Power Simon: Limited Partnerships Bill — First Reading 
Power Simon: Limited Partnerships Bill — First Reading 
[Volume:641;Page:11312] 
SIMON POWER (National—Rangitikei) 
: 
 The National Party will be supporting the Limited Partnerships Bill at its first reading. I take this opportunity to thank the honourable Minister Damien O’Connor for his comments. He certainly cleared up a couple of issues there that had been worrying members on this side of the House. I also take this opportunity to thank the Hon Lianne Dalziel. Right from the start her office was on the phone to me. It gave me a briefing very early in the piece about the contents of the bill and that allowed National members to go to our caucus to seek support for the first reading once we had read the bill and had some discussions with others in a reasonably informed way. 
I noticed that the Minister who has introduced the bill the Hon Damien O’Connor did not mention—and I thought this was quite interesting—the Government’s growth and innovation framework which was launched in 2002. The explanatory note of the bill states: “Venture capital provides a valuable source of funding for new companies and early stage expansion capital.” I will come back to that. It continues: “The Government’s Growth and Innovation Framework launched in 2002 identified promoting foreign venture capital as an element for achieving sustainable economic growth through effective innovation.” I am not sure what that means but I am sure ultimately that the shape of the limited partnerships will provide a proper legal vehicle for international venture capital to feel satisfied that the appropriate legal structure is in place for investment to occur. 
So I thought it was curious as the growth and innovation framework is one of the bedrock strategies of the Government’s economic transformation agenda that the Minister did not mention that framework. I see Maryan Street over there on the Government benches is nodding away furiously to indicate that she will spend some time in her contribution telling us about the strategy and how it links with the Limited Partnerships Bill in providing the necessary legal framework for international venture capital investment. In fairness to Damien O’Connor he is acting on behalf of Lianne Dalziel in seeking to refer this bill to the Commerce Committee a committee that has its share of members who enjoy attention to detail and who I am sure will enjoy dealing with this bill. 
Essentially there are two elements to the bill. The first relates to the establishment of limited partnerships which are as the Minister said international vehicles commonly used to invest across a broad range of jurisdictions. The form of limited partnership presently in the Partnership Act called a special partnership does not have all the features that are preferred by international venture capitalists. New Zealand needs to have a legal structure that other jurisdictions will recognise in order that it can compete internationally for venture capital investment. 
We will see here as the Minister said discussion around how income will be derived from source to partners in proportion to their profit share the flow-through treatment that my colleague Dr Worth will spend some time discussing and discussion around the entry into and exit from partnerships which as I am sure my colleague Dr Worth knows from his expertise in partnership law is not always as straightforward as people think. Partners tend to come and go without the existing partnership structure being dissolved in its entirety and a new partnership structure being formed with new partners. They simply adopt what I guess could be described as a slightly scruffy entry and exit process into and out of a partnership. I know that the Hon David Parker will understand as a former commercial lawyer of some note that when a partner leaves a partnership the entire partnership actually dissolves at law and a new partnership needs to be formed with the remaining or new partners coming into the partnership arrangement. But that is not always observed on the entry into and exit from partnerships. 
The legislation is designed to reduce the likelihood of the under or overtaxation of both the exiting and incoming partners. 
Hon David Parker 
: Particularly for forest partnerships. 
SIMON POWER 
: Perhaps the Minister could take a call and give us a bit of a rundown on how the legislation will affect forest partnerships. Some taxation treatments for limited partnerships will be of interest to the select committee and that is the second element that is dealt with by the bill. The Minister skipped over that part of the bill pretty quickly and to be fair it is complex. Parts 5 and 6 of the bill introduce new taxation rules for limited and general partnerships. At the risk of quoting from an official document and having to table it—though that would require somebody to be paying attention—under the proposed rules the limited partnership vehicle will have separate legal entity status. If the proposed regulatory rules were to be introduced without any change to the taxation legislation I am advised that a limited partnership—and this is important I say to Dr Worth—would be characterised as a company for income tax purposes. I am sure that Dr Worth will be able to talk about that in more detail. As a result of that characterisation income and expenses would not flow through the partnership to be taxed at the partner level but instead would be taxed at the company level. The bill will ensure that limited partnerships will not be taxed. Instead each partner will be taxed individually. 
That sounds a bit complicated and it is. I think the Minister did not do due justice to the bill when he skimmed over its taxation and revenue implications by simply saying to the House and the public of New Zealand that that is something the Minister of Revenue will deal with at some point further down the track. Ultimately the Minister who introduces the bill has the responsibility for doing that and the proposed new partnership rules as set out in the bill will amend the Income Tax Act 2004 in several ways. I do not intend to go into those in detail now because that will be a matter for the select committee. But one thing is certain which is that at first glance this bill appears to be pretty benign. It appears to be a vehicle that is set up to attract and allow international venture capital to flow through to those investing in such a structure in a pretty straightforward way. But there are quite significant taxation and revenue implications from the bill. I see Maryan Street is nodding over there. She is keen to explain that flow-through taxation treatment to the House and the public of New Zealand in perhaps a simpler way than I have been able to. 
I just want to reaffirm that in this first reading debate National earmarks those issues around taxation and revenue as being matters that we will look at closely at the select committee. We agree to support this bill at the first reading because we believe that the structure of limited partnerships for attracting international venture capital and getting over that multi-jurisdictional difficulty is important but the taxation treatment of those investments and the flow through to the partners of the particular entity chosen for that investment will need to be the subject of more scrutiny at the select committee. But as I said National will support the first reading and the bill’s referral to the select committee although we are concerned about the expansive nature of the procedural motion the Minister will put to the House at the point of referral. We certainly will not be supporting the sitting times and proposals the Minister has suggested to the House procedurally but substantively we will support this bill at the first reading.