Edited version of private advice

Authorisation Number: 1052343668099

Date of advice: 24 December 2024

Ruling

Subject: Corporate limited partnership

Question

Upon the dissolution of the Limited Partnership will there be any capital gains tax (CGT) consequences for the Limited Partnership pursuant to Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20YY

Year ending 30 June 20YY

Relevant facts and circumstances

The Limited Partnership has a General Partner and a Limited Partner.

The General Partner (an Australian resident private company) owns a 0.XX% partnership interest in the Limited Partnership and the Limited Partner (also an Australian resident private company) owns a XX.XX% partnership interest in the Limited Partnership.

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;

•                     a corporate limited partnership as defined in section 94D of the Income Tax Assessment Act 1936 (ITAA 1936);

•                     governed by the Management and Investors Agreement (MIA) and the Partnership Deed; and

•                     the head company of a tax consolidated group.

The Limited Partnership carries on a business.

Restructure

The Limited Partnership will be dissolved in a manner pursuant to the Partnership Deed and MIA.

After, and as part of the broader dissolution arrangement, the General Partner will transfer its partnership interest to the Limited Partner.

Following the dissolution of the Limited Partnership and transfer of the General Partner's interest, the Limited Partner will continue the business operation in its own right.

Assumption

CGT event L5 under section 104-520 of the ITAA 1997 will not occur for the Limited Partnership (head company) in respect of any subsidiaries when the consolidated group ceases on the basis that there will be no negative amount remaining after step 4 of the allocable cost amount calculations under subsection 711-20(1) of the ITAA 1997 for each subsidiary.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 Division 5A

Income Tax Assessment Act 1936 section 94D

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 104-520

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

Income Tax Assessment Act 1997 subsection 711-20(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Summary

Under general law and for CGT purposes, ownership of the underlying partnership assets rests with the partners and not the partnership. Since Division 5A of the ITAA 1936 does not change this position, there will be no CGT event for the Limited Partnership when it is dissolved.

Detailed reasoning

'Limited partnership' is defined in subsection 6(1) of the ITAA 1936 to have the same meaning as in the

ITAA 1997. 'Limited partnership' is defined in subsection 995-1(1) of the ITAA 1997 to mean:

(a)          an association of persons (other than a company) carrying on business as partners or in receipt of ordinary income or statutory income jointly, where the liability of at least one of those persons is limited; or ...

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.

Subsection 106-5(1) of the ITAA 1997 recognises that, for the purposes of assessing capital gains or capital losses in relation to a partnership or one of its CGT assets, any capital gain or loss is made by the partners individually.

Therefore, any disposal of partnership interests results in the potential application of a CGT event at the partner level. There are no CGT consequences that fall to the Limited Partnership in respect of its dissolution in the first instance.

Corporate limited partnerships are treated as a company for tax purposes, as instructed under Division 5A of the ITAA 1936.

ATO Interpretative Decision ATO ID 2010/210 Income Tax: CGT event A1: partnership becomes corporate limited partnership states that while Division 5A of the ITAA 1936 generally treats corporate 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 ITAA 1997 as no change of ownership in respect of the partnership assets has occurred.

Therefore, as ownership of the underlying partnership assets rests with the partners, and Division 5A of the

ITAA 1936 does not change this recognition, there will be no CGT event for the Limited Partnership when it is formally dissolved as part of the restructure.

Any subsequent transfer of those partnership assets between partners may give rise to a CGT event for the disposing partner.