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Edited version of your written advice
Authorisation Number: 1012867336867
Date of advice: 7 September 2015
Ruling
Subject: Capital contribution
Question:
Is the return of the $XX,XXX assessable income?
Answer:
No
This ruling applies for the following period:
Year ended 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts
You provided $XX,XXX to enter into a partnership which purchased a business.
The partnership was later dissolved.
Upon the dissolving of the partnership the following occurred:
• the $XX,XXX contributed to enter into the partnership was returned to you
• an income distribution was paid by the partnership to you for the 2014-15 financial year.
You returned the income distribution in your 2014-15 tax return.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(1)
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 106-5
Reasons for decision
Under subsection 6-5(1) of the Income Tax Assessment Act 1997 an amount is assessable income if it is income according to ordinary concepts (ordinary income). Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.
In your case, the proceeds received upon the dissolving of the partnership are not considered ordinary income; rather it is considered to be a capital amount. Consequently the capital gains tax (CGT) provisions also require consideration.
An interest in a partnership is an asset for CGT purposes. A CGT event happens if you dispose of an asset or there is a change of ownership of that asset.
In your case, there has been a dissolving of the partnership and a disposal of the company's interest in the partnership. However, as the capital proceeds received from the disposal of the asset is equal to the cost to purchase the asset there is no capital gain or loss to be included in the company's income tax return with respect to the receipt of the $XX,XXX.