This session continues last week’s discussion of Harvey v Harvey and s 106-5, and turns to the operation of partnerships as an income-splitting structure in a world where trust distributions are subject to a 30% minimum tax. With the Government’s recent announcement, every small business in Australia faces a restructuring question over the next 12 months, and the partnership returns again as a leading structure. The session will work through the briefing note on partnerships from the angle of discretionary partnerships, the operation of s 94 of the ITAA 1936 (uncontrolled partnership income), and the limits on partnership income and capital allocation. We will also continue working through the partnership accounting under the Menzies/Walsh and Baumgartner models, which was carried over from last week.
Please see below links to materials which are assumed reading in order to participate in the discussion:
- Briefing note on partnerships (to be circulated separately)
- Income Tax Assessment Act 1936 (Cth) s 94 (uncontrolled partnership income): https://www.legislation.gov.au/C1936A00027/latest/text (Part III Division 5, particularly s 94 and the definition of “uncontrolled partnership income”)
- Income Tax Assessment Act 1997 (Cth) s 106-5
- Harvey v Harvey [1970] HCA 11; (1970) 120 CLR 529, with particular attention to the majority reasoning of Menzies J at [10] and Walsh J at [8] on the partnership’s claim being recoupment rather than proprietary interest, and to the discussion of land as a partnership asset
Participants should come prepared to discuss:
- how discretionary partnerships work in practice and what the structural limits on profit and capital allocation are;
- whether s 94 has any present operation, and if so, the trigger conditions and the effect of the deemed taxation of uncontrolled partnership income at the top rate; and
- the contribution mechanisms (transfer of fee simple, declaration of trust, dealing-based constructive trust) and s106-5.
Discussion led by Adrian Cartland.