Losing My Losses: Are the Loss Restriction Rules Applying to Australia’s Tax Transparent Companies Adequate?

Australian Tax Forum, Vol 23, No. 2, pp. 125-163, June 2008

4 Pages Posted: 23 Oct 2009 Last revised: 23 Nov 2015

See all articles by Brett Freudenberg

Brett Freudenberg

Griffith University - Griffith Business School; Griffith University - Griffith Law School

Date Written: June 1, 2008

Abstract

It has been argued that the Australian government prefers an entity tax approach for business forms providing member(s) with limited liability and separate entity status. This contrasts a number of foreign jurisdictions that have provided tax transparency to such business forms (‘tax transparent companies’), with income and/or losses directly allocated to members for tax purposes. Examples of foreign tax transparent companies include S Corporations and Limited Liability Companies in the United States, Limited Liability Partnerships in the United Kingdom; and Loss Attributing Qualifying Companies and new limited partnerships in New Zealand. A reason for the Australian government’s preference is that unfettered access to tax losses by limited members could distort investments. Nevertheless, recently the Australian government provided restricted tax transparency for Incorporated Limited Partnerships used for venture capital investments (‘venture capital ILPs’) and controlled foreign hybrid companies (‘CFC hybrids’). To address distortion concerns there are restrictions applying to allocated losses through these Australian transparent companies. However, are these restrictions adequate? This article considers whether the loss restriction rules applying to venture capital ILPs and CFC hybrids are adequate by comparing them to rules utilised in foreign jurisdictions with a history of transparent companies. This article will conclude by considering whether sufficient ‘losses are lost’ to justify broadening the availability of tax transparency in Australia.

Keywords: loss restriction rules, Australia, tax transparent companies

JEL Classification: K34

Suggested Citation

Freudenberg, Brett, Losing My Losses: Are the Loss Restriction Rules Applying to Australia’s Tax Transparent Companies Adequate? (June 1, 2008). Australian Tax Forum, Vol 23, No. 2, pp. 125-163, June 2008, Available at SSRN: https://ssrn.com/abstract=1493007

Brett Freudenberg (Contact Author)

Griffith University - Griffith Business School ( email )

Brisbane, Queensland 4111
Australia

Griffith University - Griffith Law School ( email )

Nathan Campus, GU
Nathan 4111
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
37
Abstract Views
437
PlumX Metrics