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3.

5 Partnerships
Partnership (ITAA)
1st Limb: Persons carrying on a business?
- Case S75
2nd Limb: Receipt of Joint Income
- FCT v McDonald

Net Income
(s92(1))

Partnership Loss
s92(2)

Partnership Tax Return


Partnership not liable to pay tax s91
Exclusions from net income calcs
1) Prior year losses Div 36
2) Super contributions s82AAT
3) CGT gains/losses s106-5

Property Interest?
According to proportionate
ownership of income
producing asset
*cannot stream losses!
- FCT v McDonald
Partners Salary
1) Consider salary is advance
distribution of net income
TR2005/7
2) Remaining income will be slit
between partners accordingly
- Case S75
*TR2004/D4 excessive salary
over net income taken out of
future profits in subsequent years

Include individual interest in


partners tax return s92(1)
1) Include entire interest if
resident s92(1)(a)
2) Include Australian sourced
ONLY if non-resident s92(1)(b)

Change in partnership interest


-when new partner is admitted, old
partnership dissolved, new partnership
formed

Other CGT Assets

Tax Treatment
For CGT purposes,
each partner has
fractional interest in
partnership assets
s106-5 and s1085(2)(c)

Trading Stock

Property Interest?
According to
partnership
agreement

Tax treatment
1) Acq/disposal taken at
partnership level
2) Depreciation/
balancing charges taken
at partnership level s90

Partner leaves (s106-5(3))/


enters (s106-5(4))

Proceeds s116-20(1)(b)
Proportionate share MV of
new asset/cash acquired
from new partner

Deemed disposal of TS s70-100


-election available as to the value at
disposal s70-100(4)
1) MV
2) Cost
3) Replacement
*Chose lowest value to minimise net income

Cost Base s112-30(3)


Proportionate share of cost
base of asset disposed of
to other/new partners

Remaining cost base of share in


partnership
-remaining cost base of undisposed
portion from previous step

Work in progress
Definition: s25-95(3)
1) Entity agrees to pay amt to another entity
2) Amt can be identified as being in respect to work,
and recoverable debt has arisen in respect of work
*does not incl goods in process of manufacture

Deductions available when:


1) Recoverable debt has arisen
2) Debt relates to work that will be
completed within 12 months after amt
paid s25-95(1)
3) If not within 12 mths, it can be
deductible in the following year s25-95(2)

Partnership (Partnership Act)


Carrying on a business? In common? View
of profits?

Partnership Borrowings
FCT v Roberts, FCT v Smith, TR 95/25
-purpose of funds more important than use
-borrowings against capital used for private purpose is
not deductible
-funds used for income producing purposes deductible
-Refinancing principle
funds used to replace capital is
deductible (except ARR for goodwill and assets)
-Interest on loans paid against partners capital amount
is not deductible as it is paid to partners (2005PP)

Limited partnerships
CLP 108
Assessable when:
WIP amts are received in the
income year s15-50

Ken Choi 2007

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