwise be locked up in Trust. Direct ownership of rentals in the Trust just got easier...and its a good step forward for investors who are self employed as it opens up all sorts of avenues currently closed for them from a structuring perspective. There are all sorts of interesting angles to it.

    For property traders and developers, its not ideal and we still recommend joint ventures over LP's as LP's will taint partners while a JV of Trusts won't.

    Anyway, its a technical beast and evolving as we speak. Clients or PT people interested are welcome to contact me. I will be running a seminar on it later this year...once we get our binding ruling ( we expect no issues with our binding ruling, but we reserve the right to back away from this announcement if IRD turn us down).

    All investors will be pleased with the advantages of this structure....once we have IRD sign off.

    Matt Gilligan CA
    www.gra.co.nz
    Last edited by Matt Gilligan; 08-04-2008, 02:13 AM.
    Matthew Gilligan CA - E-mail Matt
    Chartered Accountant Specialising in Tax Structures, Property & Trusts
    Read my book: Tax Structures 101

  • #2
    Originally posted by Matt Gilligan View Post
    For salaried investors, it is our view that we can stream capital growth to a Trust and losses to the individual. No more gifting of capital growth ! LAQC's can't do this. We are seeking a binding ruling on this now from IRD, before we launch it to clients.
    Interesting to see how you go on this given the anti streaming section in the legislation.

    Comment


    • #3
      Reply to CJ

      I have used the term 'stream' loosely. Streaming of course implies splitting capital and revenue, which we are not doing. This would be caught by the anti streaming rules you raise.
      Matthew Gilligan CA - E-mail Matt
      Chartered Accountant Specialising in Tax Structures, Property & Trusts
      Read my book: Tax Structures 101

      Comment


      • #4
        thats kind of what I meant. It will be interesting to see how you go with the binding ruling as if they beleive what you are doing is against the spirit of the legislation, they may seek ammending legislation?

        I do agree that the new LP rules offer a lot of opportunitites. Hopefully the govt decides to give investors certainty by not playing around with them now that they are enacted.

        Comment


        • #5
          The Spirit

          Immmmm

          I dont think what we are doing is against the spirit of the legislation.

          What they don't like is a scheme that slices and dices profit so that no one pays any tax, and in some circumstances streaming income by splitting revenue and capital between charities and others can result in a jack up where no one pays any tax. This is bad behavior and won't wash with IRD.

          What we are doing will always be subject to tax on the income and does not change the charactor of the income.

          All we are trying to achive is the trust gets the growth, the individual gets the income and eventually pays tax. The Trust is doing something to get the growth under our structure, so its all commercial.

          But that is what binding rulings are for - to take the risk out of things. The last thing we want is a tax avoidance problem for clients that we created. We know how to avoid this....get sign off from IRD on it.

          .....unlike the skanky Bluechip tax products that get brought to market without a ruling in place and jepardise investors ( AKA their alterations comphensation scheme that IRD rejected after I blew the issue up wioth the Independnat Newspaper 2 years ago. I was publicly very opposed to it because I knew it was a rort that IRD would reject). At GRA we get our ducks lined up and make sure a structure is right before investors use it.

          We are therefore awaiting for IRD sign off before we proceed with our LP structure as a recomended structure for clients.

          Laslty I doubt they would bothe rto amend legislation to hit a structure that is not eroding the tax base, as our proposed structure won't. It just gets rid of teh hassel of gifting and is better for asset protection. IRD in my experience are less concerned about commercial outcomes like this that don't reduce teh amount of tax being paid and have a legitimate motivation being asset protection.

          But time will tell...
          Last edited by Matt Gilligan; 08-04-2008, 09:55 AM.
          Matthew Gilligan CA - E-mail Matt
          Chartered Accountant Specialising in Tax Structures, Property & Trusts
          Read my book: Tax Structures 101

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