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19 Aug 09 Partnership not an "entity" for maximum net asset value test - White

The Federal Court (Sundberg J) has held that a partnership is not an "entity" within the meaning of that term as used in the former s 152-15(a)(ii) of ITAA 1997 (now found in s 152-15(b) of that Act).

Section 152-15 relevantly contained (and still contains) the maximum net asset value test for the purposes of the CGT small business concessions in Division 152. For the purposes of the test, s 152-15 (a)(ii) included (and s 152-15(b) includes) the "net value of the CGT assets of any entities connected with you" in determining whether the $5 m threshold had been reached, thus disentitling the taxpayer to the benefit of the CGT small business concessions.

The taxpayer was a partner in two partnerships. She disposed of an unrelated CGT asset in the income year ended 30 June 2003 and sought the benefit of the small business CGT concessions. If the assets of the two partnerships were not taken into account under s 152-15(a)(ii), the net value of the taxpayer's assets was less than $5 m, and she would thus satisfy the maximum net asset value test. Conversely, if the assets of the two partnerships were taken into account under s 152-15(a)(ii), the net value of the taxpayer's assets was more than $5 m, and she would fail the maximum net asset value test.

Sunberg J had regards to the provisions of the former s 152-30 (Meaning of connected with the entity) - now to be found in s 328-125 - together with what was said in the Explanatory Memorandum to the Bill that introduced Div 152 into the Act in 1999. The taxpayer argued that s 152-30 applied only to individuals, companies and trusts, but not a partnership. Sundberg J agreed.

 His Honour said, at para 54:

"Aided by the 1999 Memorandum, I have determined that the entity referred to in s 152-30(2)(a) as “the other entity” does not include a partnership. Since s 152-30 defines when one entity is connected to another for the purposes of s 152-15(a)(ii), a partnership is not an “entity” for the purposes of par (a)(ii). It follows from the determination that a partnership is not an entity for the purpose of those provisions, that it was not the intention of the legislature that par (d) of the definition of “entity” in s 960-100 should apply to those provisions. Accordingly a contrary intention appears for the purposes of s 995."

Accordingly, his Honour held that a partnership is not an “entity” within the meaning of that term as used in the former s 152-15(a)(ii): White v FCT [2009] FCA 880 (Federal Court, Sundberg J, 18 August 2009).

For a copy of the decision, go here

 


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