Association of persons not a tax limited partnership

In D Marks Partnership by its General Partner Quintaste Pty Ltd v Commissioner of Taxation [2016] FCAFC 86 and NR Allsopp Holdings Pty Ltd as General Partner of Q Uniform Partnership v Commissioner of Taxation [2016] FCAFC 87, the Full Federal Court (in majority decisions) held that an association of two entities registered as a limited partnership under the Partnership (Limited Liability) Act 1988 (Qld) (PLLA) was not a limited partnership for the purposes of income tax law because the association of persons was not a 'partnership' under the Partnership Act 1891 (Qld) or at common law.

By way of background, under the income tax law, generally, a limited partnership is treated as a company and the partners are treated as if they were shareholders. Of relevance to the cases in hand, a limited partnership is defined for income tax purposes as “an association of persons (other than a company) carrying on business as partners or in receipt of ordinary income or statutory income jointly, where the liability of at least one of those persons is limited”.

Although the two cases before the Court were based on different facts, the issues did not differ, and the parties agreed that the determination of the issues in the D Marks proceeding would also apply to the Allsopp appeal. It was common ground in both cases that the 'partners' did not carry on business in common with a view to profit.

Justices Pagone and Griffiths (the majority) found that an association of persons could not be a limited partnership under the relevant Queensland legislation unless the association of persons would qualify as a partnership under the Partnership Act 1891 (Qld) or at general law. The majority also held that the 'conclusive evidence' provision in subsection 8(4)(b) of the PLLA could not be used for an association of persons which was not otherwise a partnership to prove that the association was a limited partnership.

In the dissenting judgment, Logan J held that the conclusive evidence provision in the PLLA bound the Commissioner of Taxation to accept that the association of persons was a limited partnership. In other words, in the absence of fraud in obtaining registration, the obtaining of registration meant that the association of persons was a limited partnership.

Details of the Administrative Appeals Tribunal decision at first instance was reported in the Corporate Tax update for the October 2015 edition of TaxTalk Monthly