Edited version of your private ruling

Authorisation Number: 1012535885522

Ruling

Subject: Income Tax ~~ Consolidation ~~ multiple entry consolidated groups

Question 1

Did the Limited Partnership first satisfy the definition of 'limited partnership' per subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in July 2007?

Answer

Yes

Question 2

Did the Limited Partnership first satisfy the definition of 'corporate limited partnership' under section 94D of the Income Tax Assessment Act 1936 (ITAA 1936) in July 2007?

Answer

Yes

Question 3

Did the Limited Partnership first satisfy the definition of 'tier-1 company' under section 719-20 of the ITAA 1997 in July 2007?

Answer

Yes

Question 4

Did the Limited Partnership first qualify as an 'eligible tier-1 company' in accordance with the definition of that term in section 719-15 of the ITAA 1997 in July 2007?

Answer

Yes

Question 5

Has the Limited Partnership validly joined the Multiple Entry Consolidated (MEC) Group?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2008

The scheme commences on:

2 July 2007

Relevant facts and circumstances

Top Company was incorporated overseas, and is a foreign resident for Australian tax purposes.

Top Company is the holding company of a number of entities, including the Head Company.

Head Company is a proprietary company incorporated in Australia and is a 'wholly-owned subsidiary' of Top Company.

Head Company is the 'head company' of an existing Multiple Entry Consolidated ('MEC') group.

Prior to 30 June 2007, Head Company and Top Company entered into an agreement to form the Limited Partnership, with:

1. Head Company nominated as the general partner with a 1% interest, and

2. Top Company nominated as the limited partner with a 99% interest.

Prior to 30 June 2007, the Limited Partnership was registered as a limited partnership under Australian State Law.

On 2 July 2007, the Limited Partnership commenced carrying on business.

Prior to lodging its income tax for the financial year ended 30 June 2008, Head Company lodged with the Commissioner a Notification of members joining and/or leaving a Multiple entry consolidated (MEC) group (NAT 7026-6.2002) form that the Limited Partnership had joined the MEC Group on 1 July 2007.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 94D

Income Tax Assessment Act 1936 Section 94J

Income Tax Assessment Act 1936 Section 94T

Income Tax Assessment Act 1997 Paragraph 703-30(1)(c)

Income Tax Assessment Act 1997 Section 719-5

Income Tax Assessment Act 1997 Section 719-15

Income Tax Assessment Act 1997 Section 719-20

Income Tax Assessment Act 1997 Subsection 960-130(1)

Income Tax Assessment Act 1997 Section 960-135

Income Tax Assessment Act 1997 Subsection 995-1(1)

Question 1

Summary

The Limited Partnership first satisfied the definition of 'limited partnership' per subsection 995-1(1) of the ITAA 1997 in July 2007.

Detailed reasoning

Paragraph (a) of subsection 995-1(1) of the ITAA 1997 defines a 'limited partnership' to mean an association of persons (other than a company) carrying on business as partners or in receipt of receipt of ordinary income or statutory income jointly, where the liability of at least one of those persons is limited.

Paragraphs 3 and 4 of Taxation Determination TD 2008/15 Income tax: can an unincorporated association of persons acting only in Australia who do not carry on a business in common with a view to profit be a corporate limited partnership within the meaning of section 94D of the Income Tax Assessment Act 1936? provide the Commissioner's view on the definition of 'limited partnership' (i.e. paragraph (a) of subsection 995-1(1) of the ITAA 1997) as follows:

3. One of the requirements of that paragraph is that the liability of at least one of the associated persons must be limited. For unincorporated associations acting only in Australia - that is, associations that carry on business as partners only in Australia, or that are in receipt of income jointly only in Australia - liability relating to that business or that joint income must be limited in Australia.

4. That can only happen by operation of the Australian State laws relating to limited partnerships. One of the requirements to be a limited partnership under such Australian State laws is that the association is a partnership under the general law which, in itself, requires that the association be carrying on a business in common with a view to profit.

As per the facts provided, the association of Head Company and Top Company as the Limited Partnership did not commence carrying on business until 2 July 2007.

Therefore Top Company did not have limited liability in respect of the liabilities of the Limited Partnership until 2 July 2007.

In conclusion, the Commissioner is of the view that the Limited Partnership first satisfied the definition of 'limited partnership' per paragraph (a) of subsection 995-1(1) of the ITAA 1997 on 2 July 2007.

Question 2

Summary

The Limited Partnership first satisfied the definition of 'corporate limited partnership' under section 94D of the ITAA 1936 in July 2007.

Detailed reasoning

An association of persons will be a 'corporate limited partnership' under subsection 94D(1) of the ITAA 1936 in relation to a year of income if it is a 'limited partnership'.

As previously stated, the Commissioner is of the view that the Limited Partnership first satisfied the definition of 'limited partnership' per paragraph (a) of subsection 995-1(1) of the ITAA 1997 on 2 July 2007. Therefore the Limited Partnership was not a 'corporate limited partnership' until that date.

In conclusion, the Commissioner is of the view that the Limited Partnership first satisfied the definition of 'corporate limited partnership' under section 94D of the ITAA 1936 on 2 July 2007.

Question 3

Summary

The Limited Partnership first satisfied the definition of 'tier-1 company' under section 719-20 of the ITAA 1997 in July 2007.

Detailed reasoning

At a particular time, a company is a 'top company' as per subsection 719-20(1) of the ITAA 1997, if:

1. it was a 'foreign resident' (defined by subsection 995-1(1) of the ITAA 1997 to mean not an 'Australian resident' for tax purposes), and

2. it was not a 'wholly-owned subsidiary' of another company.

As per the facts provided, Top Company was a 'top company' in July 2007 as per subsection 719-20(1) of the ITAA 1997, because:

1. it was a foreign resident for Australian tax purposes, and

2. it was the holding company of a number of entities, meaning it was not a 'wholly-owned subsidiary' of another company.

At a particular time, a company is a 'tier-1 company' of the 'top company' as per subsection 719-20(1) of the ITAA 1997, if relevantly:

1. all or some of its taxable income (if any) is taxed at the corporate tax rate

2. it is an 'Australian resident' (section 94T of the ITAA 1936 relevantly states that a corporate limited partnership is an 'Australian resident for tax purposes if it was formed in Australia), and

3. it is a 'wholly-owned subsidiary' of the 'top company', with:

(a) paragraph 703-30(1)(c) of the ITAA 1997 (after being referred by subsection 995-1(1) of the ITAA 1997) stating that one entity is a 'wholly-owned subsidiary' of the holding entity if all of its membership interests are beneficially owned by the holding entity and one of more wholly-owned subsidiaries of the holding entity, and

(b) 'membership interest' being defined by section 960-135 of the ITAA 1997 as each interest in the entity owned by a 'member' of the entity, which is defined by subsection 960-130(1) of the ITAA 1997 to include a partner in a partnership.

As per the facts provided, the Limited Partnership was a 'tier-1 company' of Top Company on 2 July 2007 as per subsection 719-20(1) of the ITAA 1997 (being the date on which it became a valid corporate limited partnership), because:

1. as a 'company' (subsection 995-1(1) of the ITAA 1997 and section 94J of the ITAA 1936 both state that a reference to a 'company' includes a reference to a 'corporate limited partnership'), at least some of its taxable income (if any) for the financial year ended 30 June 2008 would have been taxed at the 30% corporate tax rate

2. it was registered as a limited partnership under Australian State Law prior to 30 June 2007, meaning it was an 'Australian resident', and

3. it was a 'wholly-owned subsidiary' of Top Company, by virtue of Top Company's 99% interest in the entity and its 'wholly-owned subsidiary' Head Company's 1% interest in the entity.

In conclusion, the Commissioner is of the view that the Limited Partnership first satisfied the definition of 'tier-1 company' under section 719-20 of the ITAA 1997 on 2 July 2007.

Question 4

Summary

The Limited Partnership first qualified as an 'eligible tier-1 company' in accordance with the definition of that term in section 719-15 of the ITAA 1997 in July 2007.

Detailed reasoning

Subsection 719-15(1) of the ITAA 1997 provides that the Limited Partnership would have first qualified as an 'eligible tier-1 company' on 2 July 2007 if subsection 719-15(2) of the ITAA 1997 did not apply to it.

Subsection 719-15(2) of the ITAA 1997 only applies if there is one or more interposed entities between the 'tier-1 company' and the 'top company'.

As there was no interposed entity between the Limited Partnership and Top Company, subsection 719-15(2) of the ITAA 1997 did not apply to the Limited Partnership.

In conclusion, the Commissioner is of the view that the Limited Partnership first qualified as an 'eligible tier-1 company' under section 719-15 of ITAA 1997 on 2 July 2007.

Question 5

Summary

The Limited Partnership has validly joined the MEC Group.

Detailed reasoning

The effect of subsection 719-5(4) of the ITAA 1997 is that the Limited Partnership will have validly joined the MEC Group in July 2007 if Head Company (as the 'head company'):

1. made a choice in writing stating that the Limited Partnership (as a new 'eligible tier-1 company') was to become a member of the MEC Group, and

2. that written choice was made no later than the lodgment date of its income tax return for the financial year ended 30 June 2008, as mentioned in subsection 719-5(6) of the ITAA 1997.

As per the facts provided Head Company made the written choice prior to the lodgment date of its income tax return for the financial year ended 30 June 2008 that the Limited Partnership had joined the MEC Group on 1 July 2007.

The fact that Head Company nominated 1 July 2007 as the date in which the Limited Partnership joined the MEC Group, which was a day before it became an 'eligible tier-1 company' on 2 July 2007, is of no relevance to the Commissioner.

This is because the Commissioner, via the Decision Impact Statement for GE Capital Finance Australasia Pty Limited & Anor v. FC of T 2011 ATC 20-270, agrees with the Federal Court's decision that the current form of paragraph 719-5(4)(c) of the ITAA 1997 only requires a head company of a MEC group to state, in its choice in writing, that: specified eligible tier-1 companies are to become members of the MEC group, and does not require the head company to state a day or time of joining.

In other words, the Limited Partnership validly joined the MEC Group on the date in which it became an 'eligible tier-1 company'.

In conclusion, the Commissioner is of the view that the Limited Partnership validly joined the MEC Group on 2 July 2007.