Taxation Laws Amendment (Venture Capital) Act 2002 (136 of 2002)

Schedule 2   Flow-through treatment, and related matters

Income Tax Assessment Act 1936

13   After subsection 92(2)


(2AA) However, if:

(a) the partner is a limited partner in a partnership; and

(b) the partnership is a VCLP, an AFOF or a VCMP during the year of income;

the amount allowable under subsection (2), in respect of the year of income, as a deduction must not exceed the amount worked out as follows:

Method statement

Step 1. Work out the sum of the amounts that the partner has contributed (the partner’s contribution ) to the partnership.

Step 2. Subtract the sum of all the amounts (if any) of the partner’s contribution that are repaid to the partner.

Step 3. Subtract the sum of all deductions allowed to the partner for losses of the partnership in previous years of income.

Step 4. Subtract the sum of the amounts of all the debt interests issued by the partner to the extent that they are secured by the partner’s interest in the partnership.

Example: A limited partner contributes $100,000 to a VCLP, having borrowed $80,000. Because the lender values the partner’s interest in the partnership at $70,000, the partner also provides, as additional security, other assets valued at $10,000.

If none of the partner’s contribution has been repaid and the partner has not been allowed deductions for partnership losses in previous years of income, the amount allowable to the partner for a partnership loss cannot exceed $30,000.