Finance Act, 1986

Chapter VI

Income Tax, Corporation Tax and Capital Gains Tax

Limited partnerships: relief restrictions.

46.—(1) In this section—

“the aggregate amount”, in relation to a trade, means—

(a) in the case of an individual, the aggregate of amounts given or allowed to him at any time under any of the specified provisions—

(i) in respect of a loss sustained by him in the trade, or of interest paid by him by reason of his participation in the trade, in any relevant year of assessment, or

(ii) as an allowance falling to be made to him for any relevant year of assessment either in taxing the trade or by way of discharge or repayment of tax to which he is entitled by reason of his participation in the trade,

and

(b) in the case of a company, the aggregate of amounts given or allowed to the company (hereafter in this section referred to as the “partner company”) or to another company at any time under any of the specified provisions—

(i) in respect of a loss incurred by the partner company in the trade, or of charges paid by it or another company by reason of its participation in the trade, in any relevant accounting period, or

(ii) as an allowance falling to be made to the partner company for any relevant accounting period either in taxing the trade or by way of discharge or repayment of tax to which it is entitled by reason of its participation in the trade;

“limited partner”, in relation to a trade, means—

(a) a person who is carrying on the trade as a limited partner in a limited partnership registered under the Limited Partnerships Act, 1907 ,

(b) a person who is carrying on the trade as a general partner in a partnership, who is not entitled to take part in the management of the trade and who is entitled to have his liabilities, or his liabilities beyond a certain limit, for debts or obligations, incurred for the purposes of the trade, discharged or reimbursed by some other person, or

(c) a person who carries on the trade jointly with others and who, under the law of any territory outside the State, is not entitled to take part in the management of the trade and is not liable beyond a certain limit for debts or obligations incurred for the purposes of the trade;

“relevant accounting period” means an accounting period of the partner company which ends on or after the specified date and at any time during which it carried on the trade as a limited partner;

“the relevant time” means—

(a) in the case of an individual, the end of the relevant year of assessment in which the loss is sustained or the interest is paid, or for which the allowance falls to be made (except that where he ceased to carry on the trade during that year of assessment it is the time when he so ceased), and

(b) in the case of a partner company, the end of the relevant accounting period in which the loss is incurred or the charges are paid, or for which the allowance falls to be made (except that where the partner company ceased to carry on the trade during that accounting period it is the time when it so ceased);

“relevant year of assessment” means a year of assessment which ends after the specified date and at any time during which the individual carried on the trade as a limited partner;

“the specified date” means the 22nd day of May, 1985;

“the specified provisions” means—

(a) in the case of an individual—

(i) section 296 of the Income Tax Act, 1967 ,

(ii) section 307 of that Act, and

(iii) Chapter III of Part I of the Finance Act, 1974 ,

and

(b) in the case of a company, the following provisions of the Corporation Tax Act, 1976

(i) section 10,

(ii) section 14 (6),

(iii) section 16 (2),

and

(iv) subsections (1), (2) and (6) of section 116.

(2) (a) Where, in the case of an individual who is a limited partner in relation to a trade, an amount may, apart from this section, be given or allowed under any of the specified provisions—

(i) in respect of a loss sustained by him in the trade or of interest paid by him by reason of his participation in the trade, in a relevant year of assessment, or

(ii) as an allowance falling to be made to him for a relevant year of assessment either in taxing the trade or by way of discharge or repayment of tax to which he is entitled by reason of his participation in the trade,

such an amount may be given or allowed, otherwise than against income consisting of profits or gains arising from the trade, only to the extent that the amount given or allowed or, as the case may be, the aggregate amount in relation to that trade, does not exceed the amount of his contribution to the trade as at the relevant time.

(b) Where, in the case of a partner company which is a limited partner in relation to a trade, an amount may, apart from this section, be given or allowed under any of the specified provisions—

(i) in respect of a loss sustained by the partner company in the trade, or of charges paid by the partner company or another company by reason of its participation in the trade, in a relevant accounting period, or

(ii) as an allowance falling to be made to the partner company for a relevant accounting period either in taxing the trade or by way of discharge or repayment of tax to which it is entitled by reason of its participation in the trade,

such an amount may be given or allowed to the partner company, otherwise than against profits or gains arising from the trade, or to another company, only to the extent that the amount given or allowed, or, as the case may be, the aggregate amount does not exceed the partner company's contribution to the trade as at the relevant time.

(3) (a) A person's contribution to a trade at any time is the aggregate of—

(i) the amount which he has contributed to it as capital and has not subsequently, either directly or indirectly, drawn out or received back from the partnership or from a person connected with the partnership (other than anything, in relation to expenditure which he has incurred on behalf of the partnership trade or in providing facilities for the partnership trade, which he is or may be entitled so to draw out or receive back at any time when he carries on the trade as a limited partner or which he is or may be entitled to require another person to reimburse to him), and

(ii) the amount of any profits or gains of the trade to which he is entitled but which he has not received in money or money's worth.

(b) A person shall, for the purposes of paragraph (a), be treated as having received back an amount which he has contributed to the partnership if—

(i) he received consideration of that amount or value for the sale of his interest, or any part of his interest, in the partnership,

(ii) the partnership or any person connected with the partnership repays that amount of a loan or an advance from him, or

(iii) the person receives that amount of value for assigning any debt due to him from the partnership or from any person connected with the partnership.

(4) To the extent that an allowance is taken into account in computing profits or gains or losses in the year of loss by virtue of section 318 of the Income Tax Act, 1967 , it shall, for the purposes of this section, be treated as falling to be made in the year of loss (and not in the year of assessment for which the year of loss is the basis year).

(5) For the purposes of this section, a person shall be regarded as connected with a partnership if he would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 .