Commentary

B7.509 Tax Transparency and partnerships

Business tax
Business tax | Commentary

B7.509 Tax Transparency and partnerships

Business tax | Commentary

Assessments of amounts allocated to partners

B7.509 Tax Transparency and partnerships

General partnerships (and limited partnerships and most LLPs) are what is known as 'tax transparent'. This means that the partnership is not itself liable to tax. Instead the legislation 'looks through' the partnership and taxes the partners directly. This concept has several implications, as summarised below1:

Income profits

Although the partnership is not to be regarded as a separate entity, the business certainly is to be regarded as a separate business. This means that, for expenditure to be deductible in calculating profits of the business, that expenditure must have been incurred wholly and exclusively for the purposes of the partnership business.

Any claim for a tax deduction for that expenditure must be made through the partnership tax return. Individual partners might well incur expenditure personally in

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