Edited version of private advice

Authorisation Number: 1052103982176

Date of advice: 31 March 2023

Ruling

Subject: CGT - small business concessions

Question 1

Did Person A control the Trust within the meaning of subsection 328-125(3) of the ITAA 1997 as a result of applying section 152-47?

Answer

Yes, to the extent subsection 328-125(3) relates to Subdivision 152-A, which deals with the basic conditions for small business capital gains tax (CGT) relief.

Question 2

Was the Property Partnership (as defined in the relevant facts and circumstances section of this private ruling) connected with the Trust within the meaning of subsection 328-125(1) of the ITAA 1997 for the purpose of applying the maximum net asset value test in section 152-15 to the Trust?

Answer

Yes.

Question 3

Will section 152-47 of the ITAA 1997 apply to treat Person A as Person B's affiliate, resulting in the Trust being connected with the Property Partnership because Person B controlled both the Trust and Property Partnership?

Answer

No. Section 152-47 won't apply to treat Person A as Person B's affiliate. However, the Trust and the Property Partnership are still connected entities because Person A will be treated as controlling both.

This ruling applies for the following period:

XXXX income year

The scheme commenced on:

Beginning of the XXXX income year

Relevant facts and circumstances

1.         A discretionary trust (the Trust) formerly operated a business.

2.         The Trust entered into a contract to sell its business. The contract and settlement dates were both in the XXXX income year. The Trust made a capital gain on the sale of the business.

3.         <Redacted for privacy reasons.>

4.         Person B is the sole director and shareholder of the Trust's trustee company.

5.         Person B and Person A are spouses, and are joint appointors of the Trust. They have the power to appoint a trustee and remove a trustee. The trust deed requires written consent of each of the specified appointors before a trustee may be removed or appointed. Person B controls the Trust in practice and exercises independent judgment when making decisions about the Trust.

6.         Person B, Person A, Person C, and Person D each acquired, as tenants in common, 25% of an industrial property some years earlier. There was a formal co-purchaser syndicate agreement under which the co-purchasers agreed to make decisions unanimously (we'll call the property-holding arrangement formed by these four individuals the 'Property Partnership').

7.         Person B, Person A, Person C, and Person D didn't carry on business as individuals or as partners in a (general law) partnership.

8.         The Property Partnership derived rental income from the lease of the property to the Trust.

9.         The property was sold, with the contract and settlement dates also occurring during the XXXX income year.

10.      Historically the Trust made distributions of income and capital to Person B's family and related investment companies.

11.      In one of the four income years before the XXXX income year, Person A received X% of the Trust's capital distributions (X% being less than 40%) and Person B receiving Y% (Y% being more than 40%). The Trust didn't make any capital distributions in other income years.

12.      Person A didn't receive trust distributions of income of 40% or more in any of the four income years before the XXXX income year, but Person A did receive Z% of trust income (Z% being more than 40%) in the XXXX income year.

13.      Person B controls the Trust and exercises independent judgment when making decisions about the Trust.

14.      Table 1 described the Trust's distributions in relevant years - but we've redacted it for privacy reasons.

Table 1: <redacted for privacy reasons.>

Diagram <redacted for privacy reasons.>

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 108-5

Section 108-7

Section 152-10

Section 152-15

Section 152-47

Section 328-125

Section 328-130

Section 960-100

Section 995-1

Reasons for decision

1.         These reasons for decision accompany the Notice of private ruling for The Trustee for the relevant trust (the Trust). Theyexplain how we reached our decision. They are not part of the private ruling.

2.         All legislative provisions are in the Income Tax Assessment Act 1997, except where we mention the Income Tax Assessment Act 1936.

3.         The applicant's questions and our answers are set out underneath, along with a fuller explanation of how we arrived at our answers.

Question 1

4.         Did Person A control the Trust within the meaning of subsection 328-125(3) as a result of applying section 152-47?

Answer

5.         Yes, to the extent subsection 328-125(3) relates to Subdivision 152-A, which deals with the basic conditions for small business capital gains tax (CGT) relief. Section 152-47 applies to treat Person B as Person A's affiliate because:

•                Person A owns a CGT asset

•                the CGT asset is used in the Trust's business

•                the Trust is otherwise (i.e. apart from section 152-47) not an affiliate of, or connected with, Person A, and

•                Person B is Person A's spouse.

6.         Since Person B controls the Trust, the effect of subsections 152-47(2) and (3) is that Person A is also treated as controlling the Trust under both subsections 328-125(3) and (4) because Person B is treated as his or her affiliate.

Explanation

Discretionary trusts are controlled by another entity if they meet either of two tests.

7.         Section 328-125 is about whether entities are connected, which turns on the concept of control. Subsection 328-125(1) says an entity is connected with another entity if:

•                either entity controls the other entity in a way described in the section, or

•                both entities are controlled by the same third entity.

Section 328-125 includes two tests under which an entity controls a discretionary trust.

8.         The first test is about directions or wishes. Under subsection 328-125(3), an entity controls a discretionary trust if a trustee acts, or could reasonably be expected to act, in accordance with the entity's directions or wishes. This extends to directions or wishes of the entity's affiliates, or the entity together with its affiliates.

9.         The second test is a control percentage test, based on distributions of income or capital. Under subsection 328-125(4), an entity controls a discretionary trust for an income year if the trustee paid it (or applied for its benefit) at least 40% of the income or capital in any of the four income years before that year. The 40% control percentage test includes amounts paid to the entity's affiliates, or to the entity together with its affiliates.

Person A meets neither of the tests (absent section 152-47 treating Person B as Person A's affiliate).

10.       Person A doesn't control the Trust under the directions or wishes test. Person A is one of two appointors, Person B being the other. The trustee can only be removed with the written consent of both. Person B is the sole director and shareholder of the corporate trustee. Person B controls the Trust in practice and exercises independent judgment when making decisions about the Trust. The trustee doesn't act, and it isn't reasonable to conclude that the trustee would act, in accordance with Person A's directions or wishes. Person A's status as one of two appointors isn't significant because he or she can't unilaterally replace the trustee. The other appointor controls the trustee and exercises independent judgment when making decisions for the Trust.

11.       Person A doesn't control the Trust (in the XXXX income year) under the control percentage test either. Person A only received X% (which is less than 40%) of the Trust's capital in the four income years before the XXXX income year (which is the current income year). Person A didn't receive 40% or more of the Trust's income in the same period. Person A received more than 40% of income and capital in the XXXX income year, but XXXX is the current year. Person A didn't receive more than 40% of income or capital in any of the four income years before that year. However, Person A would meet the control percentage test in the four income years following the XXXX income year.

12.       Person B isn't an affiliate of Person A in the sense of section 328-130. That meaning is premised on an individual or company carrying on a business. Neither Person A nor Person B carries on a business as an individual, and so neither can be an affiliate of the other in the sense of section 328-130.

Person B meets both the tests.

13.       Person B controls the Trust under both the directions or wishes and the control percentage tests. Person B was the sole director and shareholder of the corporate trustee and directed the Trust's business in practice, exercising independent judgment in his or her capacity as a director of the corporate trustee. Clearly, the trustee acts in accordance with Person B's wishes or directions. It's also reasonable to expect that the trustee will continue to act in that way. Furthermore, Y% of capital was paid to Person B or applied for his or her benefit in one of the four income years before the XXXX income year, and Y% is more than the control percentage of 40%.

Section 152-47 treats Person B as Person A's affiliate.

14.       Section 152-47 applies to treat spouses and children under 18 as being affiliates of an individual where assets owned by one entity are used in another entity's business. Subsection 152-47(2) treats an individual's spouse and child under 18 as being affiliates of the individual in determining whether the business entity is an affiliate of or connected with the asset owner. It applies 'for the purposes of this Subdivision'. That means Subdivision 152-A, which is about eligibility for the CGT small business concessions. Subsection 152-47(1) says the section applies if three conditions are met:

•                one entity (Person A) owns a CGT asset (an interest in the industrial property)[1]

•                the asset is used (or held ready for use) in the course of carrying on a business by another entity (the Trust), or alternatively, is inherently connected with a business carried on by the business entity

•                the business entity (the Trust) isn't otherwise an affiliate of, or connected with, the asset owner (Person A).

15.       CGT assets include interests in other assets, including land and buildings. CGT asset has a meaning given in section 108-5.

•                Subsection 108-5(1) says CGT assets are any kind of property, or legal or equitable rights which aren't property.

•                'Property' isn't defined, but generally means legal relationships or rights over things. ATO guidance discusses features of property rights in TD 2014/26. Some features include assignability, excludability, commercial value, and enforceability.[2]

•                Subsection 108-5(2) confirms that part of, or an interest in, another CGT asset is itself a CGT asset. Interests in partnership assets are also treated as CGT assets.

•                Note 1 to the section gives land and buildings as examples of CGT assets.

•                As an aside, section 108-7 says individuals who own a CGT asset as joint tenants are treated as owning separate CGT assets constituted by equal interests in the asset, as if each held their interest as tenants in common.

•                ATO guidance[3] suggests that where multiple entities hold part interests in an asset (including land) each entity's interest is a separate CGT asset.

16.       We apply the three conditions in subsection 152-47(1) to Person A in Table 2.

Table 2: applying subsection 152-47(1) to Person A

Person B is Person A's affiliate for CGT small business concession purposes.

17.       Person A meets the three conditions in subsection 152-47(1), so Person A will treat Person B as Person A's affiliate for the purpose of testing whether Person A (as an asset owner) is connected to the Trust (as a business entity).

18.       Since Person B is treated as Person A's affiliate, Person A will control the Trust. Person B controls the Trust under both control tests, in subsections 328-125(3) and 328-125(4). Therefore, because Person B is his or her affiliate, Person A also controls the Trust under both these tests, as the tests extend to Person A's affiliates, which include Person B.

19.       When section 152-47 applies, the deemed affiliate relationship also applies when working out eligibility for CGT small business concessions. Subsection 152-47(3) says that if subsection (2) treats an entity as an affiliate of, or connected with, another entity, then the spouse or child is also taken to be an affiliate of the individual for CGT small business concession eligibility purposes.[6]

20.       Therefore, Person A will treat Person B as his or her affiliate for CGT small business concession purposes.

Question 2

21.       Was the Property Partnership connected with the Trust within the meaning of subsection 328-125(1) for the purpose of applying the maximum net asset value test in section 152-15 to the Trust?

Answer

22.       Yes. The Property Partnership is connected with the Trust under subsection 328-125(1) because Person A controls both entities. The Property Partnership is treated as an entity (as a 'tax law partnership') for tax purposes. Person A controls the Property Partnership because together with Person B (his or her affiliate, after applying section 152-47), Person A has a 50% share in the property, which give Person A rights to 50% of the partnership's net income. We think that's enough to give Person A the relevant 'interest' in the entity for the purposes of subparagraph 328-125(2)(a)(ii). We determined that Person A controls the Trust in our response to Question 1.

Explanation

The Property Partnership will be treated as a partnership for tax law purposes: four individuals are receiving income jointly.

23.       Partnerships, including 'tax law' partnerships, are treated as entities for tax purposes. Subsection 960-100(1) says 'entity' means any of a list of things - 'partnership' is included at paragraph (d). Section 995-1 gives a definition of 'partnership' which includes an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly. People who receive ordinary or statutory income jointly are sometimes known as 'tax law partnerships' (as opposed to people carrying on business in common, who would be recognised under the general law of partnership).[7] ATO guidance says that co-owners of rental property are treated as partners for tax purposes because they are in receipt of income jointly. It doesn't matter whether they are joint tenants or tenants in common.[8]

24.       Here, the association known as the Property Partnership will be treated as a partnership for tax law purposes. Person B, Person A, Person C, and Person D own a commercial rental property as tenants in common. The Property Partnership received rental income from renting the property to The Trust. (We've assumed that the rental income was assessable income. ATO guidance in IT 2167[9] suggests rent is generally assessable income.[10]) The Property Partnership is a partnership because the four individuals, as tenants in common, were in receipt of ordinary or statutory income jointly.

You control a partnership where, together with your affiliates, you own interests that have the right to receive at least 40% of the net income of the partnership.

25.       As we mentioned in paragraph 7 of these reasons, section 328-125 is about whether entities are connected, which turns on the concept of control. Subsection 328-125(1) says an entity is connected with another entity if:

•                either entity controls the other entity in a way described in the section, or

•                both entities are controlled by the same third entity.

The section also has control percentage tests for entities other than discretionary trusts.

26.       Broadly, an entity controls another entity (other than a discretionary trust) if it owns interests that carry between them rights to at least 40% of distributions of income, capital, or net partnership income. Paragraph 328-125(2)(a) says:

An entity (the first entity) controls another entity if the first entity, its *affiliates, or the first entity together with its affiliates:

(a) except if the other entity is a discretionary trust - own, or have the right to acquire the ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage) that is at least 40% of:

(i) any distribution of income by the other entity; or

(ii) if the other entity is a partnership - the net income of the partnership; or

(iii) any distribution of capital by the other entity; or

A tax law partnership can be controlled: we think a tax law partner will have an 'interest' in a tax law partnership consistent with their share in the jointly held property.

27.       In this context, we think 'interests in the other entity' should be read to include the rights a tax law partner has in the property, which gives the partner an entitlement to income. It follows that an entity will control a tax law partnership if (together with its affiliates) it has a right to receive at least 40% of the net income of the tax law partnership.

28.       We acknowledge an alternative view. The applicant in this ruling submitted that a tax law partnership isn't capable of being controlled in the relevant sense, because the relevant parties don't have 'interests' in a tax law partnership. They cited ATO guidance, especially comments in GSTR 2004/6 at paragraph 103, which suggest that partners in a tax law partnership don't have interests in that tax law partnership. While we've considered this alternative view, we think our interpretation is more consistent with how the words are used in this context.

29.       The term 'interest' and the phrase 'interests in the other entity' aren't defined,[11] which means they take their ordinary or legal meaning as affected by the context in which they appear.[12]

30.       'Interest' has a broad range of meanings in both ordinary usage and legal usage. Dictionaries suggest 'interest' can be used to cover a range of legal or equitable rights.[13] For example, the Macquarie Dictionary suggests one meaning is a share or ownership right in property. Often, the word 'interest' is qualified by other terms - eg, legal interest, equitable interest, beneficial interest, interest in property, vested interest, interest in land.

31.       Since there isn't a single ordinary or legal meaning of 'interest', we need to look to context to arrive at the most appropriate meaning. The relevant context includes the surrounding words, the scope and purpose of the section and Division 328, and other defined terms in the Act.

32.       Division 328 is broadly about grouping rules relevant to working out eligibility for tax treatments or concessions. While Division 328 is ostensibly directed to 'small businesses', the rules are relevant for many purposes in tax law. For example, the connected entity test is relevant to working out whether you qualify for CGT small business concessions. CGT small business concessions may be available to non-business entities who passively hold assets used by related business entities.[14]

33.       Section 328-125 is a control test for whether 'entities' are connected for grouping purposes. Subsections (3) and (4) apply to discretionary trusts, and subsection (2) applies to entities other than discretionary trusts. There are alternative tests which apply specifically to a) companies, and b) partnerships.

34.       We've also considered some related defined terms. For tax purposes, 'entity' includes some non-legal entities. Section 960-100 says that trusts and partnerships are treated as entities for tax purposes. 'Partnership' has a specific tax definition in section 995-1 which includes both 'general law' and 'tax law' partnerships. 'Net income' of a partnership is determined (and distributed between the partners) under rules in Division 5 of the Income Tax Assessment Act 1936.

35.       We also need to consider the immediate context of surrounding words. The phrase 'interests in the other entity' is followed by paragraphs showing the interests need to carry between them rights to receive at least 40% of any distribution of income or capital, or net income in the case of a partnership.

36.       In this context, we think 'interests in the other entity' will cover any rights which entitle the holder to income, capital, or partnership net income relating to the relevant tax entity. There are three steps to our reasoning.

37.       First, 'entity' in section 328-125 must refer to tax entities as defined in section 960-100, not just legal entities. Specific control tests apply to trusts and partnerships, which aren't recognised at general law as legal entities.[15] Those tests would be meaningless if they were restricted to interests in legal entities like companies.

38.       Second, we don't see any compelling reason to depart from the taxation definition of 'partnership'. That definition includes tax law partnerships. We don't think the context modifies that meaning. While Division 328 is generally about 'small businesses', that doesn't suggest 'partnership' should be limited to general law partnerships. The control tests in section 328-125 aren't limited to calculating turnover (which would be limited to business entities). They are also relevant to the maximum net asset value test, which is relevant to non-business entities holding assets used in other businesses. Further, there are specific control tests for discretionary trusts, which often wouldn't be business entities.

39.       Third, the phrase 'interest in an entity' is broad enough to capture rights that are closely associated with the relevant entity type. The concept of having an 'interest' in a partnership is generally legal shorthand for a broad bundle of property rights that can include rights to income and capital. Partnerships aren't legal entities,[16] so partners in general law partnerships can't be described as having an ownership interest in a legal entity. Instead, a partners' interest in a partnership refers to equitable rights over partnership property[17] and rights to share in income generated from the partnership's business or surplus capital on liquidation.[18] We don't see any significant differences between general law and tax law partnerships which would be relevant to deriving income or capital, at least in this context. Tax law partners jointly own property, and each partners' ownership interest in that property gives them a share in any income which derives from that property. We think that's enough to give them an 'interest' in the relevant entity type, being a tax law partnership. We don't think the comments in GSTR 2004/6 (cited by the applicant) should be applied outside their context - which was about the supply of a financial interest under GST regulations.

40.       It follows that 'interest in an entity' covers rights relevant to partnership net income. Tax law partners have interests in jointly held property, which gives them rights to the income that property generates, and to an amount of any net income of the partnership.

41.       As an aside, we think our interpretation doesn't favour one entity type over another. If subsection 328-125(2) didn't capture tax law partnerships, this may create tax incentives to prefer one entity type over another. We don't think that effect or result would be consistent with the legislative purpose of the Division 328 control tests, which limit concessions to entities which don't exceed certain group turnover or asset value thresholds.

42.       Therefore, we think a tax law partnership is capable of being controlled by other entities under subsection 328-125(2). We think that a tax law partner would control a tax law partnership if they (together with their affiliates) have at least a 40% share in the underlying jointly held property. That share gives them an ownership interest in the partnership with a right to at least 40% of the net income of the partnership. This would meet the control percentage test under subparagraph 328-125(2)(a)(ii). We don't need to determine whether a tax law partnership is capable of making a 'distribution' of income or capital for the purposes of subparagraphs 328-125(2)(a)(i) or (iii).

Person A controls the Property Partnership.

43.       Person A will control the Property Partnership if (together with affiliates) Person A has at least a 40% share in the property held by the Property Partnership.

44.       Person A and Person B each (individually) have a:

•                25% share in the property held by the Property Partnership, and

•                right to receive 25% of the net income of the Property Partnership.

45.       However, Person A treats Person B as Person A's affiliate because section 152-47 applies to him or her. Once section 152-47 applies to treat one individual as another's affiliate, that deemed affiliate relationship applies generally for the purpose of working out eligibility for the CGT small business concessions. Therefore, Person B is treated as Person A's affiliate for the purposes of working out whether Person A controls the Property Partnership.

46.       It follows that Person A, together with Person B (Person A's affiliate), controls the Property Partnership because their combined share in the property is 50%.

The trust and the Property Partnership are connected entities because Person A controls both of them.

47.       As observed above, two entities are connected if both entities are controlled by the same third entity: see subsection 328-125(1).

48.       Person A controls both the Trust and the Property Partnership because Person B is Person A's affiliate. Person B controls the Trust, so Person A will be treated as also controlling the Trust. Person A, along with Person B has a combined 50% share in the Property Partnership, so Person A will also be treated as controlling the Property Partnership.

49.       It follows that the Trust and the Property Partnership are connected because they have a common controller in Person A.

50.       For completeness, Person B will be treated as Person A's affiliate when determining the Trust's eligibility for CGT small business concessions. Subsection 152-47(2) applied to treat the asset owner (Person A) and the business entity (the Trust) as being connected with each other. Once subsection 152-47(2) has operated to make the asset owner and a business entity connected with each other, subsection 152-47(3) says that the relevant spouse is taken to be the individual's affiliate for the purposes of the Subdivision. Therefore, the Trust would also treat Person B as being Person A's affiliate when working out the Trust's eligibility for CGT small business concessions.

Question 3

51.       Will section 152-47 apply to treat Person A as Person B's affiliate, resulting in the Trust being connected with the Property Partnership because Person B controlled both the Trust and Property Partnership?

Answer

52.       No. Section 152-47 won't apply to treat Person A as Person B's affiliate. Person B doesn't meet the threshold conditions in subsection 152-47(1). Paragraph 152-47(1)(c) requires that the business entity must not be an affiliate of, or connected with, the asset owner. Person B is already connected with the Trust (the business entity) because he or she controls it. However, the Trust and the Property Partnership are still connected entities because Person A is treated as controlling both entities, consistent with our responses to Questions 1 and 2.

Explanation

It doesn't necessarily follow that Person A will be treated as Person B's affiliate only because section 152-47 applies to treat Person B as Person A's affiliate.

53.       Where section 152-47 applies to make one spouse an affiliate of the other, it doesn't necessarily apply the other way. Section 152-47 affects the determination of whether a business entity is an affiliate of, or is connected with, an asset owner by deeming spouses and children under 18 to be affiliates. We explained in Question 1 that this rule applied to treat Person B as Person A's affiliate. It did that in a context where the Trust was the business entity and Person A was the asset owner. Nowhere does the section state that where it deems one individual (e.g. Person B) to be an affiliate of another individual (e.g. Person A), then that same affiliate finding must work in the other direction (e.g. just because the section treats Person B as an affiliate of Person A doesn't mean it also treats Person A as an affiliate of Person B).

54.       In our view, the operation of the section needs to be considered afresh for Person B. Person B is the asset owner - Person B owns a 25% interest in the property used in the trust's business. However, Person B doesn't meet the threshold conditions in subsection 152-47(1) because Person B is already connected with the Trust as he or she controls the Trust. The requirement in paragraph 152-47(1)(c) isn't met. We don't think subsections 152-47(3) and (4) will apply to make Person A Person B's affiliate merely because subsection 152-47(2) applies to make Person B Person A's affiliate. Person B won't be recognised as a relevant individual under subsection (2), because Person B hasn't met the threshold conditions in subsection 152-47(1).

55.       We can see another view. There's no requirement in subsections 152-47(2) and (3) that the individual must be either the asset owner or the business entity. Therefore, it's conceivable that where any entity has been deemed to be affiliated or connected with another entity under subsection 152-47(2), spouses will be treated as affiliates for CGT small business concession purposes more generally. However, we don't think this is the better view.

56.       Therefore, on our preferred view, Person B won't treat Person A as Person B's affiliate for the purposes of determining Person B's eligibility for CGT small business concessions.

57.       However, the Trust and the Property Partnership are still connected entities because Person A is treated as controlling both entities, consistent with our responses to Questions 1 and 2.

[1] The asset can be tangible or intangible.

[2] See Taxation Determination TD 2014/26 Income tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997? at paragraphs 6 through 8.

[3] Taxation Determination TD 2000/31 Income tax: capital gains: if you own an interest in a CGT asset and you acquire another interests in that asset, do the interests remain separate CGT assets for capital gains purposes or do they become a single asset?; ATO Interpretative Decision ATO ID 2002/862 Income Tax: Capital gains tax: active asset test: interest in property acquired at different times.

[4] For completeness, interests in land are property because they give the holder rights over land (which have value and also include rights to exclude others from using land) which they can enforce against others.

[5] Macquarie Dictionary Publishers (2023) The Macquarie Dictionary online, (entry for 'inherent') accessed at https://www.macquariedictionary.com.au; Oxford University Press (2004) Australian Oxford Dictionary, 2^nd edition, (entry for 'inherent') accessed at https://www.oxfordreference.com, both accessed 9 January 2023.

[6] To be more specific, 'for the purposes of this Subdivision, and for the purposes of sections 328-110 to 328-125 to the extent that they relate to this Subdivision.' 'This Subdivision' means Subdivision 152-A, which is about basic conditions for CGT small business relief. Section 328-110 through 328-120 are about whether you're a small business entity, and more generally how you calculate aggregated turnover. Section 328-125 is about connected entities.

[7] See Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property especially paragraphs 8 through 10.

[8] See Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners at paragraph 25.

[9] Taxation Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases.

[10] IT 2167 says this is a general rule. It might not be ordinary income in some circumstances, such as where the payment reflects a domestic arrangement such as board paid between family members. That ruling broadly suggests rent between related parties would usually be assessable income if the rent is commercial or arm's length.

[11] There are also some related definitions in the act which aren't directly relevant but may nevertheless have some bearing on this issue. 'Membership interest in an entity' (see section 960-135) means an interest or right (or set of interest or rights) 'by virtual of which you are a member of the entity'. Section 960-130 says partners in a partnership are members of a partnership. Also, subsection 102AAK(6) of the Income Tax Assessment Act 1936 defines 'partner's interest' to mean a percentage interest in either partnership profits, or partnership property.

[12] See, eg, Taxation Ruling TR 2022/4 Income Tax: section 100A reimbursement agreements at paragraph 10; Pearce D (2019) Statutory Interpretation in Australia, 9^th edition, LexisNexis Australia, at [2.41-2.42] pp. 66-67.

[13] Macquarie Dictionary Publishers (2023) The Macquarie Dictionary Online, (entry for 'interest') accessed at www.macquariedictionary.com.au; Oxford University Press (2004) Australian Oxford Dictionary, 2^nd edition, (entry for 'interest') accessed at https:oxfordreference.com; Mann T (ed) (2018), Australian Law Dictionary, 3^rd edition, Oxford University Press, (entries for 'beneficial interest' and 'estate or interest') accessed at https:oxfordreference.com; LexisNexis Australia (2022) Encyclopaedic Australian Legal Dictionary, (entry for 'interest') accessed at https://advance.lexis.com; Law J (ed) (2022) A Dictionary of Law, 10^th edition, Oxford University Press, (entries for 'interest' and 'equitable interests') accessed at https:oxfordreference.com. All entries accessed 19 January 2023.

[14] They are relevant to working out whether you're a 'small business' under Division 328, whether your aggregated turnover qualifies you for other concessions or measures (such as backing business investment, temporary full expensing, concessions in FBT, superannuation, or GST legislation).

[15] Heydon, JD and Leeming, MJ (2016) Jacob's Law of Trusts in Australia, 8^th edn, LexisNexis Butterworths Australia [1.01], accessed at https://advance.lexis.com on 21 March 2023; Lexis Nexis Australia (2018) Halsbury's Laws of Australia, [305 - Partnerships and Joint Ventures (A) Features of a Partnership, paragraph 305-1], accessed at https://advance.lexis.com on 21 March 2023.

[16] See LexisNexis Australia (2018) Halsbury's Laws of Australia, accessed at https://advance.lexis.com on 20 March 2023 at [305 - Partnerships and Joint Ventures, paragraph 305-1].

[17] Usually the assets are legally owned by (some or all of) the partners, but they have obligations to allow them to be used for partnership purposes and to distribute any sale proceeds under an agreement. See LexisNexis Australia (2018) Halsbury's Laws of Australia, accessed at https://advance.lexis.com on 20 March 2023 at [305 - Partnerships and Joint Ventures, paragraph 305-245].

[18] See LexisNexis Australia (2018) Halsbury's Laws of Australia, accessed at https://advance.lexis.com on 20 March 2023 at [305 - Partnerships and Joint Ventures, paragraphs 305-285 and 305-300].