Appendix 7: Deductions applicable to partners
Capital allowances for primary producers and some landholders
A partnership cannot claim a deduction under Subdivisions 40-F and 40-G of the ITAA 1997 for:
- electricity connections and telephone lines
- grapevines and horticultural plants
- landcare operations and the decline in value of a water facility.
Each partner can claim a deduction in accordance with any agreement on how the expenditure is to be borne or, if there is no agreement, according to each partner’s interest in the partnership income or loss.
For more information, see the Guide to depreciating assets 2016.
Film industry incentives
The conditions under which concessions are available for the Australian film industry are explained in Film industry incentives 2016. The concessions do not apply in the calculation of the partnership net income or loss.
In very limited circumstances, a concession may be available to the individual partners. The law about claiming deductions for investments in Australian films has changed for 2009–10 and later income years. As a consequence of the introduction of the Australian screen production incentive, Division 10B and Division 10BA of Part III of the ITAA 1936 has been repealed with effect from 1 July 2010. A partner cannot claim a deduction under Division 10BA for the 2009–10 or later income years. A partner cannot claim a deduction under Division 10B for the 2010–11 or later income years. For the 2009–10 income year, a partner can claim a deduction for an Australian film under Division 10B only if the partner first claimed such a deduction for that film for the 2008–09 income year.
If you wish to claim deductions for income years prior to 2009–10, or a Division 10B deduction for the 2009–10 income year, see the publication Film industry incentives 2010–11.
Farm management deposits scheme
The farm management deposits (FMD) scheme reduces fluctuations in a primary producer’s income.
A partnership cannot have an FMD or claim a deduction for a deposit to an FMD.
A partner in a partnership that carries on a primary production business in Australia may be able to claim a deduction in the income year in which they deposit an amount into an FMD. The deposit must be made by or on behalf of only one person. Any repayments of that deposit are assessable income to the extent they have been previously claimed as a deduction.
For information about further requirements for the FMD deduction, see question 17 Net farm management deposits or repayments in the Individual tax return instructions supplement 2016 and Information for primary producers.
If a partnership loss is incurred by a partnership in an income year, individual partners can claim a deduction for their share of the partnership loss. A partnership loss is incurred if the allowable deductions (other than deductions allowable for personal superannuation contributions or tax losses of earlier income years under the ITAA 1997) exceed the assessable income of the partnership. The partnership loss is the amount of that excess.
For the tax treatment of current year foreign losses of the partnership, see the subheading Net foreign source income under the heading, Other assessable foreign source income.
Rules on deferring non-commercial business losses may apply to a partner who is an individual, to defer the deduction for their share of a loss from a business activity of the partnership. An individual may be covered by an exception, or the business activity may satisfy one of four tests, or the Commissioner may exercise his discretion. For more information on these rules, see question 16 Deferred non-commercial business losses in the Individual tax return supplement 2016 and Non-commercial losses: partnerships.
Research and development expenditure
Eligible companies may be entitled to a tax offset for eligible expenditure incurred on qualifying R&D activities. A partner in a partnership of otherwise eligible companies (an R&D partnership) may also be entitled to the R&D tax incentive for eligible expenditure on qualifying activities. For information on how a company may claim the R&D tax incentive, see Research and development tax incentive schedule instructions 2016
Small business income tax offset and non-commercial losses
The non-commercial loss rules will apply to a partner’s share of a partnership business loss and may also affect their share of net small business income. For more information on these rules, see question 16 Deferred non-commercial business losses in the Individual tax return instructions supplement 2016.
Depending on how the non-commercial loss rules apply to the individual partner, the individual partner may need to adjust their share of the partnership’s net small business income in their own individual tax return.
The individual partner will need to know their share of each partnership loss activity.
For information on claiming a deduction for personal
superannuation contributions, see Individual
tax return instructions supplement 2016.
Last modified: 10 Aug 2016QC 48217