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Find out about: Tax rates and codes

Partnerships and look-through companies (LTCs)

What is a partnership?

In a partnership two or more people run a business together. Each partner contributes something to the business and in return:

  • shares in any profit or loss, and
  • is liable for any debt within the partnership.

What is a look-through company (LTC)?

Companies with five or fewer shareholders can elect to be a LTC. Shareholders of a LTC are liable for tax upon the company's profit. They can offset the company's losses against their other income. A LTC is "looked-through" for income tax purposes.

Find out more about look-through companies (LTCs)

How does a partnership work?

You can prepare a formal partnership agreement. You must register a limited partnership with the Companies Office.

Partners share responsibility for running the business and share the profits and losses equally, unless an agreement says otherwise.

The partnership distributes its income to the partners who each pay tax on their own share. The partnership itself does not pay income tax on its profits. Instead:

  • at the end of each year the net profit (without taking into account partners' drawings) is distributed between each partner, and
  • each partner then pays income tax on their share of the profit in their individual tax return, along with any other income they may have received.

Paying a salary or wage to a partner

If there is a bona fide contract in writing and agreed to by all partners you can pay a salary or wage to a partner and deduct PAYE.

The partners must:

  • include the salary or wage in their Individual tax return (IR3) along with their share of any profit or loss from the partnership, and
  • claim the salary or wage as a deductible expense in the Income tax return: partnerships and look-through companies (LTCs)(IR7).

Find out more in our Employer's guide (IR335)

Reallocating payments for tax purposes

We can reallocate payments for tax purposes if we consider that any:

  • payment
  • salary or wage
  • share of profit or loss, or
  • other income paid to a relative or associated person

is unreasonable or excessive.

To consider this, we look at:

  • the nature and extent of the services provided
  • the value of the partners' contributions made by way of services or capital, and
  • any other relevant matters.
We cannot reallocate a partners' share of income or losses if there is a bona fide contract.

Filing a partnership and look-through company income tax return (IR7)

When two or more people are in a partnership or look-through company (LTC), they must file an joint Income tax return: partnerships and look-through companies (LTCs)(IR7) every year. The partnership or LTC is not assessed for tax, but each partner or owner is liable for tax on their share of the income from the partnership or LTC.


A partnership must file an IR7 return, attaching the Partnership details (IR7P), until the partnership ceases and we are advised. An IR7 return must be filed for the year in which the partnership ceased.

Each partner in a partnership must file an Individual income tax return (IR3) showing their share of any income, expenses and tax credits from the partnership, as shown on the IR7P.

Look-through companies (LTCs)

A look-through company (LTC) must file an IR7 return, attaching the Look-through company (LTC) income/loss allocation (IR7L) for every year that it is registered with the Companies Office unless it has completed an Non-active company declaration (IR433).

Each look-through owner in a LTC must file their relevant income tax return showing their share of any income, expenses and tax credits from the company, as shown on the IR7L.



Date published: 18 Oct 2013

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