Issue
Does the reference to 'partnership' in section 122-125 of the Income Tax Assessment Act 1997 (ITAA 1997) include a reference to what is commonly known as a 'tax law' partnership?
Decision
Yes. The reference to 'partnership' in section 122-125 of the ITAA 1997 includes a reference to a 'tax law' partnership. Accordingly, the partners in a 'tax law' partnership may choose rollover under Subdivision 122-B of the ITAA 1997 if the other conditions of the rollover are satisfied.
Facts
The taxpayer and their spouse own an income producing property (acquired after 20 September 1985) as joint tenants. They intend to dispose of their interests in the property to a wholly owned company.
Reasons for Decision
Subdivision 122-B of the ITAA 1997 provides a rollover where the partners in a partnership transfer assets to a wholly owned company. In particular, under section 122-125 of the ITAA 1997 all the partners in a partnership can choose a rollover on disposing of their interests in a CGT asset of the partnership, or all the assets of a business carried on by the partnership, to the company.
The issue arises as to whether the reference to 'partnership' in section 122-125 of the ITAA 1997 includes a reference to what is commonly known as a 'tax law' partnership or whether the provision only applies where a business is being carried on (that is, to a 'general law' partnership).
A 'tax law' partnership, as described in the second limb of paragraph (a) of subsection 995-1(1) of the ITAA 1997 definition of partnership, is: 'an association of persons (other than a company or a limited partnership) ... in receipt of ordinary income or statutory income jointly' (and not carrying on business as partners).
It is considered that the expanded definition of partnership contained in subsection 995-1(1) of the ITAA 1997 applies for the purposes of Subdivision 122-B of the ITAA 1997. In particular, in this context it is considered the joint owners of income producing property are partners of the ensuing 'tax law' partnership and the jointly owned income producing property is a CGT asset of that partnership. As such, it is considered the reference to a 'partnership' in section 122-125 of the ITAA 1997 includes a reference to a 'tax law' partnership.
Accordingly, the partners in a 'tax law' partnership may choose Subdivision 122-B rollover if the other conditions of the roll-over are satisfied.