General corporate limited partnerships are treated as companies for taxation purposes. For example, a reference to a share includes a reference to an interest in a corporate limited partnership. A reference to a shareholder includes a reference to a partner in a corporate limited partnership.
As such, Division 7A applies to loans, payments and debts forgiven by closely held corporate limited partnerships to its partners or associates of its partners.
The total of all dividends a corporate limited partnership is taken to pay under Division 7A is limited to the distributable surplus of the corporate limited partnership for that income year.
- TA 2007/5 – Arrangements designed to avoid the operation of Division 7A through the use of a Corporate Limited Partnership
- Division 7A - payments by private companies
- Division 7A - loans by private companies
- Division 7A - debt forgiveness by private companies
A corporate limited partnership is a limited partnership that is an association of persons (other than a company) carrying on business as partners, where the liability of at least one of those persons is limited.
A corporate limited partnership 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.
The following 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 treated as ordinary partnerships (subject to special rules about the use of their losses) under the income tax law.
For a partnership to be a corporate limited partnership, it needs to meet the requirements of the relevant state law.
- TD 2008/15 – Income tax: 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?
A corporate limited partnership is considered to be closely held for the purposes of Division 7A if it has fewer than 50 members or an entity has, directly or indirectly, and for the entity's own benefit, an entitlement to a 75% or greater share of the income or capital of the partnership.
Kariba LP is a limited partnership that has one general partner and three limited partners. Kariba LP is a corporate limited partnership. As Kariba LP has less than 50 members, it is subject to the application of Division 7A from the 2009-10 income year.End of example
Michael has an entitlement to an 80% share of the income of two fixed trusts. The two trusts have between them an entitlement to 100% of the income of a corporate limited partnership. For the purpose of determining whether there is a closely-held corporate limited partnership, Michael has, indirectly and for his own benefit, an entitlement to a 75% or greater share of the income of the partnership.End of example
Division 7A and closely-held corporate limited partnerships
From 1 July 2009, Division 7A applies to closely held corporate limited partnerships in the same way that it applies to private companies.
A partner in a corporate limited partnership is taken to be a shareholder. This means that associates of a partner of a closely held corporate limited partnership will be treated as associates of a shareholder for the purposes of Division 7A.
Therefore, a partner or associate of a partner in a closely-held corporate limited partnership which directly or indirectly (for example, through an interposed entity) receives a payment or loan from, or has a debt forgiven by, a closely-held corporate limited partnership, the closely-held corporate limited partnership may be taken under Division 7A to pay the partner or associate of the partner a dividend. Any dividend paid will be limited to the distributable surplus of the closely held corporate limited partnership. The partner or associate of the partner may need to include this amount in their tax return as an unfranked dividend.
A private company's distributable surplus for an income year is worked out as follows:
When considering the formula for closely held corporate limited partnerships, 'net assets' means the amount of the partnership's assets at the end of the partnership's year of income (according to its accounting records) that exceed the sum of the present legal obligations of the partnership and amounts relating to the following provisions:
- provisions for depreciation
- provisions for annual leave and long service leave
- provisions for amortisation of intellectual property and trademarks.
'Paid up share value' is the paid up share capital of a company at the end of its year of income. For a closely held corporate limited partnership this is a reference to the total of the partners' interests in the partnership (because a reference to a share includes a reference to an interest in the partnership).
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