ATO ID 2010/114: Capital gains tax: disposal or creation of assets by partners to a wholly-owned company
Date of decision: 30 April 2010
Year of income: Year ended 30 June 2010
Business line: Private Groups and High Wealth Individuals

Issue
Where the partners in a partnership dispose of their interests in a CGT asset of the partnership to a company, and receive shares in the company as consideration for their disposal, is the requirement in subsection 122-135(1) of the Income Tax Assessment Act 1997 (ITAA 1997) satisfied if the partners are not issued with shares in the company until completion of the disposal contract.

Decision
Yes. The requirement in subsection 122-135(1) of the ITAA 1997 is satisfied because the partners are taken to have owned the shares in the company from the time they enter into the disposal contract.

Facts
Two partners in a partnership are the only shareholders of a company. The partners entered into a contract to dispose of all the assets of a business carried on by the partnership to the company. Under the disposal contract, the company undertakes to issue shares to the partners as consideration for their disposal. Shares will be issued to the partners upon completion of the disposal contract in two months time.

Reasons for decision
Summary: Section 122-125 of the ITAA 1997 provides that all of the partners in a partnership can choose to obtain a roll-over if one of the specified CGT trigger event happens involving the partners and a company in the circumstances set out in sections 122-130 to 122-140 of the ITAA 1997. Subsection 122-135(1) of the ITAA 1997 requires that the partners must own all the shares in the company just after the time of the trigger event. The time of the relevant trigger event here, that is, CGT event A1, is when the partners enter into the contract for the disposal (subsection 104-10(3) of the ITAA 1997). Under subsection 109-5(2) of the ITAA 1997, the partners are taken to have acquired the shares in the company when the disposal contract is entered into. For the purposes of section 122-135 of the ITAA 1997, the partners are taken to own the shares in the company from the time they acquired the shares, that is, from the time when they enter into the contract. Accordingly, the requirement in subsection 122-135(1) of the ITAA 1997 is satisfied because the partners own all the shares in the company just after the time of the trigger event.

Legislative references: Income Tax Assessment Act 1997 section 122-125 section 122-135 subsection 122-135(1) subsection 104-10(3) subsection 109-5(2)
Subject references: Capital gains tax CGT roll-over relief Partnerships Disposal of assets