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Partners called to respond to amended tax rights

Partners have been invited to respond to changes to a new tax law that aims to enhance the integrity of concessions in relation to the partnership model.

user iconGrace Ormsby 18 October 2018 Politics
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Commentary and submissions are now being welcomed on the amendments to tax law whereby “partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership will no longer be able to access the small business capital gains tax (CGT) concessions in relation to these rights.”

The changes were announced back in May as part of the government’s tax integrity package from the 2018–19 budget, “enhancing the integrity of concessions in relation to partnerships”.

The amendment came into effect at 7.30pm on 8 May of 2018, with retrospective application of the amendments “consistent with the budget announcement by the government on 8 May 2018.”

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The explanatory memorandum said the new schedule “amends the tax law to prevent the small business CGT concessions in Division 152 of the ITAA 1997 from being available for assignments of the income of a partner and other rights or interests in the income or capital of a partnership that are not a membership interest in the partnership.”

Prior to these amendments, “individuals were able to substantially reduce or eliminate tax when undertaking such an assignment or similar arrangement by applying the small business CGT concessions in Division 152 to reduce or disregard any resulting capital gain.”

“Partners that alienate their income by creating, assigning or otherwise dealing in rights to the income or capital of a partnership will no longer be able to access the small business CGT concessions in relation to these rights unless the right is a membership interest in the partnership,” the memorandum continued.

The new law creates an additional basic condition “that must be satisfied in relation to a capital gain in order to access the small business CGT concessions under Division 152 for that gain.”

Key features of the new law include that “the small business CGT concessions are only available for a capital gain arising from a CGT event that involves the creation, transfer, variation or cessation of an interest or right that entitles an entity to the income or capital of a partnership (or to an amount calculated by reference to a partner’s entitlements) if the right or interest is a membership interest held by the entity with the entitlement.”

The government is seeking stakeholder views and responses from interested parties on the draft legislation and the accompanying explanatory materials until 31 October.

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