Limited partnerships – loss limitation rules

(Clause 39)

Summary of proposed amendment

The bill amends the Income Tax Act 2007 to clarify that a loan by a limited partner to their limited partnership is counted when calculating their basis for the purposes of the loss limitation rules.

Application date

The amendment will apply from 1 April 2008, being the date the limited partnership rules started.

Key features

The limited partnership rules contain loss limitation provisions to ensure that the amount of tax deductions a limited partner may claim in a year is restricted if the amount of the deductions exceeds the tax book value of their investment (the partner’s basis).

The definition of “capital contribution” in the “investments” item of the loss limitation formula is being amended to clarify that it includes a loan made by a limited partner to a limited partnership, and a credit balance in the limited partner’s current account with the partnership.