| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051182292463
Date of advice: 19 January 2017
Ruling
Subject: Income tax: Capital gains tax - CGT event D1
Question 1
Would the contribution of further capital to the Partnership by a partner cause CGT event D1 to occur to the other partner?
Answer
No
This ruling applies for the following periods:
2016-17 income year; and
2017-18 income year.
The scheme commences on:
The date on which the proposed capital is contributed
Relevant facts and circumstances
A corporate trustee of a trust and a company are partners in a partnership.
The corporate trustee of a trust owns land and buildings.
Under the terms of the Partnership Agreement, the corporate trustee of a trust makes the land and buildings available to the Partnership for the purposes of the business and the company makes a capital contribution.
The business carried on by the partners in partnership is redevelopment of the land and buildings for commercial purposes.
The Partnership Agreement was varied twice with the company making additional capital contributions with a corresponding increase in its share of the net profits and losses made by the partnership on each occasion.
The company proposes to make a further additional capital contribution to fund significant alterations to the land and buildings for commercial purposes.
The company will contribute the proposed capital, but its share of the net profits and losses made by the partnership will remain unchanged.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-35.
Reasons for decision
CGT event D1 will happen if you create a contractual right or other legal or equitable right in another entity (provided no exclusions apply).
The Commissioner previously argued the variations to the Partnership Agreement in which the company made additional contributions and had its profit sharing proportions increased gave rise to the other partner, being a corporate trustee of a trust, creating a contractual right to a share of income in favour of company.
The proposed transaction differs from the previous variations as the company's profit sharing proportion will not increase. It therefore follows that as there is no change to the company's profit sharing proportion, the other partner will not create a contractual right to a share of income in favour of company. Consequently, CGT event D1 will not arise from the proposed transaction.