ATO Interpretative Decision
ATO ID 2011/67 (Withdrawn)
Income TaxApplication of section 275-105 of the ITAA 1997: where a managed investment trust is a partner in a venture capital limited partnership
FOI status: may be released
This ATO ID has been withdrawn because it contains a view in respect of provisions of the Income Tax Assessment Act 1997 that do not apply for income years on or after 1 July 2016. More specifically, subsection 275-100(1A) of the ITAA 1997 was inserted by Tax Laws Amendment (Tax Incentives for Innovation) Act 2016 which deals with the circumstance in this ATO ID. Effectively, where a managed investment trust is a partner in a partnership that owns a share in a company, the managed investment trust is taken to own the share the VCLP holds in the company and thus satisfies the definition of a covered asset in subsection 275-105(1) of the ITAA 1997. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions for income years prior to 1 July 2016.This document has changed over time. View its history.
Status of this decision: Withdrawn
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Where a managed investment trust is a partner in a partnership that owns a share in a company, is the managed investment trust's interest in the share a covered asset as defined in subsection 275-105(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
No. The managed investment trust's interest in a share in a company owned by a partnership is not a covered asset as defined in subsection 275-105(1) of the ITAA 1997.
An incorporated limited partnership was formed and registered under the provisions of the Partnership Act 1892 (NSW).
The partnership was also registered with Innovation Australia under section 13-1 of the Venture Capital Act 2002 as a venture capital limited partnership (VCLP).
Whilst the VCLP is a corporate limited partnership formed with a legal personality separate from its partners, pursuant to subsection 94D(2) of the Income Tax Assessment Act 1936 (ITAA 1936), the VCLP is excluded from the operation of Division 5A of Part III of the ITAA 1936 which treats certain limited partnerships as companies. Therefore it is treated as an ordinary partnership under the provisions of Division 5 of Part III of the ITAA 1936 for income tax purposes.
Some of the partners were managed investment trusts (MITs). The MITs have made a choice under section 275-115 of the ITAA 1997.
The partnership acquired shares in an Australian resident company. The shares were subsequently sold, CGT event A1 happened and there was a capital gain as a result.
Reasons for Decision
Subdivision 275-B of the ITAA 1997 allows eligible MITs to make an irrevocable election to apply the capital gains tax provisions as the primary code for the taxation of any gains and losses made from the disposal of certain assets owned by the trusts.
The assets to which the Subdivision applies are described as 'covered assets' in paragraph 275-100(1)(d) of the ITAA 1997 and are listed in subsection 275-105(1) which includes a share in a company but does not include an interest in a share in a company. In this case the assets are the shares owned by a VCLP in an Australian registered company.
Paragraph 275-100(1)(b) of the ITAA 1997 requires that the asset is owned by the MIT for the election to have any effect.
As the VCLP is a corporate limited partnership, the MIT as partner does not have any legal or beneficial interest in its partnership property (subsection 20A(2) of the Partnership Act 1892 (NSW)).
But for the purposes of the ITAA 1997, section 106-5 and paragraph 108-5(2)(c) of the ITAA 1997 make it clear that the MIT as partner does have an interest in the assets of the VCLP.
However, while for the purposes of the ITAA 1997 the MIT has an interest in the assets of VCLP by virtue of being a partner, this does not amount to the MIT having ownership of the share. As stated in paragraph 11 of Taxation Determination TD 2008/24:
In Canny Gabriel Castle Jackson Advertising Pty Ltd v. Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 the High Court described the nature of a partner's interest in a partnership as a beneficial interest in each of the partnership assets. A beneficial interest in the assets does not equate to beneficial ownership of the assets because a partner does not have title to any specific asset owned by the partnership. The beneficial interest is an interest which will not take effect in possession until the partnership is dissolved. That is, whilst the partnership exists, a partner has by virtue of holding a beneficial interest in the assets of the partnership, a right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership.
The asset held by the MIT for the purposes of the ITAA 1997 is an interest in the share and not the share itself.
As a result, the interests in shares held by the trustees of the MIT are not covered assets under section 275-105 of the ITAA 1997.Date of decision: 8 August 2011
Year of income: Year ended 30 June 2012Income Tax Assessment Act 1936
Division 5 of Part III
Division 5A of Part III Partnership Act 1892 (NSW)
subsection 20A(2) Venture Capital Act 2002
Canny Gabriel Castle Jackson Advertising Pty Ltd v. Volume Sales (Finance) Pty Ltd
(1974) 131 CLR 321
Related Public Rulings (including Determinations)
ATO ID 2011/7
Australian managed investment trusts
Interest in an asset of a partnership
Managed investment trusts
Date reviewed: 4 June 2015