Issue
Is CGT rollover relief under section 122-170 of the Income Tax Assessment Act 1997 (ITAA 1997) available for the transfer of partnership assets held in a low-value pool, in accordance with section 40-425 of the ITAA 1997, to a company wholly-owned by the partners?
Decision
Yes. CGT rollover relief under section 122-170 of the ITAA 1997 is available for the transfer of partnership assets held in a low-value pool, in accordance with section 40-425 of the ITAA 1997, to a company wholly-owned by the partners.
Facts
The partnership commenced business prior to the introduction of capital gains tax. The partnership 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 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, including qualifying assets in a low-value pool, to a company they wholly-own.
Reasons for Decision
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 claim capital gains tax (CGT) rollover relief 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 of the ITAA 1997.
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 the balancing adjustment rules for low-value pool assets in section 40-445 of the ITAA 1997, which apply to the taxable use percentage of the assets.