Joint Ventures - Taxation Risks and Advantages

Both here and in Australia, the unique commercial and tax features of joint venture are finding favour in forestry, fishing, technology and infrastructure projects. For New Zealand mining companies, joint ventures provide a means of access to foreign know how and investment funds, while retaining their corporate independence and their hard-earned tax losses.   This paper discusses some of the practical income tax and GST considerations where a joint venture structure is contemplated. The first part of the paper considers income tax, and in particular how joint ventures enable companies to access and carry forward tax losses. It explains why a joint venture may be advantageous relative to a jointly owned company.   The second part of the paper concerns GST and the focus is on two aspects: 1.   Joint ventures may be registered for GST. In some instances they have no choice and are required to do so. Where a joint venture is registered in respect of a taxable activity, the members are not permitted to register in respect of the same activity. This may be problem where the member has incurred its own expenses and the member wishes to register in its own right to claim back the GST on those expenses. This paper explores the issue and possible solutions. 2.   It is not uncommon to see joint ventures claiming GST on the costs of production, and the production being sold (and GST is being charged) by the members. In this paper we consider whether these arrangements have a tax risk, and what can be done to make them technically sound.