House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 5 - Additional rules for trusts and partnerships

Subdivision 815-D

5.1 Subdivisions 815-B and 815-C make a number of references to the taxable income or loss of a particular sort of an entity. Because trusts and partnerships do not have taxable income and partnerships do not have tax losses, special rules are included in Subdivision 815-D to ensure that Subdivisions 815-B and 815-C apply appropriately to trusts and partnerships. These rules address the differences in terminology but do not otherwise change the substantive effect of Subdivisions 815-B or 815-C.

5.2 As such, where Subdivisions 815-B and 815-C apply in relation to the taxable income of an entity, they apply in the same way to the net income of an entity that is a trust or partnership. [Schedule 2, item 2, section 815-305 and subsection 815-310(1)]

5.3 Further, Subdivisions 815-B and 815-C apply to a partnership loss of a partnership in the same way that they apply to the tax loss of an entity that is not a partnership. Although the term 'tax loss' is not explicitly used in Subdivisions 815-B or 815-C, those Subdivisions use the definition of 'loss of a particular sort' which includes a tax loss but not a partnership loss. As such, a partnership that has a partnership loss is treated as having a loss of a particular sort under Subdivisions 815-B or 815-C. [Schedule 2, item 2, subsection 815-310(2)]