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Partnerships have been popular with New Zealand farmers for generations. The primary reason for this is that farmers face relatively low risk from unsecured creditors and therefore the motivation for forming a limited liability company for the purposes of avoiding personal liability has not been high. Typically husbands, wives and de facto partners have formed farming partnerships, taking advantage of the ability to allocate the income of the partnership business between them. The maximum personal tax rate is 39˘ in the dollar for incomes in excess of $60,000. By using a partnership with an income of less than $120,000 the income can be divided equally between the partners and be taxed at 33˘ in the dollar, or if the income is less than $60,000 then the rate could be 19.5%. It is not a legal requirement that a partnership be recorded in writing. The Partnership Act simply provides that a partnership subsists between people carrying on a business, with a view to profit. It is advisable however to have a written partnership agreement where one of the partners may be providing less than half the physical input into the partnership. A partnership agreement can provide for an unequal division of the profits. Partnerships offer a simple structure for securities and for accounting purposes. In particular a partnership avoids costs such as fringe benefit tax in relation to the use of private motor vehicles and dwellings. Particular care should be taken with regard to partnerships in the preparation of wills and matrimonial property agreements, so as to avoid the difficulties that arise on the death of either of the parties. The Partnership Act has particular provisions relating to the treatment of land which may be inconsistent with the partners’ wills if they are husband and wife or de facto partners. A partnership is not a desirable entity for investing in farming for non-related parties. A company structure is preferable.
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