Private ruling: Income tax: Capital gains tax - CGT event D1
Date of advice: 19 January 2017
Published: June 2017
Ruling period: 2016-17 income year; and | 2017-18 income year.
Date scheme commenced: The date on which the proposed capital is contributed

Ruling: Q1: Would the contribution of further capital to the Partnership by a partner cause CGT event D1 to occur to the other partner? | A1: No

Relevant facts and circumstances: A corporate trustee of a trust and a company are partners in a partnership. The corporate trustee of a trust owns land and buildings. Under the terms of the Partnership Agreement, the corporate trustee of a trust makes the land and buildings available to the Partnership for the purposes of the business and the company makes a capital contribution. The business carried on by the partners in partnership is redevelopment of the land and buildings for commercial purposes. The Partnership Agreement was varied twice with the company making additional capital contributions with a corresponding increase in its share of the net profits and losses made by the partnership on each occasion. The company proposes to make a further additional capital contribution to fund significant alterations to the land and buildings for commercial purposes. The company will contribute the proposed capital, but its share of the net profits and losses made by the partnership will remain unchanged.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-35.

Reasons for decision: Summary: CGT event D1 will happen if you create a contractual right or other legal or equitable right in another entity (provided no exclusions apply). The Commissioner previously argued the variations to the Partnership Agreement in which the company made additional contributions and had its profit sharing proportions increased gave rise to the other partner, being a corporate trustee of a trust, creating a contractual right to a share of income in favour of company. The proposed transaction differs from the previous variations as the company's profit sharing proportion will not increase. It therefore follows that as there is no change to the company's profit sharing proportion, the other partner will not create a contractual right to a share of income in favour of company. Consequently, CGT event D1 will not arise from the proposed transaction.