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Income Tax Act 2007

Taxation of certain entities - Joint venturers, partners, and partnerships

HG 2: Partnerships are transparent

You could also call this:

“ Partnerships are treated as see-through for tax purposes ”

When you’re part of a partnership, the law treats you as if you’re doing everything the partnership does. This means you’re seen as carrying out the partnership’s activities, having its goals, and owning its property. The amount of these things that apply to you depends on your share in the partnership.

You’re also treated as if you’re part of any deals the partnership makes, based on how much of the partnership you own. The partnership itself isn’t seen as doing these things – it’s all treated as if you and the other partners are doing them directly.

When it comes to money coming in or going out, like income or expenses, you calculate your share by multiplying the total amount by your percentage of ownership in the partnership.

Sometimes, you might be treated as if you’ve spent money or made a loss that the partnership did, even if you weren’t a partner when it happened. But you can’t claim the same expense or loss twice.

There are some exceptions to these rules. They don’t apply to costs related to joining a partnership by buying another partner’s share, unless sections HG 5 to HG 10 say otherwise. They also don’t apply to certain types of dividends and tax credits, which have their own rules in subpart LP and section LE 6.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1185059.

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Part H Taxation of certain entities
Joint venturers, partners, and partnerships

HG 2Partnerships are transparent

  1. For the purposes of a partner’s liabilities and obligations under this Act in their capacity of partner of a partnership, unless the context requires otherwise,—

  2. the partner is treated as carrying on an activity carried on by the partnership, and having a status, intention, and purpose of the partnership, and the partnership is treated as not carrying on the activity or having the status, intention, or purpose:
    1. the partner is treated as holding property that a partnership holds, in proportion to the partner’s partnership share, and the partnership is treated as not holding the property:
      1. the partner is treated as being party to an arrangement to which the partnership is a party, in proportion to the partner’s partnership share, and the partnership is treated as not being a party to the arrangement:
        1. the partner is treated as doing a thing and being entitled to a thing that the partnership does or is entitled to, in proportion to the partner’s partnership share, and the partnership is treated as not doing the thing or being entitled to the thing.

          1. Despite subsection (1), for a partner in their capacity of partner of a partnership, the amount of income, tax credit, rebate, gain, expenditure, or loss that they have from a particular source, or of a particular nature, is calculated by multiplying the total income, tax credit, rebate, gain, expenditure, or loss of the partners of the partnership from the particular source or of the particular nature by the partner’s partnership share in the partnership’s income.

          2. A partner of a partnership may be treated as incurring an expenditure or loss which the partnership incurs ignoring this section, despite the partner not being a partner at the time the expenditure or loss is incurred. This subsection does not allow 2 deductions for 1 expenditure or loss.

          3. Subsection (2) does not apply to the following amounts:

          4. expenditure or loss that relates to a person entering a partnership by acquiring partner’s interests disposed of by another partner, to the extent to which sections HG 5 to HG 10 do not apply to the partner’s interests:
            1. supplementary dividends, to the extent to which subpart LP (Tax credits for supplementary dividends) applies:
                1. imputation credits, to the extent to which section LE 6 (Partners in partnerships) applies.

                    Notes
                    • Section HG 2: inserted, on , by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
                    • Section HG 2(4)(c): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 76(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section HG 2(4)(d): amended, on , by section 133(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section HG 2(4)(e): repealed, on , by section 133(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section HG 2 list of defined terms CTR additional dividend: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                    • Section HG 2 list of defined terms FDP credit: repealed, on , by section 133(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section HG 2 list of defined terms rebate: repealed (with effect on 23 November 2010), on , by section 61 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).