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Edited version of private advice
Authorisation Number: 1052087615216
Date of advice: 15 February 2023
Ruling
Subject: Corporate limited partnership
Question
Upon the dissolution of the CLP will there be any CGT consequences at that time pursuant to part 3-1 of the ITAA 1997?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The Limited Partnership has a General Partner and Limited Partner
The General Partner owns 0.0XX% of the partnership interests
The Limited Partner owns XX.XXX% of the partnership interests
The Limited Partnership is a limited partnership for income tax purposes on the basis that it is an association of persons carrying on business as partners where the liability of at least one of those persons is limited.
The Limited Partnership is governed by the Partnership Deed and Management Deed.
Restructure
The Limited Partnership will be dissolved in a manner pursuant to the Partnership Deed and Management Deed.
After, and as part of the broader dissolution arrangement, The General Partner will transfer its 0.0XX% partnership interests to the Limited Partner. Following the dissolution of the Limited Partnership and transfer of these interests, the Limited Partner will continue the business operation in its own right.
Relevant legislative provisions
Section 104-10 of the Income Tax Assessment Act 1997
Division 5A of the Income Tax Assessment Act 1936
Reasons for decision
Taxation Ruling IT 2540 Income tax: capital gains: application to disposals of partnership assets and partnership interests (IT 2540) outlines the application of the CGT provisions to the disposal of partnership assets and partnership interests. Paragraph 2 of IT 2540 states:
Under general law in relation to partnerships, a partnership is not a separate legal entity distinct from the individual partners who comprise the partnership. Accordingly, the partnership does not own property in its own right; title to the partnership assets is legally vested in the partners, even though an individual partner may have no separate title to specific partnership assets.
Therefore, any disposal of partnership interests results in the potential application of a CGT event at the partner level.
Corporate limited partnerships under tax law are treated as a company for certain purposes as instructed under Division 5A of the Income Tax Assessment Act 1936 (ITAA 1936).
ATO Interpretative Decision ATO ID 2010/210 Income Tax: CGT event A1: partnership becomes corporate limited partnership (ATO ID 2010/210) states that while Division 5A of the ITAA 1936 generally treats limited partnerships as companies for income tax purposes, it does not convert them into companies for other purposes. As a result, ATO ID 2010/210 provides that the conversion of a partnership to a limited partnership does not give rise to CGT event A1 under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) as no disposal has occurred.
Therefore, as ownership of the underlying partnership assets rests with the partners, and Division 5A does not change this recognition, there will be no CGT event for the Limited Partnership when it is formally dissolved as part of the dissolution arrangement. Any transfer of those partnership assets between partners may give rise to a CGT event for the disposing partner themselves.