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Edited version of private ruling
Authorisation Number: 1011719248084
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Ruling
Subject: Am I in business
Question:
Is a super fund, as a 'limited partner' in a 'limited liability partnership' (LLP) conducting a business, considered to be carry on a business itself?
Answer
Yes
This ruling applies for the following period
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 July 2010
Relevant legislative provisions
Income Tax Assessment Act 1936 - Division 5A
Partnership Act 1958 (VIC)
Relevant facts
The super fund is proposing to enter into a partnership to purchase and operate a business.
The investment structure will be via a limited liability partnership (LLP) registered under state partnership legislation and the business operations will be conducted by one of the general partners (GLP).
The super fund will be a limited liability partner with a small interest in both the LLP and the GLP.
As a limited partner, the super fund will have limited liability in relation to the debts of the partnership.
No members of the super fund will be employed by the business.
The relationship between the GLP and the limited liability partners will be defined within the Limited Partnership Agreement.
The clauses of the agreement will be consistent with the requirements of a limited liability partnership under the state's partnership legislation.
None of the exceptions under subsection 94D(2) of the Income Tax Assessment Act 1936 apply, that is, the partnership is not a 'VCLP, an ESVCLP, an AFOF or a venture capital management partnership'.
Reasons for decision
Subject to registration as a LLP being valid, the limited partner must of necessity be carrying on a business in common with the general partner(s). The mere passive nature of a limited partner in the management of the business does not of itself disqualify the association of persons from carrying on a business in law.
Under each of the Australian States, LLPs are constituted and governed as a special sub-class of partnership under applicable partnership acts or a special statute and are subject to the ordinary law of partnership.
Paragraph 4 of Tax Determination TD 2008/15 explains that the State law definition of a partnership is a pre-requisite to establishing a LLP and state partnership legislation stipulates that a partnership 'is the relation which exists between persons carrying on a business in common with a view of profit'.
It follows that a limited partner is required to be carrying on business in common with the general partner to satisfy the requirements of a LLP. The characteristics of what is regarded as carrying on business is contained in paragraph 23-24 of Taxation Ruling TR 97/11 and includes such indicia as; repetition and regularity, organization of activities in a businesslike manner, the keeping of books, records and the use of system and volume of operation.
In your case, you have stated that the LLP will be carrying on a business, and providing the partnership registration as a LLP is valid, the super fund, as a limited partner, must necessarily be considered to be carrying on a business in common with the general partner(s) of that business.
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