General limited partnership business structures under review by ATO
In Taxpayer Alert TA 2015/4 (Alert) the Commissioner has issued a warning that the Australian Taxation Office is actively investigating arrangements involving a general limited partnership structure that are being used as a vehicle to minimise the tax liability of individual stakeholders involved.
The compliance activity follows two recent decisions by the Administrative Appeals Tribunal where the Commissioner successfully argued that genuine limited partnerships did not exist as argued for by the taxpayers but were established to reduce tax (see D Marks Partnership & Ors v FC of T [2015] AATA 651 and NR Allsop Holdings Pty Ltd as General Partner of Q Uniform Partnership v FC of T [2015] AATA 654).
A limited partnership is a partnership at general law where the liability of at least one of the partners, usually a private company, is limited. The Commissioner is concerned with arrangements involving limited partnerships that enable individuals to access business and other profits at the company tax rate of 30% without paying additional ‘top-up’ tax reflecting their higher marginal tax rate of up to 49%.
In the Alert the Commissioner has outlined variations of such arrangements in the following diagrams:
General limited partnerships are common business structures for successful medium sized and family businesses. Given the targeted review being carried out by the Australian Taxation Office of arrangements involving such general limited partnerships, it is important to obtain an independent legal review of such structures for an assessment of any related tax risks that may need to be managed.
The Commissioner is encouraging taxpayers involved in arrangements possessing features similar to those described in the diagrams above to apply for private rulings to confirm the Commissioner’s view of such arrangements, or to make voluntary disclosures, in order to reduce penalties that may be applied in the event that an audit is conducted by the Australian Taxation Office.
For further information or advice, please contact:
Rod Payne
Principal
Harwood Andrews
T: 03 5226 8541
E: rpayne@harwoodandrews.com.au
Ashleigh Wall
Senior Associate
T: 03 5226 8559
E:awall@harwoodandrews.com.au
Dianne Sisak Penjalov
Senior Associate
T: 03 5226 8582
E: diannes@harwoodandrews.com.au