119. Where a private company is a partner of a partnership, can capital contributed by the private company to the partnership give rise to a dividend?
No. This is provided it is a bona fide capital contribution.
By its nature, a capital contribution made by a private company partner to the partnership is not a loan to either the partnership or the other partners. Although the contribution will be a 'payment' for Division 7A purposes, it will not be treated as a dividend because it discharges an obligation of the private company to pay money to the partnership and is not more than would have been required in an arm's length dealing.
(See subsection 109C(3) and section 109J.)
120. Where a private company is a partner of a partnership, can undrawn partnership profits of the private company be taken to be a dividend?
No. The undrawn partnership profits of a private company partner are neither a 'loan' nor a 'payment' by the private company to the partnership or the other partners.
121. Where a private company and its shareholder or shareholder's associate are partners, what are the Division 7A consequences of excess drawings by the shareholder or shareholder's associate?
An excess drawing that is correctly characterised at law as a transaction on account of the partnership cannot be taken to be a dividend.
However, an excess drawing may be beyond the terms of the partnership agreement or involve a transaction that is properly characterised as being directly between the private company and the shareholder or shareholder's associate in their own capacity and in their own account (instead of in their capacity as partners and on account of the partnership). In these instances, amounts shown as excess drawings by the shareholder or shareholder's associate may satisfy the definition of a 'payment' or a 'loan'. Such an excess drawing can give rise to a dividend where it relies on either capital contributions by, or undrawn profits of, the private company partner.
(See subsections 109C(3) and 109D(3).)