Canterbury Law Review
In its bid to attract foreign venture capital, the New Zealand Government recently proposed to legislate for the internationally recognised limited partnership business structure. In essence, the limited partnership provides the partnership with limited liability. This article critically analyses the implications for New Zealand of the proposed limited partnership regime, in terms of both its own structure and its wider impact on existing structures. Throughout the analysis, it becomes clear that if the proposal is enacted in its current form, the limited partnership would not only limit the liability of some partners, but would also limit the attribution of losses, which may in turn limit the future of the loss attributing qualifying company. Given its broad impact, it is important that the Government fully consider the proposal before its implementation.
Achieving sustainable economic growth in New Zealand depends on an ability to attract overseas venture capital. To this end, it is fundamental that New Zealand has an investment entity that is attractive to foreign investors. On 28 June 2006, the Government released its proposals regarding the taxation of partnerships in 'General and Limited Partnerships — Proposed Tax Changes' ('the discussion document'). Within this document is a proposal to legislate for a new business structure in New Zealand, the internationally recognised limited partnership ('the LP'). Broadly, the LP, similar to a corporation, would provide limited liability protection, but for tax purposes would essentially be classified as a partnership.
A partnership has flow-through tax treatment. Each partner pays tax on his or her share of the partnership's income, and can use his or her share of the partnership's losses to offset tax payable on his or her other assessable income. It is this flow through of losses that is particularly desirable, especially in new and developing industries. An entity that can offer the tax advantages of a partnership, together with the limited liability protection of a corporation, means that a choice between tax efficiency and risk protection does not have to be made. Undeniably, such entities are very attractive. The popularity of a vehicle that has favourable tax treatment does, however, have the potential to
erode public revenue. The Government must, through legislation, balance its responsibility of protecting the country's revenue base, whilst simultaneously promoting economic growth. Accordingly, it has been proposed that the amount of losses that can flow through to limited partners under the LP will be restricted.
Bearing a resemblance to a corporation in some respects and a partnership in others, the LP is regarded as a hybrid entity. The hybrid concept is not new in New Zealand. New Zealand currently has the special partnership ('the SP'), the qualifying company ('the QC') and the loss attributing qualifying company ('the LAQC').
This article critically analyses the implications for New Zealand of the proposed LP regime, in terms of both its own structure and its wider impact on existing structures. The analysis begins in section two with a brief overview of hybrid entities and an introduction to the three hybrid entities that presently exist in New Zealand. This is followed in section three by an examination of the proposed LP regime and a critique of its key features. In addition to a discussion on how the features will operate, the justifications for each, which extend beyond the basic but very significant 'internationally recognised feature' reasoning, will be examined. Conclusions will be made as to the appropriateness of the key features and, where necessary, recommendations will be proffered. In section four, the discussion turns to the future of New Zealand's existing hybrid entities in the light of the LP proposal. Particular attention is given to the LAQC. The options for its future are discussed as well as the resulting implications. Lastly, in section five, the findings throughout the study are amalgamated and concluding remarks made.
In the last 15 years the view that economic growth can be achieved by embracing the increasingly diverse nature of business through the provision of 'real choices in the way investments can be organised and utilised' has gained momentum. On an international scale, there has been significant growth in the variety of alternative legal entity forms being used as a result of the updating of existing structures and the creation of a number of new structures. For example, the United States now offers a range of legal entities including the LP, the Limited Liability Partnership ('LLP'), the Limited Liability Limited Partnership ('LLLP'), the Limited Liability Company ('LLC') and the S Corporation. The vast majority of these different types of structures, through which businesses are conducted, can be collectively referred to as 'hybrid entities'.
Hybrid entities are business structures that have a combination of corporate and partnership attributes. The extent of these attributes varies among hybrid entities. Like corporations, hybrid entities have limited liability. Generally, members with limited liability are not liable for any of the debts and obligations of the entity beyond that of their capital contribution. Not all members will necessarily have limited liability and the degree of their limitation can vary.
The hybrid entity is special because while it provides limited liability, it is taxed in a manner similar to a general partnership. A general partnership is not a taxpaying entity. Rather, the individual partners are considered the actual taxpayers in relation to the partnership's income and losses. Each partner is taxed on his or her proportionate share of the income of the partnership at his or her personal tax rate. The partner can also offset his or her proportionate share of the entity's losses against his or her other assessable income. This is known as flow-through tax treatment.
Partnership flow-through tax treatment is generally carried out by a full integration mechanism. A dividend imputation regime can alternatively be used, but only in respect of the entity's income. Losses can flow through to members only under the integration approach. The application of these flow-through mechanisms is discussed in more detail in the next section.
Similar to the varying degree of limited liability among hybrids, the degree of partnership tax treatment may also vary. A hybrid entity can provide for full or partial flow-through tax treatment. In the latter case, the hybrid's income is subject to flow-through tax treatment but its losses are quarantined within the entity.
With its partnership tax treatment and limited liability protection, a hybrid provides the basic structure for an attractive investment entity. New Zealand currently has three hybrid entities — the SP, which was introduced almost 100 years ago, and the QC and LAQC, which were introduced in 1992.
Governed by Part II of the Partnership Act 1908, the SP was the first hybrid entity legislated for in New Zealand. The SP comprises of two groups of partners. First, general partners, who are responsible for the management of the firm and are jointly and severally liable for all debts of the partnership. Second, are the special partners, who have limited liability and no management responsibilities.
A SP gains its hybrid status because, in addition to limited liability, it has full partnership tax treatment, which is carried out by the full integration approach. Full integration means the income and losses of the entity are directly attributed to its members in proportion to their interests before it becomes assessable or deductible for tax purposes. To allow for tax preferences to flow through to members, receipts and expenditure items retain their identity and character when they are attributed. A SP can be formed for any type of business except banking or insurance and can operate for a maximum of seven years. At this stage it may be renewed under a relatively complex process.
In 1986, the tax structure of the SP was altered. Referred to as the 'loss ring-fencing rule', losses were quarantined within the entity and could only be carried forward and offset against future income of the firm. This was a reactive measure taken by the Government following the discovery of a vast number of tax avoidance schemes that were being facilitated through SPs. The tax avoidance schemes were particularly common in the bloodstock and film industries. Typically, the SPs purchased depreciable property at an inflated price or inflated expenditure financed by limited-recourse loans (ie, where the investors are not at any real risk of having to repay the loans). Through these arrangements, special partners could obtain large tax writeoffs that exceeded the capital they had provided. The partners had little interest in whether the scheme would ever make money. In fact, the majority never did.
In 2003, the Ministry of Economic Development ('the MED') reviewed the SP regime. The MED, regarding it as essential that the SP mirror international investment vehicles, recommended the repeal of the loss ring-fencing rule. This was carried out in 2004. It was believed that there were now other laws in place that provided the necessary protection from the tax abuse schemes of the 1980s. Specific reference was made to the recently enacted deferred deduction rule that targets schemes involving property, such as intellectual and intangible property, the value of which is very subjective and where the taxpayer's obligation to pay for the assets is contingent. Broadly, this rule requires a taxpayer to defer deductions or losses arising from a transaction financed by a limited-recourse loan when the gross income from the arrangement is less than the total deductions or losses. If the scheme is commercially unsuccessful, the deferral becomes permanent.
The link to limited-recourse loans indicates to the author that the deferred deduction rule would not cover all the potential abuses of the SP. However, this is only a preliminary assessment and an in-depth analysis of the issue is beyond the scope of this paper.
At the same time the SP loss ring-fencing rule was removed, a new carryforward restriction was enacted. Special partners can only carry forward their share of net losses in a SP if they generate New Zealand gross income during the year in which the loss is incurred. If they do not, their losses are forfeited. The author was unable to obtain any reasons for the introduction of the restriction but is of the view that it was introduced as one means of guarding against erosion of the revenue base. Apart from this provision, the SP has remained in its original form.
In 1992, the Government introduced new taxation rules for certain closely-held corporations ('the QC regime'). The rules effectively created two new hybrid entities, namely, the QC and a subset of the QC, the LAQC. The QC regime allows the owners of closely-held companies to elect to be taxed in a manner similar to partners of a partnership.
There are a number of eligibility requirements that must be met before a company can elect to enter the QC regime. Broadly, the company must be resident in New Zealand, receive no more than $10,000 in foreign non-dividend income each year, and have a maximum of five shareholders. In addition, each sui juris shareholder must accept personal liability for his or her share of the tax payable by the company should the company default in meeting its tax liability. A QC may make a further election to become a LAQC where it has a simple capital structure.
The QC regime employs a dividend imputation method to facilitate the partnership tax treatment of the entity's income. The QC is taxed on its own income and the tax paid is recorded in an imputation credit account. When the entity distributes its income byway of dividends, the dividends can carry imputation credits that reduce the shareholders' tax liability by the amount of tax that has already been paid at the hybrid level. To the extent that dividends carry no imputation credits, they are treated as exempt income in the hands of the shareholders. The imputation method will generally mean that the shareholders will have no further tax liability. However, there is one exception. Imputation credits that attach to dividends cannot exceed the maximum ratio, which effectively calculates out as tax of 33%. Shareholders who are on a marginal tax rate of 39% will therefore have to personally make up the 6% tax shortfall.
The QC only derives partial partnership tax treatment. Similar to the SP between 1986 and 2004 and companies that are not QCs, the QCs losses are quarantined within the company. The LAQC, on the other hand, has full partnership tax treatment. While its income flows through to its shareholders under the dividend imputation method, its losses flow through to its shareholders under the integration mechanism.
The QC regime was the result of a review undertaken in the early 1990s by the Consultative Committee on the Taxation of Income from Capital ('the Valabh Committee') on New Zealand's tax system. The Valabh Committee noted that there was inconsistent tax treatment for some businesses that did not, in substance, differ from each other.
The trend of closely-held businesses, such as partnerships and sole proprietorships, to incorporate to secure limited liability began in the nineteenth century. In Salomon v Salomon & Co Ltd, Lord McNaghten stated that:
The company is at law a different person altogether from the [shareholders] ... and though it may be that after incorporation the business is precisely the same as it was before, and the same hands receive the profits, and the same persons are managers.
As the operations of such businesses did not change, the view that the 'arbitrary and inequitable nature' of taxing these businesses as companies was 'especially insidious' began to develop.
The Valabh Committee highlighted a number of tax disincentives faced by the owners of closely-held companies who were actively involved in the business. A good example of these disincentives is the treatment of capital gains arising from the disposal of business assets. As New Zealand does not tax capital gains, any gain derived by a sole proprietor or general partnership in disposing of a business asset is not assessable. The position is similar at the entity level of a company. However, shareholders, who must pay tax on dividends, but receive a credit for tax already paid at the company level, are effectively taxed on that capital gain if it is distributed as an unimputed dividend. The tax treatment of entity losses also differs. For sole proprietors and general partnerships, losses are attributed to members and can be used to directly offset the members' other assessable income in the year in which the losses are incurred or carried forward to absorb future losses. In comparison, a corporation's losses are trapped within the entity. Provided certain criteria are satisfied, a corporation's losses can be carried forward to offset future assessable income. The Valabh Committee also noted that the taxation of non-cash benefits provided by corporations to their shareholders ('fringe benefit tax') was complex in comparison with the tax treatment of such benefits provided by a partnership to its partners.
This inconsistent tax treatment was considered by the Valabh Committee to be 'out-of-step with the Government's policy position that the tax system should be neutral in the context of business decision-making'. The impact of tax should not influence choices by distorting or altering the costs of alternatives, and to ensure this is so, different legal entities, which in substance undertake the same business, must be taxed the same way. The Valabh Committee sought to rectify this situation by putting closely-held companies on a 'tax footing similar to partnerships' under the QC regime.
Despite the fact that the objective of the QC regime was to ensure equal tax treatment, fuelled by concerns over the complexities associated with multiple classes of shares and perceived avoidance opportunities by streaming losses to shareholders, the Valabh Committee's initial report rejected the proposition that losses made by QCs should be able to be attributed to shareholders. However, in response to submissions, the Valabh Committee's final report, which was accepted in its entirety by the Government, allowed the attribution of losses for companies that have only one class of shares. With the vast majority of closely-held companies in this position, the attribution of losses has made the regime an attractive investment entity.
For some time it has been on the New Zealand Government's agenda to introduce a new hybrid entity, the LP. The LP is an internationally recognised investment vehicle that already operates in other jurisdictions, including the United States, the United Kingdom, Singapore and Australia. A formal proposal outlining how this new entity would operate in New Zealand was finally released in June 2006.
In 2002, the Government launched the Growth and Innovation Framework. One of its key objectives is to stimulate sustainable growth of the New Zealand economy. To this end, effective innovation is essential. Venture capital, which provides the funding for new and developing industries, drives innovation.
Investment in new and developing industries can be very risky. These ventures often have high start-up costs and undertake substantial research and development, which can result in significant up-front losses. In addition, future profits are uncertain. To offset these risks, an attractive investment entity must be offered. A hybrid entity, with its flow-through tax treatment and limited liability protection, is particularly beneficial in the venture capital industry. Being relatively small in size, New Zealand is forced to look beyond the domestic market to service its venture capital requirements. Accordingly, as a capital importing nation, New Zealand should have a hybrid entity designed specifically with the modern needs of foreign venture capitalists in mind.
The primary vehicle designed for venture capital investment in New Zealand is the SP. While the SP is similar to the internationally recognised investment vehicle, the LP, having remained substantially unaltered since its introduction in 1908, it cannot compete.
There is not one LP statute used as an industry standard around the world. Nevertheless the LP has some standard characteristics that the SP lacks. Firstly, while the LP generally has a separate legal personality, the SP does not. Although the SP provides special partners with limited liability, it is separate legal entity status that 'confers the strongest possible protection', because it allays any possible risk of the conflict of laws. This issue was raised by the Australian Venture Capital Association Limited ('the AVCAL’) when considering the features the Australian LP regime should have. The AVCAL noted that if a dispute involving a LP was to come before a court outside the jurisdiction of formation, without separate legal entity status, it is possible that the court would treat the LP like any other partnership. This is because, as a LP is first a general partnership, adhering to general partnership laws, it may be argued that the general partner, in managing the LP, acts as agent for all other partners. In such cases, limited partners could be held personally liable for the debts and obligations of the partnership. Although the concerns of the AVCAL apply to Australia on a state-by-state basis, the MED noted that this could apply to New Zealand SPs when cross-border transactions take place. It would effectively mean a special partner's limited liability is not limited. This is unsatisfactory to investors who need certainty that they will be liable only up to the amount of their capital contribution.
Another difference relates to special partners losing their limited liability status. It is known that only a general partner can manage the business of the SP, and that a special partner is deemed a general partner if his or her name is used with his or her authority, or, he or she personally makes any contract with respect to the partnership. However, as the term 'management' is not defined, it is unclear as to what level of involvement in management a special partner can have. Further, limited liability can also be lost if there is a substantial error in the formation certificate. This will be the case even if the special partner is unaware, and is not in a position to know, that the information was erroneous. These attributes of the SP again create doubt in the mind of potential investors as to their liability exposure. The LP removes some of this doubt by having what are commonly called 'safe harbours'. These are provisions that list activities that do not constitute 'management'.
The carry-forward restriction also imposes a further barrier for some foreign investors. As special partners forfeit any SP losses incurred in a year in which they have not derived any other New Zealand gross income, non-residents are effectively overtaxed if they do derive income from the partnership at some stage in the future.
The MED undertook a detailed analysis of the SP regime in 2003, and noted that LPs, in comparison, are easier to form, have no fixed life and can be dissolved at the general partners' discretion. Capital can also be removed from a LP without dissolution of the partnership.
The differences between the SP and the LP highlight how inflexible and restrictive the SP is as a vehicle for venture capital investment. The differences also render the SP an unfamiliar vehicle to international investors. The unfamiliarity is exacerbated by the SPs unique terminology. When the provision repealing the loss ring-fencing rule was introduced into Parliament, the reasoning given was as follows:
To properly facilitate the flow of international venture capital into New Zealand it is necessary to ensure that the SP rules that provide limited liability and flow-through treatment properly reflect the way international venture capital is carried out.
This is evidence that familiarity is an essential feature of an attractive investment vehicle. Logically, foreign investors will be more comfortable investing in another country through a vehicle that they know and understand. Although the repeal went some way towards closing the gap between New Zealand's SP regime and overseas LP regimes, it is clear that some significant differences remain. Consequently, the SP investment vehicle is perceived by foreign investors as being quite distinct and 'kiwi firms are handicapped by spending half their time trying to explain their different approach'.
The most recent data available indicates that, at the end of 2005, there were 80 SPs in existence. Of these, only one was registered in the High Court as being set up for venture capital. The restoration of the partners' ability to claim a share of partnership losses is relatively recent and while it may have the effect of increasing the use of the SP by some domestic investors, the SP remains unsuitable for foreign investors.
The QC and LAQC are also inadequate vehicles for venture capitalists. Shareholders are liable for any unpaid company income tax and there are strict compliance requirements to ensure QC status is constantly maintained. Both of these aspects would reduce its appeal to investors. The cap on the number of shareholders allowed may also be inappropriate for ventures that are looking to raise a significant amount of capital.
The QC is most definitely unsuitable for foreign venture capitalists. Although a QC itself must be resident in New Zealand, it may have nonresident shareholders. However, the tax implications on non-residents have essentially rendered the QC a domestic entity. While dividends paid out by the QC to resident shareholders are either imputed or exempt from tax under the regime, non-resident shareholders remain subject to non-resident withholding tax ('NRWT') on the receipt of their dividends. If the business is undertaken as a general partnership, the non-resident would not be subject to NRWT since flow-through tax treatment is carried out using full integration, an approach that automatically overcomes this problem. Secondly, non-residents may be unable to utilise dividend imputation credits. There is no assurance that non-resident shareholders will be able to claim a credit in their home country for New Zealand tax paid on New Zealand-sourced income. In addition, non-resident shareholders of LAQCs may be unable to utilise attributed losses in their home country depending on the tax laws in that country.
Although the QC regime was not specifically designed to attract foreign investment, it was designed to create a tax neutral environment where 'business decisions can be taken without Government favour of one player over another'. The inconsistent tax treatment of non-resident partners and non-resident shareholders in respect to dividends undermines this policy objective.
The clear advantage of using a hybrid entity structure for venture capital is that investors are entitled to deductions for expenditure in the early years but are not exposed to liability as they would be under a general partnership. However, the inflexible and restrictive features of New Zealand's current hybrid vehicles have forced fund managers to find alternative structures that 'mimic LP structures found in other jurisdictions in terms of flow-through status'. Venture capital investment funds are raised under structures such as a unit trust, a joint venture, or a co-investment structure under a partnership arrangement. These are complex, costly to construct, and expose the fund investment vehicle to joint and several liability and responsibility for the actions of other partners. These structures also lack international acceptance.
New Zealand currently does not have the necessary mechanism through which sustainable growth of the economy can be achieved. The New Zealand Venture Capital Association ('the NZVCA’) is of the view that foreign venture capital is severely constrained by not having a structure that has a 'look and feel' that is '100 percent familiar to overseas investors'. The Government has sought to rectify this inadequacy with its recent proposal to legislate for the internationally understood LP. It intends that the LP will provide 'greater clarity and certainty for investors when they look to invest in New Zealand', creating opportunities 'for kiwi businesses to get the capital they need to grow'.
Although the proposed LP has been driven by the need for a vehicle that will facilitate foreign investment in New Zealand's venture capital industry, the proposed entity will have broader application. Australia's solution to the very same issue was to create a LP specifically for use in the venture capital industry. Instead of following Australia, New Zealand's proposed LP has been based on the Delaware LP. In addition to speculative ventures, the LP would be available for investment in a wide range of activities including agriculture, forestry and manufacturing. The United States venture capital market is the largest in the world and internationally the Delaware LP model is the most recognised and commonly used investment structure for venture capital and private equity investment. By modelling its LP on widely adopted LP legislation, New Zealand can ensure that its LP genuinely does have a 'look and feel' familiar to international investors.
Rather than proposing an entire set of tax rules that would apply exclusively to LPs, thereby adding to the inconsistent and uncertain current state of partnership law, the Government has taken the opportunity to rectify these long-standing problems by proposing rules that would apply to the taxation of all partnerships generally. Except as varied by the provisions of a new LP Act, the LP would be subject to the same law as that which applies to general partnerships. Drafting difficulties have prevented the LP from being incorporated into the Partnership Act 1908. However, it appears this would be an advantage, because, as the MED notes, international investors are familiar with LP provisions being found in a specific LP statute.
In this subsection the key features of the proposed LP will be analysed and the rationale for each feature will be discussed. Conclusions will be made as to the appropriateness of the features and, where necessary, recommendations will be made.
The LP must have at least one general partner and one limited partner. This is a common attribute of all LPs. In all major respects, the general partners of the LP are in the same legal position as all partners of a general partnership. General partners are responsible for the management of the firm and are jointly liable for all partnership debts. Limited partners, on the other hand, are treated like shareholders with their liability limited to their capital contribution. The limited liability status is, however, contingent on the limited partners not taking part in the management or day-to-day running of the firm.
In Inspector of Awards v Langham, Tyndall J stated that '[i]t is obvious that the rights of limited partners are purposely made inferior to those usually enjoyed by ordinary partners in consideration of the special statutory dispensation of limited liability'. The rule initially appears to be in place to ensure that potential creditors do not contract with someone who may appear to be liable for business contracts. In a relatively old working paper, the Queensland Law Reform Commission ('the QLRC') felt that the rule was unnecessary because '[p]rovided the party knows that he is dealing with a LP how can it matter that a limited partner is taking part in its management?' Ensuring a third party is aware of the nature of the entity with which he or she is dealing by requiring that 'LP' be stipulated on invoices and other paper work of the firm would prevent this problem. The QLRC cited a statement by Vaughan and Purton:
While it is not suggested that they [limited partners] should be able to control the general partner, it is difficult to see the continued justification for such a restriction when it does not exist in the case of, for example, corporations or general partnerships or indeed even trusts where the beneficiary is in effect absolutely entitled.
However, in the author's view, this restriction on the involvement of limited partners is acceptable because limited partners have limited liability and, as will be discussed below, limited liability can be justified on efficiencies which only arise where there is a distinction between ownership and management.
It does appear that the LP regime will have safe harbours. Safe harbours stipulate situations where limited partners can participate in partnership decisions without being regarded as having taken an active role in management. Safe harbours are seen as necessary because some investors would be hesitant to invest where they have absolutely no ability to 'exert some control over the partnership, or at least to seek management information and provide advice'. Given the nature of the venture capital process being medium to long term, it has been noted that 'investors are not prepared to simply part with their money without some form of management input and some ability to control in certain circumstances'. From the partnerships' point of view, safe harbours allows it to gain some, albeit restricted, access to the knowledge and expertise of the limited partners who are often experienced investors.
The content of the safe harbours is yet to be finalised. Although, as the LP proposal has been modelled on the Delaware LP, it can be deduced that the sorts of situations where a limited partner can participate in the management of the firm would relate to strategic activities. These include decisions on changing the nature of the business of the LP and voting on whether to admit a new general or limited partner.
It has also not been decided whether a prescriptive list or principle-based approach to safe harbours will be taken. The Delaware model has a very prescriptive list. Currently Australia does also, although there has been some interest expressed in moving to a principle-based approach. The principle-based approach is favoured by the New Zealand Institute of Chartered Accountants ('the NZICA’) because it avoids the 'one size fits all' approach that results from a prescriptive list and would allow for 'the development of better practices over time'.
In the author's view, a few clear and concise principles would be more appropriate than a prescriptive list. Although the latter provides boundaries and possibly more certainty, a principle-based approach would allow for flexibility. As the LP vehicle can be used for numerous types of business, flexibility is seen as especially important. The author agrees with the NZICA's recommendation that the principles could be assisted by a non-exhaustive list of examples. It is submitted that this list could be made by way of regulations so that the lengthy process of amending the legislation every time the list needed updating would not be required. This would enable the list to be kept current.
The proposed LP would afford limited liability to limited partners so that limited partners would not be liable beyond their investment. This is a standard feature of LPs. Shareholders of companies have limited liability because it is generally economically efficient. As financial consequences for shareholders on company failure are limited, the need for shareholders to monitor the managers of the companies in which they invest is reduced. It may be that shareholders have neither the incentive (particularly if they have only a small shareholding), nor the expertise to monitor the actions of managers. Reduced monitoring decreases the operating costs and the reduced risk faced by shareholders lowers the cost of capital.
By contrast it can be viewed that it is economically inefficient for general partners who manage a partnership to have limited liability as it creates incentives for the partners to avoid responsibility for their actions. The business risks would be transferred to creditors, and would result in costly attempts by creditors to reduce these risks.
As the distinction between ownership and management is made in the LP, its limited liability can be justified on the grounds of economic efficiency. It is economically efficient for limited partners who are prohibited from taking part in the management of the business to have limited liability.
It is proposed that the LP would be a separate legal entity. This means that the LP will have a legal identity that is distinct from its partners. The term 'company' is currently defined in the Income Tax Act 2004 as any entity with separate legal existence. To allow for the LP to have partnership tax treatment, the definition will need to be changed to expressly exclude any partnership.
Separate legal entity status is an essential feature of the LP. It addresses the risk of a conflict of laws that was discussed above. A leading text on partnerships concluded that, without separate legal entity status, there is no certainty that a foreign court would accord a LP limited liability. If this were the case, the liability of limited partners would not in fact be limited. The MED noted that legal advisers, contracted by investors considering investing in a new jurisdiction, would identify this risk. Many institutional investors cannot responsibly, and in some cases legally, make any investment that carries a risk of liability beyond the amount of their investment, and, consequently, investment in an entity that has no separate legal entity status would be 'out of the question'.
In its assessment of SPs in 2003, the MED was of the view that if the separate legal identity element was not limited in application to the venture capital industry, 'it has the potential to bring about a fundamental change in business law in New Zealand'. It appears that this concern relates to the concept of separate legal entity. Because not all the partners of the LP will have limited liability, the LP cannot be regarded as being entirely distinct from its members. The author is of the view that this should not be an issue. Separate legal entity status is already afforded to numerous hybrid entities overseas that have varying degrees of member liability and New Zealand must keep up with these developments.
It is proposed that unless its interests are publicly traded, the LP would be subject to partnership tax treatment using the full integration approach. In the event that its ownership interests were publicly traded, the LP would be subject to company taxation. It appears that this is the mechanism used to restrict LPs from being used as a substitute for publicly listed companies. The public interest restriction is appropriate. It would be impractical and not feasible to apply partnership tax treatment where ownership interests are frequently traded.
The LP would provide for full partnership tax treatment in the sense that both its income and losses flow through to its partners. There is, however, one exception for limited partners. The discussion document proposes to limit the deductability of losses a limited partner can claim to the amount of the limited partner's economic investment in the LP to ensure loss deductability is in equal proportion to loss liability.
Determining disallowed losses would be achieved by identifying a 'partner's basis' through a 'basic tracking' account. Any current net LP loss in excess of the partner's basis would not be able to be used for offset purposes in the current income year. Instead, it would be carried forward and utilised if the partner has sufficient partner's basis in future periods. The discussion document contemplates two alternative methods for calculating the partner's basis. These methods are very similar. Figure 1 shows the identical components of the two calculations. The only difference in the two calculations is that the second method also includes the limited partner's share of realised capital gains or realised capital losses previously recognised.
Figure 1: identical components of the proposed partner's basis calculations
Original Investment + Value of additional contractual guarantees and indemnities provided (less any expired guarantees or indemnities) + Share of net limited partnership income previously recognised + Prior equity injections - (Share of net limited partnership loss previously recognised ) - (Prior distributions )
The calculations raise a few issues. Firstly, additional guarantees and indemnities would be counted only if they are contractual in nature and enforceable by non-associated third parties. The NZICA opposes the loss limitation rule, but notes that should it go ahead, although valuation would be a complex process, historic guarantees (guarantees which have been given but have subsequently expired) should be also be included. The reasoning given is that not to allow these types of guarantees undermines the principle of the loss limitation rule, which is to account for the total capital risked by limited partners. The author agrees that historic guarantees provide value and capital has been risked even if it was not called on.
Based on the same logic, that the calculation should be consistent with the principle of the loss limitation rule, the second calculation, which includes realised capital gains and losses, would be the more appropriate of the two.
The NZICA submits that unrealised capital gains and losses should also be included in the calculation. Leaving unrealised capital gains or losses within the LP exposes the limited partner to economic risk arising from a change in value of those assets. Again, the significant costs involved in identifying the market value of the capital at risk have been noted.
The author is of the view that the complexity of the entire partner's basis calculation would result in considerable compliance costs. This directly contradicts the Government's clearly stated tax simplification policy.
At the recent New Zealand Law Society Taxation Conference, Patterson and Plunket illustrated how the loss limitation rule would work in practice. Their example was based on a scenario where a LP is formed with one general partner and one limited partner for a rental property investment. The purchase price of the property is $1,000,000. The limited partner contributes $100,000 and the bank finances the balance. It is assumed that the rent received is only sufficient to cover expenses excluding depreciation. If the limited partner's share of depreciation (and therefore loss) for the first two years is $65,000 per annum, the limited partner would be allowed a deduction of $65,000 in the first year. This would reduce the limited partner's basis in the LP to $35,000. In the second year, the limited partner would only be entitled to deduct losses of $35,000. This would reduce the limited partner's basis in the LP to zero. Extending this example for another year, if depreciation remained at $65,000 and there was no change to the partner's basis, then despite economic loss being suffered in year three, no losses would be able to pass through to the limited partner.
The example highlights the significance of the loss limitation rule. The result would be very different if the limited partner had acquired the property directly. In year two, the limited partner would have been entitled to claim a deduction of an extra $30,000 and in year three, a deduction of $65,000. The loss limitation rule would clearly deter highly geared investors from using a LP.
On a more positive note, the loss limitation rule can, in one sense, be regarded as a win for non-resident investors. As noted above, the existing carry-forward restriction in the SP regime prevents losses being utilised where an investor does not derive any assessable income in New Zealand in the year in which the loss was generated. The loss limitation rule under the LP would replace this carry-forward restriction, which would mean non-resident investors could utilise losses (to the amount of their capital contribution) in future years even if the losses were generated in a year in which they had not derived other assessable income in New Zealand.
The rationale for the loss limitation rule is that because limited partners cannot lose more than the amount of their investment, it is not appropriate for them to be entitled to a deduction for losses of any greater amount. At the 2006 NZICA Tax Conference, Rudd and Segedin stated that the loss limitation rule imposed on limited partners 'reflects the essentially passive nature of their investment'. In effect, the loss limitation rule can be seen as the cost of having the protection of limited liability. The discussion document notes:
It is an appropriate policy result to allow taxpayers to offset, for tax purposes, only those net tax losses that have actually been borne. The absence of loss limitation rules is likely to distort efficient risk-bearing decision-making and efficient resource allocation by encouraging investors to enter arrangements or schemes whereby small amounts of capital are invested to get access to larger net tax losses.
The Government is of the view that the loss limitation rule is essential because existing tax rules would not ensure that the losses available to limited partners would be limited to the amount of their capital at risk. Although the deferred deduction rule 'may potentially apply to limit the loss that flows through to limited (and general) partners', which would be in the context of limited-recourse loans, it 'does not address the more general issue of limiting the losses available to limited partners to their economic loss'.
While the loss limitation rule could be circumvented using LAQCs, should the loss rule be enacted, it is likely the LAQC would be changed to prevent this from occurring. This will be discussed in section four.
The LP poses a risk to the revenue base through the offsetting of losses. Individual marginal tax rates can be higher than the company tax rate, which may mean that under the LP, the attribution of income to individual members increases the amount of tax revenue collected. However, it is very likely that the attribution of losses would negate this.
Although the stated rationale for the loss limitation rule is that limited partners who cannot lose more than the amount of their investment have no entitlement to a deduction for losses of greater amount, it seems the underlying existence for the rule is based purely on revenue protection. It is evident that the Government is aware that allowing small amounts of capital investment to give rise to larger tax losses would lead to abuse of LPs and the erosion of the revenue base. In fact, concern over the loss of public revenue has meant that, with one exception in the venture capital industry, LPs are taxed as companies in Australia.
The loss limitation rule would clearly help to prevent the LP from being used in tax avoidance schemes, with which the SP was so heavily associated in the 1980s. In the United States, the rule has been deemed necessary in playing 'a significant role in reducing the impact of the limited partnership tax shelter market'. The NZICA considers that the deferred deduction rule renders the loss limitation rule unnecessary and in the event that it is discovered as being insufficient, the deferred deduction rule should be modified so as to avoid creating additional 'compliance intensive rules'. The NZICA does not, however, elaborate as to how such modification could be made.
It appears the deferred deduction rule, in its current state, would be insufficient to prevent abuse of the LP. The deferred deduction rule applies to arrangements only where the net assets consist of less than 70% of tangible property that comprises land, buildings, major plant or machinery, and where over 50% of the net assets of the arrangement are financed by a limited-recourse loan. The arrangement must also produce losses in the first three years. The strict criteria of the deferred deduction rule means that it is of limited application. It would not prevent all potential abuses of the LP primarily because tax schemes do not depend on the presence of a limited-recourse loan. Large tax losses could, for example, be generated by creating an asset, such as software, over inflating the value of that asset (possible because of the subjective nature of its value), and then claiming large depreciation expenses.
New Zealand's deferred deduction rule was loosely based on similar rules in Canada and the United States. Despite having a deferred deduction rule, the United States has nevertheless deemed the loss limitation rule also necessary.
The rule is not inappropriate in terms of the Government's goal of creating an attractive foreign investment vehicle. While it is not an attractive attribute, it is a common feature in LPs overseas and so it should not deter foreign investors.
In some cases it will be fair that not all losses should qualify for a tax deduction. However, there is 'a misplaced premise in denying a business loss just because it has been funded by borrowing and not the investor's own savings'. The problem with the rule is that in a large number of cases, regardless of how the investment has been funded, the losses will be 'genuine'. If an asset falls in value, even though the money is borrowed, the investor is, in fact, paying to borrow the funds. The investor, therefore, takes on a genuine economic loss, being the decline in the asset's value. If these losses cannot be claimed until the investment produces gross income for the limited partner, then there may be no incentive to invest, especially in high-risk investments common in the venture capital industry, which by their nature may not in fact produce any income. Investors need to have the opportunity to leverage their investments. Denying them the opportunity to claim losses from debt-funded assets will have the effect of limiting entrepreneurial activity.
In an ideal world, there would be no need for a loss limitation rule. Inland Revenue would have unlimited resources to police and prevent tax avoidance schemes and all genuine losses would be able to be claimed. However, with severely constrained resources, the Government must take a broader approach through legislation to balance its responsibility of protecting the country's revenue base, whilst simultaneously promoting economic growth. The practical reality is that protection of the revenue base may come at the expense of some economic growth.
As it does not appear that the current law is of wide enough application to adequately prevent the abuse of the LP's favourable tax treatment, the loss limitation rule can be seen as an appropriate measure in this regard. However, assessing its appropriateness in a wider context is beyond the scope of this paper. It may be that, in accordance with the submission by the NZICA, the deferred deduction rule could be widened to rectify the inadequacy of the current law so that the loss limitation rule would not have to be resorted to. Whether this could in fact be done, is an issue that should be looked into.
It would be pointless for New Zealand to create a structure that is different from that used overseas when the LP proposal has been driven by the need for a vehicle that will assist the inflow of foreign venture capital. The NZVCA said international investors will simply ask their legal advisers whether 'the New Zealand's LP regime has a, b, c, d, e, etc? (ie, the important ingredients that we are familiar with in other jurisdictions and, in particular, in the United States)'. The analysis of the key features has revealed that, although some of the details of the features still need to be refined, legal advisers will be able to answer this question in the affirmative. The analysis has also revealed that the justifications for the features of New Zealand's proposed LP go beyond simply mirroring the attributes found in international LPs.
The proposed LP will replace the existing SP regime. The SP has been described as being 'long past its use-by date'. The LP is viewed by some as an updated version of the SP. However, because it remedies many of the shortfalls of the current SP, it seems more appropriate to regard the LP as a far superior investment vehicle.
The discussion document proposes that existing SPs can elect to become LPs from the start of the new regime. Alternatively, they may continue as SPs until their expiry, at which point there will be no ability to renew that status. Continuing SPs can elect to either apply the new rules covering the treatment of partnerships in their entirety, or carry on using existing rules but with the new income and deduction flow-through rules.
The future of the QC regime has been questioned in the discussion document. The Government has suggested that the LP may make redundant the QC regime on the basis that, with the introduction of the LP that provides flow-through tax rules in a similar manner provided by the QC regime, such entities would no longer be required. It would be 'inconsistent with the Tax Review's principles to proliferate our laws with a variety of flow-through tax treatments'.
The Final Report of the Tax Review, which made conclusions on the current state of New Zealand's tax system and recommendations for improvements, was released in 2001. The Tax Review Committee noted that differences in the tax treatment of entities encouraged taxpayers to 'shop among regimes'. Operating business through a business form dictated by tax considerations resulted in complexity and efficiency costs. A number of measures were recommended to minimise this problem. These included reducing the number of disparate entity regimes, minimising the complexity of regimes, ensuring clear boundaries between different entity regimes so that they are not closely substitutable, and treating substitutable equity and debt instruments uniformly.
While the increasing diversity of modern businesses necessitates that there are different entity regimes through which to conduct business, alternative structures can only be justified if there are clear boundaries between the regimes. The QC, the LAQC, and the LP all have similar flow-through tax treatment. However, they are not identical. Where a business is closely-held and meets the LAQC eligibility criteria, it would be more advantageous for its owners to elect into this regime rather than the LP regime because, under a LP, the attribution of losses would be restricted. In addition, aside from the responsibility to personally meet any unpaid company tax, under a LAQC the owner managers would still have limited liability. If on the other hand, only the QC criteria were met (i.e. the business did not meet the additional LAQC criteria), then the LP structure would be to the investors' advantage. Under the QC, the losses would be quarantined within the entity, but under the LP the losses would flow through to the investors to the extent of their capital contribution. The author is of the view that with no changes to the QC regime or the proposed LP regime, the LP would encourage entity shopping for those domestic investors for whom a QC is a viable option.
The restriction on the attribution of losses under the LP can also be avoided in a more direct manner. The discussion document recognises that the LAQC could be used to circumvent the loss limitation rule by interposing a LAQC between the LP and the investor. The Government provides a diagram of how this would work. This has been reproduced below in Figure 2.
Figure 2: Illustration of how the Lp loss limitation rule would be circumvented
The LAQC would be a general partner of the LP. Being a general partner, LP losses would flow through to the LAQC without restriction. These losses would then flow through to the shareholders of the LAQC, who are entitled to unrestricted flow-through of losses by virtue of the QC regime. Accordingly, despite the loss limitation rule being imposed on partners of the LP who have limited liability, through some very basic structuring using the LAQC, tax losses in excess of capital invested in the LP could still flow through to individuals who have limited liability.
The Government has not yet determined how this issue will be dealt with, but notes that it will be addressed in a future review of the QC regime. Minister of Revenue, Peter Dunne, confirmed that a large number of submissions on the LP proposal raised questions about the future of QCs, particularly LAQCs. While acknowledging that 'this is clearly a live issue', Mr Dunne said it would be premature to consider it before the partnership tax changes are finalised.
If the loss limitation rule is enacted, the QC regime will undoubtedly be affected in some manner. In fact, Doolan is of the view that '[i]t is highly likely LAQCs will disappear under the new [LP] regime'. The author is of the view that because the LAQC is a popular business structure, the implications of the proposed LP for the QC regime need to be considered prior to the finalisation of the partnership tax changes.
With its loss limitation rule, the LP regime is subject to a far stricter policy setting than the QC regime, and the ability of the LAQC to avoid the loss limitation rule is a problem that that would have to be addressed. A possible solution could be to prevent LAQCs from being general partners of a LP. However, while this would address the direct avoidance of the loss limitation rule as shown by the diagram in Figure 2, it would not address the regime shopping problem.
One option to prevent both the assorted tax treatment of entities and to avoid the loss limitation rule from being circumvented would be to impose the same loss limitation rule on the LAQC. An alternative option would be to eliminate the LAQC in its entirety. However, this latter and more radical option should not be taken without considering a number of other factors that will discussed in the next paragraphs.
An important factor in determining the possible elimination of the LAQC will be whether it serves a purpose that cannot be adequately addressed by the LP. Limited partners have full limited liability. If they participate in the management of the firm, this protection is lost. The LP better serves the passive owner, because under a QC, despite having limited liability, all owners (including passive owners) must accept personal liability for their share of the company's unpaid income tax. The LAQC structure will be better for owners who manage the entity. If these owners used the LP structure, their involvement in management would render them general partners. As general partners have unlimited liability, these owners would be no better off than had they operated their business through a general partnership.
The only way that an owner who is involved in managing the firm can obtain limited liability, while still benefiting from partnership flow-through tax treatment, is through a QC. If the LAQC were to be eliminated, the taxpayer would have to choose between the tax efficiency of a general partnership and the limited liability protection of a company structure, and this tension 'means whichever way the taxpayer moves he would lose'. QCs, and in particular LAQCs, were introduced so those small business owners would not have to make this choice. Consequently, the LAQC clearly serves a purpose that the LP cannot adequately address and the suggestion in the discussion document that the LAQC may no longer be required with the introduction of the LP cannot be sustained.
Another consideration that will bear on the decision to eliminate the LAQC is whether it is operating as intended. Firstly, it appears that the philosophy behind the QC regime, which is to increase neutrality for small business owners, has not been achieved. In this context, neutrality means the consistent tax treatment of small businesses despite the legal form through which they operate. Neutrality is not advanced through the QC regime because there are a number of inconsistencies between the tax treatment of LAQCs and general partnerships. One example raised earlier on in the paper is that the omission of a provision in the QC regime that overrides the application of NRWT on dividends has meant that non-resident shareholders and non-resident partners are treated differently for tax purposes.
A recent study conducted has highlighted a number of other inconsistencies between the tax treatment of QCs and general partnerships. These include the treatment of part year losses, foreign income, and liability for penalties. Freudenberg concludes that 'while there are continued statements that QCs, and especially LAQCs, are taxed effectively as a general partnership', these inconsistencies have meant that the LAQC actually infringes the principle of neutrality.
Secondly, the QC regime was intended to simplify tax compliance for small companies, and it appears that this intention has also not been advanced. The legislation governing the QC regime has been regarded as complex. As companies, QCs must still maintain imputation and fringe benefit tax records, and because the QC criteria must be constantly met, a significant amount of monitoring is required. In fact, the Committee of Experts on Tax Compliance ('the CETC’) stated that '[f]rom the point of view of simplicity alone, eliminating LAQCs would clearly be a positive step'.
It was also intended that the QC regime was to be used by small business enterprises, an eligibility requirement being that the QC cannot have more than five shareholders. However, this has been circumvented through a simple partnership of LAQCs. The NZICA (then the Institute of Chartered Accountants New Zealand) illustrated how this works. In the example there are three companies, each with a one third interest in the general partnership. Each company has five shareholders (meaning there are 15 shareholders in total). Provided the other criteria are met, the three companies can elect to become a LAQC. If the partnership makes a loss, each LAQC is attributed with its share of the losses. The losses would then be attributed to the individual shareholders in proportion to their effective interests. This
is now a reasonably common commercial structure, especially for film and forestry ventures. Figure 3 is an extract taken from the executive summary of a proposed film investment opportunity, Kids World.
Figure 3: Extract from the Executive Summary of Kids World
• Challenge Communications Foundation Limited has been a New Zealand producer of film, video and other media since 1998. Foundation Films No 2 Limited ('Foundation'), a wholly owned subsidiary of Challenge, is the Promoter of this offer. It is the Promoter's role to organise the parties necessary for the financing, production and worldwide sales and distribution for Kids World ('Film').
• A partnership of New Zealand companies, called Kids World Production Partnership ('Production Partnership'), will be licensed by Foundation to use the screenplay copyright to produce the Film. For producing the Film, Production Partnership will be paid a production service fee by Foundation, based on the sales success of the film over a seven-year period.
• The Production Partnership will be a partnership of 69 Issuer Companies. Each company will elect to become a LAQC. The LAQC structure allows the tax losses to be passed in to you, the shareholder, as opposed to being retained within the company.
• To qualify as an LAQC, each Issuer Company can have only 5 shareholders. Therefore it is necessary to form 69 companies so that the required $17.2 million can be raised.
Although it has been said that a partnership of LAQCs is a long-established and legitimate business structure, it was clearly not intended to be used as such. It directly contradicts the objective of the QC regime, which is to allow partnership tax treatment for closely-held companies whose operations are in substance, carried out as a partnership.
In the author's view, probably the most significant factor that will be considered when deciding whether to eliminate the LAQC, will be its utilisation in tax avoidance schemes. LAQCs are considered to be at the root of many tax schemes, so much so that, even before the LP was proposed, it was recommended that the LAQC provisions should be examined and either amended or repealed to prevent their use as vehicles for tax shelters.
The QC regime, and in particular the LAQC, has been widely embraced by many New Zealand enterprises. The LAQC is commonly used for private rental properties. Speakman notes that typically the owner will have borrowed heavily to purchase the property, and the interest expense will exceed the rent received. In addition, there will be depreciation of the property, which increases the amount of the loss. By holding the property in a LAQC, the owner is able to obtain a tax break, annually writing off the loss against his or her other income. The losses are accepted in the expectation of a future capital gain on selling the property.
The LAQC is also utilised by a range of industries, the most common being commercial property and development. Property investors owning real estate via LAQCs can sell shares among investors and their related parties, such as family trusts or divorcing spouses, without creating depreciation recovery on the effective sale of an asset or incurring the costs of conveyancing land titles. It is also common for LAQCs to be used by start-up businesses because of the ability to access losses. These are all acceptable uses of the LAQC.
Nevertheless, LAQCs are 'falling out of favour with some tax officials', because of the more questionable means to which they have been put to use. Recently, the use of the LAQC for rental properties has become of concern because of several cases where LAQCs have been used to buy residential property that the shareholders then rent as their residence. Even where market rental is paid to the LAQC, a tax loss can still be generated to the advantage of the shareholders because of deductions for interest payments and depreciation. Inland Revenue claims such an arrangement is often tax avoidance because, in effect, the taxpayers are selling their private home to a LAQC and then claiming tax deductions for what are in fact private expenses.
There have also been a number of cases in the forestry industry that have generated concern. Forest Enterprises Ltd (FEL) is a prime example. Each forestry investment is conducted through a partnership of 25 LAQCs. The partnership undertakes the forestry project and the tax losses arising in the partnership pass through the LAQC to the individual. Although it is argued that such investments are not tax-driven, with no payback for at least 20 years down the track, the proposition is questionable as more liquid investments are found in publicly listed forestry stock.
In 1998, the CETC acknowledged that forestry enjoys a special tax status explicitly intended by Parliament. In its report the CETC noted that:
The tax preferred status is unusual, and perhaps close to unique in the New Zealand tax system. LAQCs enable middle-income people to pool their finds to invest in forestry and to take advantage of the tax preferences. Without pooling funds, middle income people would find it hard to attain the economies of scale needed before one goes into forestry.
The CETC observed that LAQCs may be promoting government policy in forestry but this could be contrasted to where LAQCs are being used to gain access to tax credits, such as schemes that rely on claiming depreciation for intangible property. This occurred in Accent Management Ltd v CIR where the High Court held that it was a case of pure tax avoidance.
The LAQC has also been used in dubious investments relating to software and technology. An example is the Digi-Tech Communications scheme. In 1995, 74 wealthy investors each purchased between 500,000 and 6,000,000 shares in Digi-Tech Communications Ltd at $1 each, each with a 10-year settlement date. The investments were made through LAQCs. The LAQCs bought insurance policies that covered the event that the shares would be worth less than $3 each in 2005. The full insurance premium was claimed as a lump sum deduction against the assessable income (generally nil) of each LAQC. After the first year, one investor who bought 500,000 shares was able to offset the LAQC’s losses of $170,000 against $170,000 of income from other sources. Alerted by the fact that these wealthy individuals were paying little or no tax, Inland Revenue began an investigation in 1998. This resulted in the investors acknowledging the non-deductibility of their 'investments' and subsequent obligation to pay penalty payments and interest.
The Valabh Committee, which recommended the QC regime, initially rejected the proposition to allow the attribution of losses to members because of concerns of complexities with multiple classes of shares and perceived avoidance opportunities. While the opportunity for some of these tax schemes will be reduced by the recent deferred deduction rule, it appears now that the Valabh Committee's initial concern regarding avoidance opportunities was warranted.
If the proposed LP with its loss limitation rule is enacted, the option of eliminating the LAQC may appear more appropriate. The LAQC it is heavily associated with tax avoidance schemes and arguably does not advance all its stated intentions. However, the author is of the view that it follows from the analysis above that such a radical option could not be justified. Firstly, the LAQC would continue to serve the manager owner of a closely-held company. While it is acknowledged that the alternative to elimination would be to impose the loss limitation rule on LAQCs, the LAQC would still ensure that small business owners who require limited liability could obtain tax treatment comparable to a partnership.
Secondly, while the LAQC is described as being complex and having high compliance costs, this would not be reduced by the LP, which has complex 'partner's basis' calculations that will be required to be updated annually. In fact, the LP rules are potentially more complex.
The relationship between LAQCs and tax avoidance is clearly problematic. However, there have been continued statements that eliminating the LAQC would amount to 'throwing the baby out with the bath water'. The taxpayers that engage in the tax avoidance schemes would simply find different means to achieve the intended result. For example, investors who use LAQCs to hold their own residential properties could achieve the same result by transferring the property to a partnership and renting it back. It is not the LAQC that is the problem, but 'the taxpayers behaving badly'. Elimination would only penalise small business taxpayers who were the object of the regime and who are utilising it as intended.
The solution lies in targeting the underlying problem, which means amending the governing legislation of the QC regime. Imposing the loss limitation rule on the LAQC would reduce the opportunities for tax avoidance schemes. To combat the specific tax avoidance schemes that arise from a partnership of multiple LAQCs, the solution would be to enact provisions that deny QC status to a company that has structured its way into the regime where it is not, in substance, a small closely-held business. Any remaining schemes could be directly targeted by general anti-avoidance legislation. This combination of measures would allow small business taxpayers to continue enjoying the benefits of the QC regime.
Should the Government agree that eliminating the LAQC is not a viable option and instead make the LAQC also subject to the loss limitation rule, losses incurred through the LAQC in excess of the shareholders' capital contributions would be quarantined within the company. As well as less opportunity for tax avoidance schemes, because LPs and LAQCs would have similar flow-through tax treatment, there would also be less opportunity for regime shopping.
As full flow-through tax treatment of losses will continue to be available under a general partnership, imposing the loss limitation rule on the LAQC would create another inconsistency in the tax treatment of closely-held companies and general partnerships. As noted above, such inconsistencies do not advance the objective of QC regime, which is to tax closely-held companies effectively as if they were general partnerships. The author is of the view that it would be an appropriate time to redefine this objective. As the QC has never offered flow-through tax treatment of losses, it appears that the objective of the regime is too ambitious. The intention of the QC regime should be to provide a tax regime that allows comparable tax benefits for small business owners, regardless of whether they operate through a company or partnership structure.
Accordingly, if the LP loss limitation rule is enacted, the most appropriate option would be to also impose the rule on the LAQC, rather than eliminating it as a business structure entirely. As the QC does not
have the loss flow-through feature, which has given rise to all the problems for the LAQC, there do not appear to be grounds that would warrant any changes to the QC.
Unless grandfathering or sufficient transitional provisions are enacted, the financial ramifications for the LAQC under either option would be significant. Gilligan noted that for the tens of thousands of property investors who use LAQCs for heavily geared property investments, the effect would be 'catastrophic'. The majority of losses would be trapped in the company and tax relief funding negative cashflow would be eliminated.
If the LAQC is completely banned, the cost of restructuring would be considerable. In 2006, the NZICA estimated that there were at least 20,000 LAQCs in existence and, calculating on the basis of accounting and legal fees of $2000 (which was noted as being a very conservative figure), restructuring would collectively impose on business owners deadweight costs of $40 million. The author was of the view that the growth in small to medium-sized enterprises over the last few years suggested that there would be a far greater number of LAQCs in existence. Accordingly, a request for current figures was made directly to Inland Revenue. The figure obtained, 90,380, confirmed this. This is much higher than the estimate furnished by the NZICA, meaning the deadweight costs associated with restructuring would quadruple. Gilligan also pointed out that the asset migration that will follow would lead to considerable compliance costs and pressure on Inland Revenue resources as the Department will have to track the switch of titles.
Currently New Zealand fails to provide an adequate investment vehicle that facilitates the inflow of foreign investment. Should the proposed LP be enacted, having all the core features familiar to, and required by, overseas investors, this would change. In 2003, it was estimated that, through the adoption of a LP, the amount of foreign investment has the potential to exceed $1 billion. Although the proposed LP is a 'positive development' that would facilitate the inflow of venture capital investment into New Zealand, it would also have some other significant implications.
The MED noted that 'our best assessment is that the revenue impact from permitting tax flow-through [via a LP] should be minor'. This is because the Government has significantly reduced the opportunities for tax avoidance by limiting the losses that can flow through to a limited partner to the amount of his or her capital at risk. The loss limitation rule is not ideal. It would have the effect of denying investors deductions for some losses that have been genuinely incurred, which in turn would curtail entrepreneurial activity to some degree. However, with limited resources to prevent tax avoidance schemes, the Government must legislate to protect the revenue base. As it does not appear that the law as it currently stands, namely the deferred deduction rule, would adequately prevent the abuse of the LP's favourable tax treatment, the loss limitation rule can be seen as an appropriate measure in this regard.
The implications of the proposed LP are far reaching. Limiting losses under the LP will limit the LAQC's future. This is because, as the LAQC has no loss restriction, it could be used to avoid the LP's loss limitation rule through entity shopping or a basic structuring mechanism. To prevent this from occurring, the LAQC either would have to also be subject to the loss limitation rule or eliminated. There are some notable problems with the LAQC. It does not accord to its stated objective and it is heavily associated with tax avoidance schemes. However, although closely substitutable, the LAQC and the LP are not perfect substitutes. The LAQC serves a unique purpose for manager-owners of closely-held companies. To eliminate the LAQC solely on the grounds of avoidance could not be justified. In a relatively old report, the QLRC noted that if a structure's elimination could be justified because it had been used for tax scams, it would be necessary to abolish companies, charities, trusts and general partnerships. Should the proposed LP loss limitation rule be enacted, the most appropriate option would be to subject the LAQC to the same rule, whilst remedying its tax avoidance problems by targeting its governing legislation. It would also be an appropriate time to redefine the objective of the QC regime so that it can actually be achieved.
With its ability to attract foreign investment, the LP proposal is undoubtedly a step in the right direction. However, if the LP is legislated for in its current form with its loss limitation rule, as noted the operation of the LAQC will be severely affected. While some legislative restriction on the ability to claim losses is necessary to protect the revenue base, with 90,000-plus LAQCs currently in existence, this option of enacting the LP with a loss limitation rule cannot be taken lightly. Accordingly, whether the deferred deduction rule could be widened to adequately address tax abuses under the LP, so that the loss limitation rule would not have to be resorted to, is an important matter for the Government to consider before it takes the LP proposal any further.
Although the author has touched on the necessary role of the Government in striking the balance between protecting the revenue base and promoting economic growth through legislation, assessing whether the Government's LP proposal, with its resulting implications, would strike the appropriate balance is beyond the scope of this paper. This should also be considered in conjunction with whether the deferred deduction rule could, and should, be modified.
Kristen Borrie, LLB(Hons)/BCom, University of Canterbury, 2006. Kristen is currently working as a tax consultant for Ernst & Young Ltd.
 K McConnell & G Walker, 'Foreign Direct Investment in New Zealand' in B Fisse & G Walker (eds), Securities Regulation in Australia and New Zealand (1994) 177. See Part III for discussion on this point.
 Inland Revenue, General and Limited Partnerships — Proposed Tax Changes (2006), available from <http://www.taxpolicy.ird.govt.nz> at 3 August 2006.
 This discussion on partnership tax treatment is found in Part II.
 A discussion on the advantages of partnership tax treatment is found in Part II.
 For example, the loss attributing qualifying company offers these dual tax efficiency and risk management advantages and the Government has sought to protect erosion of the revenue base through strict eligibility criteria. See Part II.
 B Freudenberg, 'Is the Qualifying Company Regime Achieving its Original Objectives?' (2005) 11 New Zealand Journal of Taxation Law and Policy 185.
 Institute of Chartered Accountants of New Zealand, Limited Partnerships in New Zealand: A Proposal to Reform Special Partnerships, Part II Partnership Act 1908, Submission to the Ministry of Economic Development (February 2004) 3, available from <http://www.nzica.co.nz> at 12 September 2006.
 The author feels it necessary to clarify that LPs and LLPs are two different entities. The LP is a vehicle for investment purposes, while the LLP is a vehicle for professional purposes. However, the problem is that a vast number of people do not realise this and have used the terms interchangeably, thereby creating the perception that they are the same entity. LLPs are generally restricted to use by professions, such as accountants and lawyers, and function to limit the liability of exposure of individual partners to acts of professional negligence committee by fellow partners or employees. Both general and limited partners of a LLP have limited liability. For further discussion on the LLP see R Hamilton, 'Registered Limited Liability Partnership: Present at the Birth (Nearly)' (1995) 66 University of Colorado Law Review 1065, 1066. For an in depth comparison of LPs, LLPs, LLLPs, LLCs and S Corporations see S Kalinka, 'Limited Liability Companies' in J Mertens (ed), The Law of Federal Income Taxation (2000) 35A-13 - 35A-35.
 B Freudenberg, 'Traditional Corporations out of Steam: Are new Hybrid Business Forms the Way of the Future for Australia?', Paper presented at the 18th Australasian Tax Teachers Association Conference, Melbourne, January 2006, 3.
 For further discussion, see Kalinka, above n 8, 35A-13 - 35A-35.
 Although for information purposes the partnership is required to file a tax return. See Tax Administration Act 1994, s 42.
 Each partners' share is determined by the terms of the partnership agreement.
 See Part II of this paper.
 The Partnership Act 1908 was based on the Limited Partnership Act 1907 (UK).
 Partnership Act 1908, ss 49, 57.
 See Income Tax Act 1976, s 21 IB, which has carried over into the Income TaxAct 1994, s HC 1.
 Ministry of Economic Development, Limited Partnerships in New Zealand: A Proposal to Reform Special Partnerships, Part II Partnership Act 1908 (2003), available from <http://www.med.govt.nz> at 8 August 2006.
 Section HC 1 of the Inco me Tax Act 1994 was repealed by Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Act 2004. Also see Inland Revenue, Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill: Commentary on the Bill (2004) 5, 9, available from <http://www.taxpolicy.ird.govt.nz> at 20 December 2006.
 Inland Revenue, 'Special Partnerships' (2005) 17 Tax Information Bulletin 42. See also J James & N Bland, 'Tax Update'  New Zealand Law Journal 147, 148.
 Then contained in the Income Tax Act 1994, ss E1-E3. These rules are now found in the Income Tax Act 2004, ss GC 29-GC 31.
 CCH, New Zealand Master Tax Guide 2005 (2005) [10.062]. For a more extensive discussion see Inland Revenue, 'Deferred Deduction Rule' (2004) 16 Tax Information Bulletin 58; A Smith & D Dunbar, 'Tax Avoidance Schemes in New Zealand: Limited Recourse Loans and the Deferred Deduction Rule', Paper presented at the 17th Australasian Tax Teachers' Association Conference, Wellington, January 2005.
 See Part III of this paper for a discussion on the deferred deduction rule and its ability to prevent abuse of the LP.
 Income Tax Act 2004, s IE 1(2B), inserted by the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Act 2004.
 Income Tax Amendment Act (No. 2) 1992.
 All shareholders and directors must unanimously agree that their company becomes a QC. See Income Tax Act 2004, ss HG 3, HG 4.
 A full discussion of the eligibility requirements is beyond the scope of this paper. For further information see K Holmes, 'The Taxation of Closely-Held Companies: Concepts, Legislation and Problems in New Zealand' (1992) 9 Australian Tax Forum 321; Freudenberg, above n 6.
 Shareholders related to the first degree are treated as one shareholder. All beneficiaries of a trust who have derived dividend income from a company during its life as a QC are deemed to be shareholders. As QCs can have corporate shareholders, although they themselves must be QCs, there are provisions to trace through to the ultimate non-corporate shareholders. See Income Tax Act 2004, subpart HG.
 A sui juris shareholder is a shareholder of full age and capacity.
 The QC must only have one class of shares and there must have been no arrangement entered into in relation to the company's shares for the purpose of enabling it to meet the 'one class of share' requirement. See Income Tax Act 2004, s HG 14.
 J Blake, P Foley, D Patterson & G Smaill, Practical Company and Tax Law Issues (2002) 13.
 A Valabh, R Congreve, L McKay, R McLeod & T Robinson, The Taxation of Distributions from Companies, Report of the Consultative Committee on the Taxation of Income from Capital (1990); A Valabh, R Congreve, L McKay, R McLeod & T Robinson, The Taxation of Distributions from Companies: Final Report, Report of the Consultative Committee on the Taxation of Income from Capital (1991).
  UKHL 1;  AC 22, .
 S Hamill, The Story of Limited Liability Company: Combining the Best Features of a Flawed Business Tax Structure (2005) 311, available from <http://ssrn.com/abstract=760471> at 20 October 2006.
 Business assets here refer to the fixed assets as distinct from current assets held on revenue account such as trading stock.
 Note this is not the position where the company is being wound up.
 Valabh et al (1990), above n 31, 12.
 Note that in Freudenberg, above n 9, 46, Freudenberg concludes that the interpretation of tax neutrality can vary between jurisdictions. His study concluded that the focus of neutrality in the United States and New Zealand is on closely-held businesses, whereas in Australia it is on limited liability and the effect of economic risk.
 Institute of Chartered Accountants of New Zealand, Qualifying companies: Professional Development Course Paper No S703 (2003) 1.
 Valabh et al (1991), above n 31.
 Institute of Chartered Accountants of New Zealand, above n 38, 1.
 In 2005, the Minister of Commerce, Hon Pete Hodgson, announced that a new LP regime would be enacted in line with 'international best practice'. See P Hodgson, New Limited Partnership Regime Announced, (Ministerial Media Release, 29 April 2005), available from <http://www.beehive.govt.nz> at 10 October 2006.
 Inland Revenue, above n 2.
 New Zealand Government, Growing an Innovative New Zealand (2002), available from <http://www.beehive.govt.nz/innovate/innovative.pdf> at 2 January 2007.
 McConnell & Walker, above n 1, 177
 Ministry of Economic Development, A Limited Partnership for New Zealand (2005) 7, available from <http://www.med.govt.nz> at 8 August 2006.
 New Zealand Venture Capital Association, The Australian Venture Capital Legislative Regime - The Feasibility of Adopting a Similar Regime in New Zealand, Discussion Paper, 10, available from <http://www.nzvca.co.nz> at 1 September 2006.
 Australian Venture Capital Association Limited, Venture Capital Limited Partnerships: Proposed Amendments to State and Territory Partnership Statutes to Develop a World Best Practice Venture Capital Investment Structure, Revised submission (April 2003), available from <http://www.avcal.com.au> at 20 December 2006.
 Ministry of Economic Development, above n 17, .
 Partnership Act 1908, s 53.
 Partnership Act 1908, s 55.
 V Hira, 'New Limited Partnership Regime - One Step Closer'  TaxAlert2, available from <http://www.deloitte.com/nz> at 10 September 2006.
 The review was announced in October 2003 and a Discussion Document was subsequently issued by Ministry of Economic Development, above n 17.
 Inland Revenue, above n 18, 5.
 D MacKenzie, 'Special Partnerships' (2004) 83 Chartered Accountants Journal 64.
 See the Regulatory Impact Statement attached to the Ministry of Economic Development Cabinet Paper RCP 3.4.8, above n 45.
 QC status is lost where a company ceases to be a LAQC. See Income Tax Act 2004, s HG 18.
 Refer to K Holmes, 'Taxation of Closely Held Companies: The New Zealand Model' (1992) 46 Bulletin of Fiscal Documentation 506, 513.
 Except where guarantees are given to creditors.
 Ministry of Economic Development, above n 17, .
 New Zealand Venture Capital Association, Limited Partnerships in New Zealand: A proposal to reform special partnerships, Part II Partnership Act 1908, Submission to the Ministry of Economic Development (February 2004) 2, available from <http://www.nzvca.co.nz> at 10 December 2006.
 Hodgson, above n 41.
 Delaware Revised Uniform Partnership Act.
 The United States has about 70% of the venture capital global market. See New Zealand Venture Capital Association, above n 62, 3.
 C Twiss, 'New Limited Partnership regime announced' (2005) 4 American Chamber of Commerce in New Zealand News 6, available from <http://www.amcham.co.nz> at 6 January 2007.
 The problems with partnership law were first highlighted by the Valabh Committee in the early 1990s: see Valabh et al (1990), above n 31, and, more recently by Tax Review 2001. See R McLeod, S Chatterjee, S Jones, D Patterson & E Sieper, Tax Review 2001: Final Report, Report by the Tax Review Committee (2001), available from http://www.treasury.govt.nz at 12 December 2006.
 The new rules will apply to general partnerships, limited partnerships and New Zealand resident partners of foreign general partnerships and certain foreign limited partnerships. Existing special partnerships will be able to choose to apply the new rules or continue to apply the existing rules until their expiry or dissolution.
 Ministry of Economic Development, above n 17, .
  GLR 271, 273.
 Queensland Law Reform Commission, Report of the Law Reform Commission on a Bill to Establish Limited Liability Partnerships, QLRC 34 (1985) 90.
 Ibid 91.
 See Part III.
 Inland Revenue, above n 2, [4.18],
 Institute of Chartered Accountants of New Zealand, above n 7, 9.
 N Wells & N Banks, 'Limited Liability Partnerships: a New Legal Form Appearing Across the Tasman' Counsel (15 December 2003) 5, available from <http://www.chapmantripp.co.nz> at 6 January 2007.
 Delaware Limited Partnership Code.
 Australian Venture Capital Association Limited, above n 47, 11.
 Institute of Chartered Accountants New Zealand, above n 7, 9.
 This is despite significant debate on the issue in the United States in the past. For further information see P Halpern, M Trebilcock & S Turnball, ‘An Economic Analysis of Limited Liability in Corporation Law' (1980) 30 Toronto Law Journal 117; P Blumberg, 'Limited Liability and Corporate Groups' (1986) 11 Journal of Corporate Law 573; D Leebron, 'Limited Liability, Tort Victims and Creditors' (1991) 91 Columbia Law Review 1565; J Grundfest, 'The Limited Future of Unlimited Liability: A Capital Markets Perspective' (1992) 102 Yale Law Journal 587.
 I Ramsay, 'The Expansion of Limited Liability: A comment on Limited Partnerships'  SydLawRw 42; (1993) 15 Sydney Law Review 537, 540.
 Ibid 543.
 Note this reasoning does not attempt to address the justification of limited liability for closely-held companies where shareholders are involved in management.
 The SP is not a separate legal entity.
 Income Tax Act 2004, s OB 1.
 See Part III.
 R Banks, Lindley & Banks on Partnership (8th edn, 2002) 845.
 Ministry of Economic Development, above n 45, .
 Ministry of Economic Development, above n 17, 7.
 Inland Revenue, above n 2, [4.14].
 Ibid, ch 8.
 Original investment is the market value of the limited partner's contribution on entering the partnership. It will be based either on the net assets contributed to the partnership or the amount paid to an existing partner for a partnership interest.
 The excess of the partner's income over deductions that has been recognised by the partner in earlier periods. For more detailed explanation see M Rudd & J Segedin, 'Partnerships and Venture Capital', Paper presented at the New Zealand Institute of Chartered Accountants Tax Conference, Christchurch, October 2006, 16.
 New amounts of capital provided to a partnership by a partner.
 The excess of the partner's deductions over income that has already flowed through to the partner and been deducted.
 Withdrawals of equity or capital.
 New Zealand Institute of Chartered Accountants, General and Limited Partnerships - Proposed Tax Changes, Submission on the Government Discussion Document (August 2006) 14, available from <http//:www.nzica.co.nz> at 10 January 2007.
 See, for example, Inland Revenue, More time for business: Tax Simplification for small businesses, A Government Discussion Document (2001); Inland Revenue, Business Tax Review, A Government Discussion Document (2006), both available from: <http://www.taxpolicy.ird.govt.nz> at 13 January 2007.
 D Paterson & C Plunket, 'NZ Taxation of Selected Business Entities', Paper presented at the New Zealand Law Society Taxation Conference, September 2006, 47.
 Rudd & Segedin, above n 95, 13.
 Note there is no loss restriction for general partners who would be able to utilise full tax losses even if they are corporate entities with limited liability.
 Inland Revenue, above n 2, [8.2].
 Ibid [8.7].
 Income Tax Assessment Act 1936, Part III, Division 5A.
 M Stewart, 'Towards Flow Through Taxation of Limited Partnerships: It's Time to Repeal Division 5A' (2003) 32 Australian Tax Review 171, 184.
 New Zealand Institute of Chartered Accountants, above n 99, 15.
 See Income Tax Act 2004, ss GC 29 to GC 31.
 Inland Revenue, 'Mass-marketed tax schemes', An officials' issues paper on suggested legislative amendments (2002) [2.26], [2.27], available from <http://www.taxpolicy.ird.govt.nz> at 13 January 2007.
 P Speakman, 'Unwanted extra lurks within the new rules for LLP', The New Zealand Herald (Auckland), 14 August 2006, Bl.
 Editorial,'Sensible Tax', The National Business Review (Auckland), 30 June 2006, 19.
 New Zealand Venture Capital Association, above n 62, 4.
 Editorial, above n 113, 19.
 Ministry of Economic Development, above n 17, .
 However, the SP can register as a LP prior to its expiry.
 Inland Revenue, above n 2, [2.14].
 McLeod, above n 67.
 R McLeod, S Chatterjee, S Jones, D Patterson & E Sieper, Issues Paper, Report by the Tax Review Committee (2001) 112, available from <http://www.treasury.govt.nz> at 12 December 2006.
 Note, as already discussed in Part III, neither the QC nor the LAQC serves as an attractive foreign investment vehicle.
 Inland Revenue, above n 2, [8.30].
 Submissions closed on 11 August 2006. Except for the submission by the New Zealand Institute of Chartered Accountants, these are yet to be made publicly available.
 Inland Revenue, Partnership tax changes planned for 2007 bill (Media Statement, 6 September 2006), available from <http://www.taxpolicy.ird.govt.nz> at 10 September 2006.
 J Doolan, 'The fishhooks in new partnership regime', The Independent Financial Review (Auckland), 5 July 2006, 21.
 New Zealand Institute of Chartered Accountants, above n 99, 15.
 M Gilligan, 'Compliance nightmare lurks in tax review', The Independent Financial Review (Auckland), 25 October 2006, 5.
 Freudenberg, above n 6, 215.
 Note: In no way is this a full analysis of the compliance costs associated with LAQCs. Such an exercise is beyond the scope of this paper. For further information see L Tan & S Tooley, 'Simplification - What Do Practitioners Think?' (1994) 73 Chartered Accountants Journal of New Zealand 16.
 Holmes, above n 57, 513.
 I McKay, T Molloy, J Prebble, & J Waugh, Tax Compliance, Report by the Committee of Experts on Tax Compliance to the Treasurer and Minister of Revenue (1998) [6.113].
 Income Tax Act 2004, s OB 3(l)(b).
 Institute of Chartered Accountants of New Zealand, above n 38, 44.
 A recent example is 4T Production Partnerships. See: Ministry of Economic Development, 'Partners prosecuted and fined over $250,000', Companies Office Newsletter (11 July 2006), available from <http://www.news.business.govt.nz> at 8 August 2006. The article discusses how 32 registered companies, who have just been prosecuted for breaches of the Financial ReportingAct 1993 ('FRA'), were set up as LAQCs to deliver flow-through tax advantages to 122 investors - the shareholders in the 32 offending companies. See also McKay et al, above n 137, ch 6.
 Capital New Zealand Limited, Kids World: A Capital Protected Film Investment- Your 6-Step Summary, Executive Summary (1 January 1999) 4.
 New Zealand Institute of Chartered Accountants, above n 98, 15.
 McKay et al, above n 137, [6.1114].
 Speakman, above n 113, Bl.
 Gilligan, above n 132, 5.
 Doolan, above n 130, 21.
 Inland Revenue, Tax Avoidance involving LAQC's and the family home (Media Release, 19 July 2004), available from <http://www.taxpolicy.ird.govt.nz> 8 September 2006.
 D Riordan, 'Qualifying companies find tall timber tax shelters', The Independent Financial Review (Auckland), 22 October 1993, 35.
 McKay et al, above n 137, 6.109.
  NZHC 1011; (2005) 22 NZTC 19,027 (HC).
 For example, see Actonz Investment Joint Venture v CIR (2002) 20 NZTC 17,818.
 Editorial, 'Tax dodgers target Inland Revenue', The Independent Financial Review (Auckland), 25 July 2001, 8.
 Institute of Chartered Accountants New Zealand, above n 38, 345.
 See brief explanation in Part II.
 Institute of Chartered Accountants New Zealand, above n 7, 5. See also MacKenzie, above n 54, 64.
 Gilligan, above n 132, 5.
 New Zealand Institute of Chartered Accountants, above n 99, 2.
 Inland Revenue, Briefing for the Incoming Minister of Revenue (2005) 43, available from <http://www.taxpolicy.ird.govt.nz> at 20 December 2006.
 The author made a request for information to the Inland Revenue on 8 January 2007. The figure was supplied by M McInally (Senior Policy Analyst, Policy Advice Division, Inland Revenue) on 15 January 2007.
 Gilligan, above n 132, 5.
 According to a report complied by Ernst & Young Entrepreneurial Services and the New Zealand Venture Capital Association, The NZ Venture Capital Monitor 2002: Plus 1st quarter results 2003, available from <http://www.nzvca.co.nz> 2 January 2007.
 PricewaterhouseCoopers, 'Partnerships - proposed tax changes', Tax Tips (28 June 2006), available from <http://www.pwc.com/nz> at 10 July 2006.
 Ministry of Economic Development, above n 45, .
 Queensland Law Reform Commission, above n 71, 95.