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Income Tax Act 2007

Taxation of certain entities - Terminating provisions

HZ 3: Special partnerships: transition into limited partnerships and limited partnerships deduction rules

You could also call this:

“Rules for special partnerships becoming limited partnerships”

When a special partnership changes to a limited partnership, some special rules apply. These rules help make the change smoother for the partners involved.

If you were part of a special partnership on 1 April 2008, and it later became a limited partnership, you don’t have to worry about your partnership interests being sold or changed. The law treats you as the same partners in the new limited partnership.

When figuring out how much each partner can claim as a deduction, all partners must agree on one of two ways to calculate their ‘partner’s basis’:

  1. You can use the market value or the accounting book value of certain amounts on the last day of the first tax year when the new rules apply to you.

  2. Or, you can pretend that your special partnership was always a limited partnership, and apply all the relevant rules as if they had always existed.

If these calculations show that a partner’s basis is less than zero, it’s treated as zero instead.

Remember, these rules are designed to help partners move from special partnerships to limited partnerships without causing too much disruption to their tax situations.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1693995.

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HZ 4: Overseas limited partnerships: transition into limited partnerships deduction rules, or

“Rules for tax deductions when overseas partnerships become limited partnerships”

Part H Taxation of certain entities
Terminating provisions

HZ 3Special partnerships: transition into limited partnerships and limited partnerships deduction rules

  1. This section applies when a special partnership under Part 2 of the Partnership Act 1908—

  2. is in existence on 1 April 2008; and
    1. is terminated and a limited partnership registered under the Limited Partnerships Act 2008 (the new limited partnership) succeeds to that special partnership.

      1. No partners’ interests are disposed of merely because of the termination and succession described in subsection (1)(b). The partners of the special partnership are treated as the same partners of the new limited partnership.

      2. For the purposes of applying sections HG 11 and HG 12 (which relate to limited partnerships deduction rules) to the partners of the new limited partnership, all of the partners must choose one of the 2 following methods for calculating their partner’s basis under section HG 11(3):

      3. they may choose to use the market value or the accounting book value of the amounts described in section HG 11(3), as at the day the calculation is first performed, namely the last day of the first income year in which they are subject to sections HG 11 and HG 12; or
        1. they may choose to apply section HG 11(3) as if the special partnership had always been a limited partnership and all relevant rules relating to limited partnerships had always existed (applying those rules with any necessary modifications).

          1. If the application of sections HG 11 and HG 12, as modified by this section, calculates a partner’s basis as less than zero, then the partner’s basis is treated as being zero.

          Notes
          • Section HZ 3: added, on , by section 21(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
          • Section HZ 3 list of defined terms disposal: 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 HZ 3 list of defined terms dispose: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).