CH 21 - Mixed Partnerships

Question 1

What restrictions exists for
Mixed Partnerships

Answer 1

• AIA is not available when calculating the profits
• cash basis can’t be used to calculate its trading profits
• Flat Rate Expense for motor expenses can’t be used

Question 2

When
Anti-avoidance rules applies
for mixed partnerships

Answer 2

where the following conditions are met;

• A corporate partner has a share of the partnership’s profit
• The corporate partner’s share is excessive, ie it exceeds an ‘appropriate notional profit’
• An individual partner has the power to enjoy all or part of the corporate partner’s share
• It is reasonable to assume that the effect of the profit-sharing arrangement is to reduce both the individual’s profit share and the aggregate tax payable of the partnership

Question 3

What happens
if Mixed partnership is cought
by ‘Anti-avoidance’ rules?

Answer 3

the individual’s profit share is increased

by the amount of the company’s profit share that is attributable to the individual’s power to enjoy it,

capped at the amount of the excess profit.

Question 4

Define
‘appripriate notional profit’
under anti-avoidance rulles of mixed partnerships?

Answer 4

The ‘appropriate national profit’ is;

• the profit the corporate partner is deemed to have earned from the partnership by providing capital or by providing services to the partnership:

less

• any amounts actually received from the partnership for providing the capital and/or services.
  (return on capital is caulcated at a commercial rate of interest)

If any services provided involve other members of the partnership, then the value of these services is not included in arriving at the notional profit.

Question 5

Define ‘Anti-avoidance’ rulles in terms of
Loss alloc. in mixed prntrship

Answer 5

anti-avoidance rules prevent losses being allocated to individual partners rather than to corporate partners in a mixed partnership so that the individual can obtain more generous loss relief.

If the loss relief arises to individuals as a result of ‘relevant tax avoidance arrangements’, relief for the losses are lost.

(ITA 2007, s.116A(3))

Question 6

Define ‘Anti-avoidance’ rulles in terms of
trf of income stream through mixed prntrship

Answer 6

designed to counter ‘tax attribute’ schemes to trf Income streem or assets

the consideration given for the income stream (or asset) is charged to tax as if it were income of the transferor.

Where the transfer is for ‘substantially less than market value’,
the charge is based on the deemed market value of the disposal rather than the actual consideration received.

(ITA 2007, s.809AAZA)