• What is a corporate limited partnership and how is it taxed?

    A corporate limited partnership is a partnership that is comparable to a limited liability company in that there are limited partners who are similar to shareholders in a company - they do not take part in the management of the business, and their liability generally is limited to the extent of their investment.

    Certain limited partnerships are corporate limited partnerships and are taxed as companies.

    The following limited partnerships (including incorporated limited partnerships) are not corporate limited partnerships:

    • a venture capital management partnership
    • a venture capital limited partnership
    • an early stage venture capital limited partnership
    • an Australian venture capital fund of funds.

    These limited partnerships are taxed as ordinary partnerships (subject to special rules about the use of their losses) and are not taxed as companies.

    For a partnership to be a corporate limited partnership, it needs to meet the requirements of the relevant state law. For more information refer to Taxation Determination TD 2008/15: Can an unincorporated association of persons acting only in Australia who do not carry on a business in common with a view to profit be a corporate limited partnership within the meaning of section 94D of the Income Tax Assessment Act 1936?

    For more information on corporate limited partnerships, refer to Division 5A of the Income Tax Assessment Act 1936.

    Provisions in the income tax law have been modified to treat corporate limited partnerships as companies. For example, a reference to a share includes a reference to an interest in the partnership and a reference to a shareholder includes a reference to a partner in the partnership.

    Before these amendments, Division 7A did not apply to corporate limited partnerships because these partnerships were treated as companies, but not treated as private companies for income tax purposes.

    The law was amended because corporate limited partnerships were being used to circumvent the application of Division 7A. Division 7A now applies to a closely-held corporate limited partnership for a year of income in the same way it applies to a private company.

    The total of all dividends a closely-held corporate limited partnership is taken to pay under Division 7A is limited to its distributable surplus for that income year.

    Attention

    See Taxpayer Alert 2007/05 for information on arrangements designed to avoid the operation of Division 7A through the use of a corporate limited partnership.

    End of attention
      Last modified: 15 Jul 2010QC 23184