ATO Interpretative Decision
ATO ID 2010/210
Income Tax
CGT event A1: partnership becomes corporate limited partnershipFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 CGT event A1 in subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) happen to a partnership asset when a partnership converts to a limited partnership that satisfies the definition of corporate limited partnership in section 94D of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No, CGT event A1 does not happen as the conversion does not result in a change of ownership for the partnership asset.
Facts
A partnership carrying on a business made an application to be a limited partnership and was registered as a limited partnership under the relevant State legislation.
Reasons for Decision
CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1) of the ITAA 1997).
Subsection 104-10(2) of the ITAA 1997 provides that you dispose of a CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law.
Under the scheme of the relevant State legislation governing limited partnerships, there is no change of ownership of the partnership asset on the registration of a limited partnership. Generally, a partnership converts to a limited partnership, with the consent of all the partners, by varying the terms of the existing partnership agreement to limit the liability of one or more partners and registering the limited partnership under the relevant Australian State laws. This conversion does not cause the original partnership to cease; it merely varies the mutual rights and duties that exist between the partners.
Under the operation of Division 5A of the ITAA 1936, a limited partnership that satisfies the definition of corporate limited partnership in section 94D of the ITAA 1936 is treated as a company for certain income tax purposes. Division 5A of the ITAA 1936 does not modify the operation of CGT event A1 in section 104-10 of the ITAA 1997 such that an event happens to the partnership assets on the commencement of corporate limited partnership status.
Section 94J of the ITAA 1936 provides that a reference in the income tax law to a company or to a body corporate includes a reference to a partnership.
The Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 6) of 1992 which introduced Division 5A into the ITAA 1936 advised that, while corporate limited partnerships are generally treated as companies for the purposes of the income tax law, this does not convert them into companies for other purposes, including criminal law, monetary claims, and so on.
This is consistent with the view that the treatment of a corporate limited partnership as a company for the purposes of the ITAA 1997 and ITAA 1936 does not deem there to be a transfer of the ownership of partnership assets to the company nor does it change the ownership of partnership assets under general law.
As there has been no change of ownership of the partnership assets, CGT event A1 does not happen upon conversion of a partnership to a limited partnership.
Date of decision: 15 November 2010Year of income: Year ended 30 June 2010
Legislative References:
Income Tax Assessment Act 1997
subsection 104-10(1)
subsection 104-10(2)
section 94A
section 94l
Division 5A
Keywords
Capital gains
Capital gains tax
CGT assets
CGT event A1 -disposal of a CGT asset
ISSN: 1445-2782