Edited version of your written advice

Authorisation Number: 1051407716995

Date of advice: 13 September 2018

Ruling

Subject: Subdivision 122-B roll-over relief

Question 1

Are the Partners of the Partnership entitled to claim capital gains tax (CGT) rollover relief pursuant to Subdivision 122-B of the Income Tax Assessment Act 1997 (ITAA1997) in respect of any capital gains arising on the transfer of the Separated Assets made pursuant the Agreement to Company A, a wholly-owned subsidiary of the Partnership?

Answer

No.

Question 2

In respect of the non-resident Partners of the Partnership, will their shares held in Company A after the transfer of the Separated Assets to Company A be taxable Australian property for the purposes of subsection 122-135(6) of the ITAA1997?

Answer

No.

Question 3

a) For each of the Partnership’s Separated Assets that are depreciating assets and that are transferred to Company A pursuant to the Agreement, does a balancing adjustment event, as defined in section 40-295 of the ITAA 1997, occur at the Completion Date?

Answer

Yes.

b) Will there be automatic rollover relief under section 40-340 of the ITAA 1997 for the balancing adjustment event that occurs for each depreciating asset of the Partnership’s Separated Assets transferred pursuant to the Agreement to Company A?

Answer

No.

Question 4

Pursuant to section 40-60 of the ITAA 1997 can Company A commence claiming depreciation in respect of the depreciating assets transferred to it by the Partnership pursuant to the Agreement, on the Completion Date?

Answer

Yes.

This ruling applies for the following period:

1 January 2017 to 31 December 2017

Relevant facts and circumstances

(NB: ALL legislative references are to the ITAA 1997 unless otherwise stated)

The Partnership

The Partnership has X partners.

Some Partners are residents of Australia for Australian tax purposes (Resident Partners).

A majority of the Partners are overseas residents and non-residents of Australia for Australian tax purposes (Non-resident Partners).

The Partnership has wholly owned Australian tax resident subsidiaries.

As well as having a direct holding in the subsidiaries, the Partners have direct ownership of a number of assets in Australia. The Partnership uses all these assets in operating its business in Australia.

The Partnership Agreement sets out the core and incidental business of the Partnership. Pursuant to the Partnership Agreement, the Partners have stablished a Partnership Board.

The net profits and losses of the Partnership are shared by the Partners in proportion to their respective interests in the Partnership. The management of the Partnership Business is delegated to the Partnership Board.

There are certain matters that may only be determined by a Special Majority of Partners. These matters include (but are not limited to) the entry into, or raising of additional debt under a Partner Loan and changes to the capital structure of the Partnership, reduction of capital, any changes to the distribution policy, ceasing or varying the core business of the Partnership or any proposal for any subsidiary member to engage in activities outside of the Partnership Business.

Broadly, a Partner is entitled to appoint a Director on a proportionate basis.

Pursuant to the Partnership Agreement, the Directors must meet at least six times per calendar year and, unless the Partners otherwise agree, meetings of the Partnership Board must be held in Australia.

X of the Y board meetings are routinely held in Australia, with one board meeting being held overseas as agreed by all the Partners.

The proposed transaction

The Partnership has to separate out some of its business (Separate Business) from its core and incidental business (Main Business)

New Structure - incorporation of new entities and transfer of certain assets

In order to facilitate the dissecting of the Partnership business into Separate Business and Main Business the Partnership has incorporated Company A.

Certain Separate Business related assets (Separated Assets), which include depreciable assets and various contracts, are to be transferred from the Partnership directly to Company A. The Separated Assets will be transferred on the Completion Dated to Company A pursuant to an agreement (Agreement A).

Pursuant to Agreement A the Partnership will only receive non-redeemable shares in Company A as consideration for the transfer of the Separated Assets to Company A. The value of the shares that each Partner receives in Company A will be substantially be the same as the market value of the respective interests in the Separated Assets transferred directly to Company A.

The Partners will each hold a share in Company A in the same proportion and capacity as their respective partnership interest in the Partnership.

The Partners through the Partnership intend to transfer the Separated Assets that it directly owns, predominantly depreciating assets, and assign existing customer contracts and other intangible assets relating to the Separate Business, to Company A.

The Partnership does not have any collectable or personal use assets or a decoration awarded for valour or bravery conduct related assets.

Company A is not an exempt entity for Australian income tax purposes. It is an Australian tax resident company.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 40-60

Income Tax Assessment Act 1997 Section 40-295

Income Tax Assessment Act 1997 Section 40-340

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Subsection 106-5(1)

Income Tax Assessment Act 1997 Subsection 106-5(2)

Income Tax Assessment Act 1997 Paragraph 108-5(2)(c)

Income Tax Assessment Act 1997 Subdivision 122-B

Income Tax Assessment Act 1997 Subsection 122-135(6)

Income Tax Assessment Act 1997 Section 122-125

Income Tax Assessment Act 1997 Paragraph 122-130(1)(a)

Income Tax Assessment Act 1997 Subsection 122-130(2)

Income Tax Assessment Act 1997 Subsection 122-130(3)

Income Tax Assessment Act 1997 Section 122-133

Income Tax Assessment Act 1997 Subsection 122-135(1)

Income Tax Assessment Act 1997 Subsection 122-135(2)

Income Tax Assessment Act 1997 Subsection 122-135(6)

Income Tax Assessment Act 1997 Paragraph 122-135(6)(a)

Income Tax Assessment Act 1997 Paragraph 122-135(6)(b)

Income Tax Assessment Act 1997 Section 122-140

Income Tax Assessment Act 1997 Section 855-15

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

The Transaction

The transfer of the Separated Assets which the Partnership owns directly, to a related entity, Company A, will result in a disposal of CGT assets by the Partnership thereby satisfying CGT event A1 (see Condition 1 below). The Partners of the Partnership will be required to return any capital gain made on the disposal of the CGT assets comprising the Separated Assets to Company A. However, the Partners of the Partnership will be entitled to disregard any capital gain made on this disposal if it satisfies the roll-over provisions listed in Subdivision 122-B.

Subdivision 122-B sets out when all partners in a partnership can obtain a roll-over on transferring a CGT asset, or all the assets of a business, to a company.

Preliminary – is the Partnership a partnership for tax law purposes?

A partnership is defined in section 995-1 as ‘an association of persons carrying on business as partners’ (general law definition of partnership) or ‘in receipt of ordinary income or statutory income jointly (tax law definition of partnership), but does not include a company’.

Part of this definition relates to the general law definition of a partnership, which is the relationship which subsists between persons carrying on a business in common with a view to profit.

Given the Partnership consists of an association of entities (resident and non-resident partners) that carry on a business with a view to profit, the Commissioner accepts that the definition of a general law partnership is satisfied.

Accordingly, the Partnership is a partnership for the purposes of Subdivision 122-B. The Partners may therefore choose to obtain a Subdivision 122-B roll-over if the six conditions referred to below as provided for in sections 122-125 and 122-135 are satisfied.

Condition 1

Section 122-125 relevantly provides:

122-125 Disposal or creation of assets - wholly-owned company

All of the partners in a partnership can choose to obtain a roll-over if one of the *CGT events (the trigger event ) specified in this table happens involving the partners and a company in the circumstances set out in sections 122-130 to 122-140.

Relevant *CGT events
Event No.	What the partners do
A1	*Dispose of their interests in a *CGT asset of the partnership, or all the assets of a business carried on by the partnership, to the company
...........

Trigger event - CGT event A1 applies

The Partners in the Partnership intend to dispose of their interests in the Separated Assets to Company A.

Paragraph 108-5(2)(c) provides that a CGT asset includes an interest in an asset of a partnership. Subsection 106-5(1) confirms that any capital gain or capital loss from a CGT event happening in relation to a partnership or one of the partnership’s CGT assets is made by the partners individually. Under subsection 106-5(2) each partner has a separate cost base and reduced cost base equal to each partner’s interest in each CGT asset of the partnership.

Section 104-10 provides as follows:

104-10(1)

CGT event A1 happens if you *dispose of a *CGT asset.

104-10(2)

You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner

The Commissioner therefore accepts that the disposal of each of the Partners’ interest in the Separated Assets will trigger CGT event A1. As CGT event A1 is a ‘trigger event’ under section 122-125, condition 1 is satisfied.

Condition 2

Paragraph 122-130(1)(a) provides that the only consideration that a Partner can receive as a result of the trigger event (the disposal of Separated Assets to Company A) is shares in the transferee company, Company A.

Further, in accordance with subsection 122-130(2) the shares cannot be redeemable shares.

Redeemable shares are defined in subsection 995-1(1) as ‘shares that are liable to be redeemed, or at the option of the company that issued them, are liable to be redeemed’.

As the Partners in their capacity as partners of the Partnership will only be receiving non-redeemable shares in Company A as consideration for the transfer of the Separated Assets, condition 2 will be satisfied.

Condition 3

Subsection 122-130(3) provides that the market value of the shares that each Partner receives must be substantially the same as the market value of the Separated Assets being transferred, less any liabilities attached to the assets.

The market value of the shares in Company A that the Partners receive for the transfer of the Separated Assets will be substantially the same as the market value of their interests in the Separated Assets being transferred. Accordingly, condition 3 will be satisfied.

In addition, it is noted that as Company A will be a newly incorporated entity with no assets, the market value of the shares received by the Partners will not incorporate or reflect the market value of any pre-existing assets owned by/in the company.

Condition 4

Subsection 122-135(1) states that the ‘…partners must own all of the shares in the company just after the time of the trigger event’.

There is also a further requirement under subsection 122-135(2) that each Partner must own the shares received in Company A, in the same capacity as the Partner directly owned the interests in the Separated Assets being transferred.

The Partners in the Partnership will own all of the shares in Company A just after the trigger event (the disposal of the Separated Assets to Company A) as they will receive all of the shares in Company A for the transfer of the Separated Assets.

Additionally, the Partners will own the Company A shares as a partnership asset in the same capacity and in the same relative proportions in which they directly held their respective interests in the Separated Assets being transferred to Company A. Therefore, condition 4 will be satisfied.

Condition 5

Section 122-135(6) states:

(6) For a partner who is not a trustee of a trust at the time of the trigger event, either:

(a) the partner and the company must both be Australian residents at that time; or

(b) both of the following requirements must be satisfied:

(i) each asset must be *taxable Australian property at that time; and

(ii) the shares in the company mentioned in subsection 122-130(1) must be taxable Australian property just after that time.

Paragraph 122-135(6)(a) requires that the Partners and Company A are Australian residents at the time of the transfer. If this is not the case, then paragraph 122-135(6)(b), addressing non-resident partners, needs to be satisfied before the Subdivision 122-B roll-over can apply.

As the resident partners and Company A are both incorporated in and resident of Australia, they will satisfy paragraph 122-135(6)(a).

However as some of the partners are non-residents of Australia, roll-over relief can only be chosen if, pursuant to paragraph 122-135(6)(b):

i) each of the Separated Assets transferred by the Partnership to Company A is taxable Australian property (TAP), and

ii) the shares received by the Partners in Company A are TAP just after the time (trigger time) of the CGT event (trigger event – in this case, CGT event A1) that happens in relation to the Separated Assets transferred.

Subparagraph 122-135(6)(b)(i) – each SPN Partnership asset must be TAP at the time of transfer

Section 855-15 lists five categories of CGT assets that are TAP.

SECTION 855-15 855-15 When an asset is taxable Australian property

There are 5 categories of *CGT assets that are taxable Australian property. They are set out in this table.

CGT assets that are taxable Australian property
Item	Description
1	*Taxable Australian real property (see section 855-20)
2	A *CGT asset that:
	(a)	is an *indirect Australian real property interest (see section 855-25); and
	(b)	is not covered by item 5 of this table
3	A *CGT asset that:
	(a)	you have used at any time in carrying on a *business through:
		(i)	if you are a resident in a country that has entered into an *international tax agreement with Australia containing a *permanent establishment article - a permanent establishment (within the meaning of the relevant international tax agreement) in Australia; or
		(ii)	otherwise - a *permanent establishment in Australia; and
	(b)	is not covered by item 1, 2 or 5 of this table
4	An option or right to *acquire a *CGT asset covered by item 1, 2 or 3 of this table
5	A *CGT asset that is covered by subsection 104-165(3) (choosing to disregard a gain or loss on ceasing to be an Australian resident)

For present purposes, table item 3 of section 855-15 is the most relevant and provides that the following will be TAP:

A *CGT asset that:

(a) you have used at any time in carrying on a *business through:

(i) if you are a resident of a country that has entered into an *international agreement with Australia containing a *permanent establishment article – a permanent establishment (within the meaning of the relevant international tax agreement) in Australia; or

(ii) otherwise – a *permanent establishment in Australia; and

(b) is not covered by item 1, 2 or 5 of this table.

The Commissioner accepts that the Partnership is a permanent establishment of the foreign resident partners of the Partnership by virtue of their direct ownership of considerable assets in Australia that it uses in carrying on business through a permanent establishment (PE) in Australia. The particular fixed place of business is in Australia and the Partnership’s Board meetings are periodically held there.

Subparagraph 122-135(6)(b)(i) is therefore satisfied as the Separated Assets being transferred to Company A are TAP as defined in section 855-15 (i.e. they are CGT assets used by a foreign resident in carrying on a business through a PE in Australia, which will satisfy item 3 of the table in section 855-15).

Subparagraph 122-135(6)(b)(ii) – are the shares in Company A received by the Partners TAP?

For the purposes of section 855-15 the shares in Company A do not satisfy any of table items 1, 2, 4 or 5.

Accordingly, the shares in Company A will only be TAP if they meet the description of TAP in table item 3 of section 855-15 as listed above, that is, if it can be said that the shares in Company A are CGT assets used, at any time (including, importantly, just after the time of transfer of the Separated Assets) in carrying on the foreign resident’s business through a PE in Australia. This ultimately depends on what is meant by the term ‘use’ of CGT assets in the carrying on of a business through a PE in Australia, and in particular whether shares in a company are capable of being ‘used’ by partners in a partnership.

The applicant’s main contention is that the shares are being used by the partners, that is, the shares meet the requirements of table item 3 of section 855-15, as they are used in carrying on the business of the Partnership.

No share itself is being used in carrying on a business at or through an Australian PE

Shares are CGT assets for the purposes of table item 3 of section 855-15.

The Commissioner is of the view that the shares in Company A are not being used/cannot be used by the non-resident Partners in carrying on a business at or through an Australian PE for the purposes of table item 3 of section 855-15.

The Partners have adopted a definition of ‘Partnership Business’ (broadly defined in the Partnership Agreement as the Main Business and also includes the conduct, activities and operations of the subsidiaries of the Partnership) as a consequence of having control of the company, Company A. The applicant submits that this gives the Partners

…the ability to make and approve key strategic decisions such as funding and capital requirements that are fundamental to the business activities the Partnership carries on in Australia and this necessarily requires that the Partners do this using the powers and rights the shares provide.

The ownership of all the shares in Company A may have the consequence and provide the control necessary to adopt the definition of ‘Partnership Business’ in the Partnership Agreement but this consequence is separate to using the share itself.

Accordingly, the Commissioner is of the view that the shares are not being ‘used’ for the purposes of section 855-15. That is, the consequences associated with owning shares are separate and should not be conflated with using the share itself.

In Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236, Lockhart J quoted the following:

In Colonial Bank v Whinney (1885) 30 Ch D 261 at 286-7 Fry LJ said:

What, then is the character of a share in a company? Is it in its nature a chose in possession, or a chose in action? Such a share is, in my opinion, the right to receive certain benefits from a corporation, and to do certain acts as a member of that corporation; and if those benefits be withheld or those acts be obstructed, the only remedy of the owner of the share is by action. Of the share itself, in my view, there can be no occupation or enjoyment; though of the fruits arising from it there may be occupation, enjoyment and manual possession. Such a share appears to me to be closely akin to a debt which is one of the most familiar of choses in action; no action is required to obtain the right to the money in the case of the debt, or the right to the dividends or other accruing benefits in the case of the share; but an action is the only means of obtaining the money itself or the other benefits in specie, the right to which is called in one case a debt and in the other case a share. In the case alike of the debt and of the share, the owner of it has, to use the language of Blackstone, a bare right without any occupation or enjoyment. A debt, no doubt differs from a share in one respect, that it confers generally a more limited right to the share, and once paid it is at an end, but this distinction appears to me immaterial for the purpose now in hand (emphasis added).

The Commissioner is of the view in this case that a share is a chose in action, which provides a holder with certain rights including a right to sue if those rights are withheld/obstructed. Any ‘use’ by a shareholder would be a use of the rights (i.e. the fruits) arising from the share itself as distinct from using the shares. On the facts of the present case, looking at the Partnership’s operations, the case for using the shares in Company A is even more remote as a share itself does not give rise to any inherent or immediate right to carry on the business of the underlying company. The Partnership, as sole owner of Company A, has simply taken advantage of their control of Company A to insert a definition of ‘Partnership Business’ in the Partnership Agreement. Although this may be a consequence of owning all the shares, this does not involve using the shares to carry on a business. No single share itself is being used.

Furthermore, Justice Lockhart in Sydney Futures Exchange also referred to a share as a ‘chose in action’ that entitles the holder to certain rights under the company constitution and by legislation. Therefore, the Commissioner is also of the view that another of the characteristics of a share is that it consists of a series of mutual covenants entered into by all the shareholders. Thus, Justice Lockhart stated:

A share is a right to a specified amount of the share capital of a company, carrying with it rights and liabilities when the company is a going concern and in the course of its winding up. A share is a chose in action entitling its holder to the rights and subjecting him to the liabilities provided by the memorandum and articles of association and by legislation. In Borland's Trustee v Steel Brothers & Co Ltd [1901] 1 Ch 279 Farwell J described the nature of a share in the terms at 288:

A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders interest in accordance with s 16 of the Companies Act 1862. The contract contained in the articles of association is one of the original incidents of the share. A share... is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.

The above citation of Borland’s Trustee was referred to as a classic description of a share by the High Court in Pilmer v Duke Group Limited (in Liquidation) (2001) 207 CLR 165, 179.¹ The High Court also stated that:

Once issued, a share comprises "a collection of rights and obligations relating to an interest in a company of an economic and proprietary character, but not constituting a debt"

The collection of all these rights that a shareholder has from a share (as a chose of action) were elaborated as follows by Justice Campbell in White v Shortfall [2006] NSWSC 1379:

Some of the rights to sue the company that a shareholder has exist simply by virtue of having the status of shareholder, regardless of the number of shares held. Such rights include rights to receive the information that statute requires shareholders to be given, the right to be given notice of and to attend at certain meetings of the company, and the right to vote at certain company meetings. Other rights that a shareholder has to sue the company are ones that a shareholder has proportionately to the number of shares held -- such as the right to a dividend, to a return of capital, or to vote on a poll at the meeting. Some of the rights of a shareholder to sue the company arise by virtue of the contract contained in the company's constitution. Other rights of a shareholder to sue the company — including some very important ones – might arise directly by statute (for example, rights to receive accounts and reports, to join in a requisition of a company general meeting, or to appoint a proxy). Other rights that any shareholder has in a company by virtue of the status of being a shareholder can arise from a contract arising separately to the company's constitution (for example, if the company in question holds itself out as willing to provide goods or services to a shareholder at a special discounted price).

Justice Campbell explained that the chose in action can be seen as being the right to sue the company to receive some particular type of benefit. This is consistent to a share providing a bare right of action as explained by Fry LJ in Colonial Bank v Whinney earlier. Justice Campbell thus states:

For rights of the type where the number of shares provides the measure by reference to which a shareholder's right against the company is calculated, the chose in action can be seen as being the right to sue the company to receive some particular type of benefit. For example, when the holder of 1000 shares in a company sues to recover a dividend that has been declared but is unpaid, there is just one action that the shareholder brings, to recover the dividend — there are not 1000 separate rights to be paid a dividend: cf Marlborough Harbour Board v Charter Travel Co Ltd (1989) 18 NSWLR 223 at 231. In that way, the chose in action — the thing that the law regards as a piece of property because it can be sued for — is the single right to be paid the dividend, the measure of which is the number of shares held (emphasis added).

From this it can be seen that the various rights attached to shares are not separate pieces of property and neither are they any separate chose in action: Re Alex Russell deceased [1968] VR 285 (also quoted in Taxation Ruling 94/30 Income tax: capital gains tax implications of varying rights attaching to shares).

Therefore in conclusion, on the facts, in relation to the Partnership, no share in Company A itself is being used to carry on the business.

Rather, it is accepted that there has been an exercise of control (via the adoption of ‘Partnership Business’ in the Partnership Agreement) which is a consequence of the Partners owning all the shares in Company A. Accordingly, as no share itself is being used in carrying on a business at or through a PE in Australia, the shares in Company A are not TAP for the purposes of table item 3 in section 855-15.

The insertion of the definition of ‘Partnership Business’ does not mean that the Partners are carrying on the business of Company A and the shares are not used in carrying on any ‘holding entity’ business

In Commissioner of Taxation v Tasman Group Services Pty Ltd, it was stated:

56. While it may be accepted that the business was being financed by SBC, this does not inevitably lead to the conclusion that SBC was carrying on the business. It is a trite proposition that, where a subsidiary, even if wholly owned by a parent company, carries on a business, the business is that of the subsidiary not the parent. Irrespective of how closely it may monitor the business activities of the subsidiary, the parent does not itself carry on those activities but is engaged in the separate business of a parent or holding company which is, normally, the receipt of income in the form of dividends from the subsidiary.

Referencing Tasman, the applicant states:

The situation of the non-resident Partners in the Partnership is fundamentally different. The Partnership Agreement through the definition of Partnership Business contemplates that this will include “the conduct, activities and operations of the subsidiaries of the Partnership”. This is unlike the parent company - subsidiary company relationship which, as established by case law, must be understood in light of the legal independence of each company. The Partners have the ability to make and approve key strategic decisions such as funding and capital requirements that are fundamental to the business activities the SPN Partnership carries on in Australia and this necessarily requires that the Partners do this using the powers and rights the shares provide.

The Partnership Board is predominantly comprised of representatives of the non-resident Partners which gives them a degree of influence and control via their shareholding in the Partnership.

The applicant was not, apart from merely referencing the language of the Partnership Agreement, able to substantiate in practice, the Partnership would undertake the ‘conduct, activities and operations of the subsidiaries’ i.e. Company A, as a matter of fact and in a practical way. The Commissioner is of the view that a statement to this effect, with a simple reference to the definition of Partnership Business, without more, is not sufficient to overcome the proposition as stated in Tasman, that where a wholly-owned subsidiary carries on a business, the business is that of the subsidiary not the parent. That is, in this case, the business of Company A is the business of Company A (whose business is to carry on the business of the Separated Services), not the Partnership (whose business it is to carry on the Main Business of the Partnership).

In addition, to accept the applicant’s submission as above would mean it would need to be accepted that the Partners will be carrying on a business similar to a holding company or other parent entity, which would require determining, again, in the first instance, whether the shares held by the holding entity are being used. As concluded above, shares are not (and cannot) in themselves be used in carrying on any holding entity business. This again confuses and conflates the consequences of having control/owning all the shares and use of the actual shares.

Conclusion

Despite the Resident Partners satisfying paragraph 122-135(6)(a), as subparagraph 122-135(6)(b)(ii) is not satisfied in respect of the Non-resident Partners, condition 5 is not satisfied and so roll-over relief under Subdivision 122-B is not available to any of the Partners of the Partnership on the transfer of the Separated Assets to Company A.

Question 2

In respect of the Non-resident Partners of the Partnership, the shares they hold in Company A after the transfer of the Separated Assets to Company A will not be taxable Australian property for the purposes of subsection 122-135(6) of the ITAA1997 for the reasons given in question 1 above under the heading ‘Condition 5’.

Question 3 (a)

Section 40-295 states:

40-295(1)

A balancing adjustment event occurs for a * depreciating asset if:

(a) you stop * holding the asset; or

(b) you stop using it, or having it * installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again; or

(c) you have not used it and:

(i) if you have had it installed ready for use - you stop having it so installed; and

(ii) you decide never to use it.

Therefore, pursuant to paragraph 40-295(1)(b) a balancing adjustment event occurs in relation to a depreciating asset when there is a change in the holding of, or the interests in, a depreciating asset. The transfer of depreciating assets as part of the transfer of the Separated Assets to Company A will cause a change in the holding of these depreciating assets. This will result in a balancing adjustment event.

The Partnership intended to enter into the Agreement A with Company A with the intended completion date being after this date (Completion Date). The period between these two times (transition period) would accommodate the process of negotiation and assignment of any pre-existing contracts from the Partnership to Company A, and allow Company A to obtain any required licences and accreditations, before Company A commences trading.

It was intended that during the transition period, the depreciating assets would service the existing contracts of the Partnership, until settlement on the Completion Date.

Accordingly, the Partnership would stop holding and using all the depreciating assets on the Completion Date. The Completion date would therefore be the date that a balancing adjustment event occurred in respect of the depreciating assets included in the Separated Assets transferred to Company A as part of the Separated Services.

Question 3(b)

Section 40-340 states:

40-340(1)

There is roll-over relief if:

(a) there is a *balancing adjustment event because an entity (the transferor ) disposes of a *depreciating asset in an income year to another entity (the transferee ); and

(b) the disposal involves a *CGT event; and

(c) the conditions in an item in this table are satisfied.

CGT roll-overs that qualify transferor for relief
Item	Type of CGT roll-over	Conditions
..........
2	Disposal of asset by partnership to wholly-owned company	The transferor is a partnership, the property is partnership property and the partners are able to choose a roll-over under Subdivision 122-B for the disposal by the partners of the *CGT assets consisting of their interests in the property.
...

As all the Partners in the Partnership are not able to choose roll-over relief in respect of the transfer of the Separated Assets to Company A pursuant to Subdivision 122-B, item 2 of the table in section 40-340 is not satisfied. The Partnership is therefore not entitled to automatic rollover relief under section 40-340 of the ITAA 1997 for the balancing adjustment event that occurs for each of the depreciating assets of the Partnership’s Separated Assets transferred to Company A as section 40-340 is not satisfied.

Question 4

Section 40-60 states:

40-60(1)

A * depreciating asset you * hold starts to decline in value from when its * start time occurs.

40-60(2)

The start time of a * depreciating asset is when you first use it, or have it * installed ready for use, for any purpose.

Subsection 40-60(2) makes it clear that the start time of a depreciating asset is when it is first used, or installed ready for use, for any purpose.

Company A would only start to use the depreciating assets being transferred to it from the Completion Date.

During the transition period (from 1 August 2017 to the Completion Date) the depreciating assets would service the existing contracts of the Partnership, until Completion date.

Company A would therefore be entitled to start claiming depreciation on the transferred depreciating assets from the Completion Date under the BTA as this would be the date that the assets first commence being used by Company A.