Private ruling: Partnership income
Published: March 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can the income generated in the 2012-13 financial year from partnership investment be distributed to you? | A1: No.

Relevant facts and circumstances: Several assets (shares etc) are held in the names of relatives who have been operating as a partnership in the business of passive investment. No transfer of asset title or ownership has occurred. You and your partner have been admitted to the relative's partnership by technical dissolution in the 2012-13 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts, which is called ordinary income. Taxation Ruling TR 93/32 address the co-ownership of income producing assets, specifically rental properties, however the concept is applicable to other income producing assets such as shares. Paragraphs 4 to 6 of TR 93/32 state; 4. Where co-ownership is a partnership for income tax purposes only, the income/loss from the rental property is derived from co-ownership of the property and not from the distribution of partnership profits/losses. 5. Because co-owners of rental property are generally not partners at general law, a partnership agreement, either oral or in writing, has no effect on the sharing of income/loss from the property. 6. Accordingly, the income/loss from the rental property must be shared according to the legal interest of the owners except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. In your circumstances you were admitted to a partnership by technical dissolution in the 2012-13 financial year. However there was no change in the legal title of the assets and they remain in the name of the original partners. Therefore the new partnership agreement has no effect on the sharing of income/loss from the property.