ATO ID 2004/627: Interest on debentures issued by a limited partnership and the definition of a 'company' for the purposes of the interest withholding tax exemption
Date of decision: 15 July 2004
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
Does a limited partnership that is also a 'corporate limited partnership' satisfy the definition of 'company' for the purposes of the interest withholding tax exemption in subsection 128F(2) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision
Yes. A limited partnership that is also a 'corporate limited partnership' satisfies the definition of 'company' for the purposes of the interest withholding tax exemption in subsection 128F(2) of the ITAA 1936.

Facts
LP is a limited partnership that was established in Australia after 19 August 1992 by partnership deed and is registered in accordance with the relevant State Government's legislation governing partnerships. LP is also a 'corporate limited partnership' within the meaning of that term in section 94D of the ITAA 1936. LP proposes to raise funds by issuing certain debentures offshore and has requested the Commissioner to confirm that the requirements of the subsection 128F(2) of the ITAA 1936 exemption from interest withholding tax will be met by the anticipated issue, in particular, that LP is a 'company' for the purposes of that subsection. It is assumed for present purposes that apart from the question whether LP is a 'company' for the purposes of subsection 128F(2) of the ITAA 1936, all other relevant requirements for the exemption will be met.

Reasons for decision
Summary: Subsection 128F(2) of the ITAA 1936 exempts from withholding tax the interest paid in respect of certain publicly offered debentures. One of the conditions of the exemption is that the interest is paid by a 'company' (subsections 128F(1) and 128F(1A)). In ITAA 1936, unless the contrary intention appears, 'company includes all bodies or associations corporate or unincorporated, but does not include partnerships or non-entity joint ventures' (emphasis added) (subsection 6(1) of the ITAA 1936.) In ITAA 1936, unless the contrary intention appears, 'partnership' means 'an association of persons carrying business as partners, or in receipt of income jointly, but does not include a company'; and 'limited partnership' means 'a partnership where the liability of at least one of the partners is limited'. In terms of these definitions LP would apart from section 94K of the ITAA 1936 (see below) be both a 'partnership' and a 'limited partnership', not a 'company'. However Division 5A of the ITAA 1936 modifies these definitions by extending the definition of company to include certain limited partnerships. The object of the Division is, indeed, to provide for certain limited partnerships to be treated as companies for tax purposes (section 94A of the ITAA 1936). For the purposes of Division 5A of the ITAA 1936 a limited partnership is a 'corporate limited partnership' in relation to an income year of the partnership if it satisfies section 94D of the ITAA 1936. That section is automatically satisfied in the case of a limited partnership formed on or after 19 August 1992. As LP was established after 19 August 1992 this section is satisfied (paragraph 94D(1)(b)). Section 94H of the ITAA 1936 provides, further, that if a partnership is a corporate limited partnership in relation to a year of income the 'income tax law' has effect, in relation to the partnership and in relation to the year of income, subject to the changes set out in Subdivision C of Division 5A of the ITAA 1936. The term 'income tax law', as used in the division, is defined in section 94B of the ITAA 1936 to relevantly include the ITAA 1936. Subdivision C of the ITAA 1936 comprises sections 94H to 94Y of the ITAA 1936 inclusive. Section 94J of the ITAA 1936, in particular, relevantly states that '[a] reference in the income tax law ... to a company or a body corporate includes a reference to [a corporate limited] partnership', while section 94K of the ITAA 1936 provides that '[a] reference in the income tax law to a partnership does not include a reference to [a corporate limited] partnership'. Thus, by virtue of the provisions of Division 5A of the ITAA 1936 a reference in section 128F of the ITAA 1936 to a 'company' is taken to include a reference to a corporate limited partnership. Accordingly, LP, a corporate limited partnership for Division 5A purposes, is a 'company' and not a partnership for the purposes of section 128F.

Legislative references: Income Tax Assessment Act 1936 subsection 6(1) section 94B section 94D section 94H section 94J section 94K section 128F subsection 128F(1) subsection 128F(1A) subsection 128F(2)
Subject references: Debentures Limited partnerships Loan securities Withholding tax exemptions