Reference no: EM132675784

Question - All amounts are expressed in New Zealand currency. All taxpayers are New Zealand tax residents and where relevant, the taxpayers have a standard balance date of 31 March. All scenarios are hypothetical and are set up for the purpose of this examination.

a) Kenny owns all the shares in Martella Ltd (an ordinary NZ resident company) which is in the business of selling toys. The company employs his sister Babbie, to help with the business. Babbie works in the business ten hours per week as she has young children to take care of. She is paid a salary of $70,000 p.a. Martella Ltd is thinking of electing to be a look-through company as the company may derive substantial capital gain in the future. Kenny's marginal tax rate is 33%.

i) Provide two reasons for Martella Ltd to elect to be a look-through company rather than an ordinary company.

ii) Briefly discuss whether the salary paid by Martella Ltd to Babbie will be fully tax deductible if Martella Ltd is a look-through company.

b) The Limited Partnership regime was introduced in New Zealand in 2008 to provide an internationally recognisable investment structure and to place New Zealand in a better position to compete for international capital investment.

i) Briefly discuss two main tax advantages for foreign investors who invest in New Zealand via a Limited Partnership rather than an ordinary company in New Zealand.

ii) Briefly discuss three differences between a Limited Partner and a General Partner for tax and non-tax purposes.

iii) Jack and Jill are two equal partners who invested in a commercial property on 1 November 2016. Jack is a limited partner and Jill is a general partner. On 1 August 2019, Jack sold his half share in the property to James for $600,000. The gross tax value of the partnership is $900,000. Based on the information provided, is the income from the sale of Jack's interest in the partnership property subject to tax?