ATO ID 2003/624: Applicability of paragraph 45-5(5)(c) of the ITAA 1997 to disposal by a partnership of its interest in a leased asset to a company
Date of decision: 24 June 2003
Year of income: Year ending 30 June 2003
Business line: Private Groups and High Wealth Individuals

Issue
Does paragraph 45-5(5)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) apply in respect of the disposal by the partnership of a partnership asset in circumstances where roll-over relief would be available under section 40-340 of the ITAA 1997?

Decision
Yes. Paragraph 45-5(5)(c) of the ITAA 1997 applies to the partnership to the extent that roll-over relief was available to the partnership under section 40-340 of the ITAA 1997 when the partnership asset was disposed of to a wholly-owned company.

Facts
In 1993, X Ltd, Y Ltd and Z Ltd formed a partnership to provide a lease facility to A in respect of plant. The partners intend to establish a company to acquire their interests in the partnership asset (leased plant). After the company has acquired the partnership assets, the company will deduct further amounts for the decline in value of the leased plant. The disposal to the company will otherwise satisfy the factual requirements of section 40-340 of the ITAA 1997.

Reasons for decision
Summary: Paragraph 45-5(5)(c) of the ITAA 1997 excludes from assessable income any amount that would have been included but for the roll-over relief in section 40-340 of the ITAA 1997. Section 45-10 of the ITAA 1997 is concerned with disposals of certain interests in a partnership involving either leased plant or a lease. Section 45-5 of the ITAA 1997 is the general provision relating to disposals of interests in either leased plant or a lease itself. Although paragraph 45-5(5)(c) of the ITAA 1997 specifically excludes from assessable income amounts to the extent that roll-over relief is available under section 40-340 of the ITAA 1997, there is no similar exclusion in section 45-10 of the ITAA 1997. The explanatory memorandum relating to the New Business Tax System (Integrity and Other Measures) Bill 1999 (which introduced Division 45) states at paragraph 1.26 in relation to subsection 45-5(5) of the ITAA 1997: Amounts will not be included in assessable income under Division 45 to the extent that they are already directly included in assessable income by another provision (eg as a balancing charge), or would be included except for specific relieving provisions (eg where it is subject to roll-over relief to a related entity). Section 45-10 of the ITAA 1997 is concerned with disposals by the partners of their interests. The disposal of an interest in a partnership or partnership asset by a partner is not in itself subject to roll-over relief under Division 40 of the ITAA 1997. The table at section 40-340 of the ITAA 1997 is concerned only with a disposal by a 'partnership' of an asset to a wholly owned company, (Item 2). This is consistent with the approach in Division 40 of the ITAA 1997 that the 'holder' for capital allowance purposes is the partnership and not the individual partners, (section 40-40 of the ITAA 1997, at Item 7 of the table). Accordingly, paragraph 45-5(5)(c) of the ITAA 1997 will apply to the partnership to the extent that roll-over relief was available to the partnership under section 40-340 of the ITAA 1997 when the partnership asset was disposed of to a wholly-owned company.

Legislative references: Income Tax Assessment Act 1997 Section 45-5 Section 45-10 Section 40-340
Subject references: Disposal of partnership interest in plant Partnership asset Plant balancing adjustment roll-over relief Termination of leases