Under current law, losses realized from interests in partnerships are generally tax deductible with income from other sources of the taxpayer, irrespective of the actual economic and legal exposure of the partner. A restriction exists only for certain losses from tax-shelter investments and certain passive business activities.
The draft tax bill of the Tax Amendment Act 2015/2016 introduces an additional hurdle and thus limitation for losses from interests in partnerships if the partner does not actively participate in the partnership's business. As a result of such restriction, any losses not deductible may only be offset with future profits from the partnership.
Apart from losses from tax-shelter investments and certain passive business activities, any other losses, including business losses from interests in partnerships, are generally tax deductible and may thus be used to reduce the taxable basis. Such possibility to offset losses is currently not subject to the partner economically bearing any risk (eg to the extent the losses exceed the amount for which he is liable for any debts of the partnership resulting in a negative capital account), thereby leading to a tax benefit in the form of a deferral of taxable income.
Restriction for loss deduction for investments in partnerships
The draft tax bill introduces a restriction for interest held in partnerships by individuals if such individual does not actively participate in the partnership's business or the individual's liability towards third parties is restricted.
Amounts will not be deductible under that provision if such amounts result in or increase a negative capital account (negatives steuerliches Kapitalkonto) on the part of the partner. In order to calculate non-deductible losses, the capital account will be increased by contributions and decreased by withdrawals and losses. Any income and expenses from assets temporarily provided by the partner to the partnership or from the rendering of services to the partnership (Sonderbetriebseinnahmen und Sonderbetriebsausgaben) will not be taken into consideration for determining the balance of the capital account.
Losses not deductible under this provision (Wartetastenverluste) may only be offset with future profits of the partnership or gains from the sale of the partnership interest. Such losses may become deductible to the extent the partner actually bears losses by way of additional contributions made to the partnership or by way of effecting payments made to a creditor or another partner of the partnership. Losses will become deductible if the partner assumes unlimited liability pursuant to Sec 128 of the Austrian Commercial Code.
The newly introduced restriction targets mainly limited partners in a limited partnership, as well as participations in the form of a atypical silent partnership (atypisch stille Gesellschaft) whereby the investor's contribution is merely restricted to providing capital to the business.
The new rules will enter into force for accounting periods beginning after 31 December 2015.