Private ruling: Income Tax - Capital Gains Tax
Date of advice: 15 November 2019
Published: January 2020
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Will a capital gain tax event occur for the Trust on the sale of the franchises owned by the partnership? | A1: Yes. A partnership does not own assets for capital gains tax (CGT) purposes. A partnership asset is owned by the partners in the proportion to which they have agreed. If a CGT event happens to a partnership during the income year, or the partnership received a share of a capital gain from a trust, each partner must include their share of the capital gain or capital loss on their own tax return. It is considered that the sale of the franchises will not be assessed as ordinary income to the Trust as the Trust is not carrying on a business of buying and selling the franchise stores. Therefore the sale of the franchise will be assessable under Part 3-1 of the Income Tax Assessment Act 1997 and you will make a capital gain or loss.

Relevant facts and circumstances: You are in a partnership with another entity The partnership owned a number offranchises which have been sold during the 20XX-XX and 20XX-XX financial years. The other partnership entity is in the business of buying and selling the franchise stores. You are not in the business of selling franchises; it is in the business of running stores. All stores were owned and operated as ongoing businesses for a number of years. Each partner owned 50% of the businesses.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-20 | Income Tax Assessment Act 1997 Part 3-1