This business structure allows you to share costs and overheads with other people and combine your different skills. For example, many accountants and lawyers use the partnership structure for their businesses, as do many couples, such as husband and wife teams.

Tax position

In a partnership you pay tax on your personal income. The partnership income is calculated and then you take whatever share is due to you. For example, if you have equal shares in a partnership with your spouse, you will take 50% of the profit and so does your partner.

Advantages

• There is no cost to set up a partnership, although it is a good idea to get a partnership agreement drawn up by your lawyer or accountant. A professionally drawn up document will help cover some of the contingencies that might result if the partnership does not work out or a partner leaves or dies.
• It can be a good way of combining skills and experience and sharing overhead costs (such as a shared office).
• Partnership losses can be offset against other personal income.

Disadvantages

• You are liable for all of the debts of the business that you or your partner(s) incur. Anything you do ‘in the partnership’ means that both or all of the partners are liable.
• Partnerships can lead to friction and lack of clarity regarding leadership.
• It may be difficult to sell your share in a partnership.
• Lending institutions may require personal guarantees.

Tax accounting for partnerships

Formal partnerships should obtain a separate Inland Revenue number and complete a separate IR7 tax return, to make tax accounting easier.  You can download these from the Inland Revenue website (www.ird.govt.nz)

This material is for information purposes only. You should seek professional advice related to your individual circumstances. While The National Bank has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, The National Bank does not accept any responsibility or liability arising from your use of this information. Our lending criteria, terms, conditions and fees apply.