CGT: Rollover of depreciating assets from a partnership (STS taxpayer) to a wholly-owned company

Is CGT rollover relief under section 122-170 of the Income Tax Assessment Act 1997 (ITAA 1997) available for the transfer of partnership assets to a company wholly-owned by the partners where the partnership is an STS taxpayer under Division 328 of the ITAA 1997?

Yes. CGT rollover relief under section 122-170 of the ITAA 1997 is available for the transfer of partnership assets to a company wholly-owned by the partners where the partnership is an STS taxpayer under Division 328 of the ITAA 1997.

The partnership commenced business prior to the introduction of capital gains tax. The partnership is an STS taxpayer under Division 328 of the ITAA 1997 and consists of three partners, each holding a one-third interest. The third partner acquired his interest in the partnership after 19 September 1985.

The partnership owns and uses a wide range of equipment and the partners believe that it would be appropriate to transfer the business into a company structure in order to protect their personal assets.

The partners intend to transfer all of the assets of the business, consisting of a multitude of both low and high cost items of equipment, to a company they wholly-own.

Section 122-170 is contained in Subdivision 122-B of the ITAA 1997. The subdivision outlines the circumstances in which the partners in a partnership can choose capital gains tax (CGT) rollover if an asset, or all the assets of the partnership, are transferred to a company which is wholly-owned by the partners. The subdivision also covers the situation where an asset is created by the partners in a wholly-owned company.

The arrangement proposed by the partners will meet the requirements of Subdivision 122-B of the ITAA 1997, so CGT rollover relief is available under section 122-170.

The effect of the rollover relief is that any capital gain or capital loss made by the partners on the transfer of the assets of the business, is disregarded (section 122-170 of the ITAA 1997). However, the rollover relief under section 122-170 does not extend to any deductions or amounts included in income under Division 328 of the ITAA 1997 in relation to depreciating assets.