ATO Interpretative Decision
ATO ID 2003/624
Income Tax
Applicability of paragraph 45-5(5)(c) of the ITAA 1997 to disposal by a partnership of its interest in a leased asset to a companyFOI status: may be released
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Issue
Does paragraph 45-5(5)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) apply in respect of the disposal by the partnership of a partnership asset in circumstances where roll-over relief would be available under section 40-340 of the ITAA 1997?
Decision
Yes. Paragraph 45-5(5)(c) of the ITAA 1997 applies to the partnership to the extent that roll-over relief was available to the partnership under section 40-340 of the ITAA 1997 when the partnership asset was disposed of to a wholly-owned company.
Facts
In 1993, X Ltd, Y Ltd and Z Ltd formed a partnership to provide a lease facility to A in respect of plant.
The partners intend to establish a company to acquire their interests in the partnership asset (leased plant).
After the company has acquired the partnership assets, the company will deduct further amounts for the decline in value of the leased plant.
The disposal to the company will otherwise satisfy the factual requirements of section 40-340 of the ITAA 1997.
Reasons for Decision
Paragraph 45-5(5)(c) of the ITAA 1997 excludes from assessable income any amount that would have been included but for the roll-over relief in section 40-340 of the ITAA 1997.
Section 45-10 of the ITAA 1997 is concerned with disposals of certain interests in a partnership involving either leased plant or a lease. Section 45-5 of the ITAA 1997 is the general provision relating to disposals of interests in either leased plant or a lease itself. Although paragraph 45-5(5)(c) of the ITAA 1997 specifically excludes from assessable income amounts to the extent that roll-over relief is available under section 40-340 of the ITAA 1997, there is no similar exclusion in section 45-10 of the ITAA 1997.
The explanatory memorandum relating to the New Business Tax System (Integrity and Other Measures) Bill 1999 (which introduced Division 45) states at paragraph 1.26 in relation to subsection 45-5(5) of the ITAA 1997:
Amounts will not be included in assessable income under Division 45 to the extent that they are already directly included in assessable income by another provision (eg as a balancing charge), or would be included except for specific relieving provisions (eg where it is subject to roll-over relief to a related entity).
Section 45-10 of the ITAA 1997 is concerned with disposals by the partners of their interests. The disposal of an interest in a partnership or partnership asset by a partner is not in itself subject to roll-over relief under Division 40 of the ITAA 1997. The table at section 40-340 of the ITAA 1997 is concerned only with a disposal by a 'partnership' of an asset to a wholly owned company, (Item 2). This is consistent with the approach in Division 40 of the ITAA 1997 that the 'holder' for capital allowance purposes is the partnership and not the individual partners, (section 40-40 of the ITAA 1997, at Item 7 of the table).
Accordingly, paragraph 45-5(5)(c) of the ITAA 1997 will apply to the partnership to the extent that roll-over relief was available to the partnership under section 40-340 of the ITAA 1997 when the partnership asset was disposed of to a wholly-owned company.
Date of decision: 24 June 2003Year of income: Year ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Section 45-5
Section 45-10
Section 40-340
Keywords
Disposal of partnership interest in plant
Partnership asset
Plant balancing adjustment roll-over relief
Termination of leases
Date reviewed: 16 January 2018
ISSN: 1445-2782