Partnership of Trusts

There continues uncertainty regarding partnerships of trusts.

The priority technical issue PTI 1210 – clarifying the appropriate treatment of partnerships of discretionary trusts project is continuing despite having a finalistion date of 31 August 2012.

The National Tax Liaison Group (Item 4, 28 March 2012) and the Legal Practitioners Forum (Item 4, 2 April 2012) notes the ATO is reviewing:

  • CGT no-goodwill transfers and rollovers to a partnership of trusts;
  • Everett assignments;
  • the validity of partners being in partnership by acting in different capacities;
  • superannuation deductions for non-employed partners;
  • personal services income (PSI) and minimum partner draws; and
  • legal practice compliance with the Legal Profession Acts.

The CGT no-goodwill transfers and rollover to a partnership of trusts have been addressed in TD 2011/26, TD 2011/D9 and TD 2011/D10.  Commentators continue to express interpretation and application issues in this area.

M. Pawson, ‘Tax Law Partnerships, The State of the Law in 2013’, TTI (National), 14 March 2013 discusses tax law partnerships and Everett Assignments after Kelly v FCT [2012] FCA 423. 

The effectiveness of Everett Assignments or Sister of Everett Assignments (where an inter vivos trust purchases for value) and the application of the small business concessions (Div 152 ITAA 1997) are likely to be the subject of further investigation and clarifying litigation.

Some commentators have questioned whether a tax partnership of trusts can exist and carry on business.  A ‘partnership’ means (a) an association of persons…’. Although ‘A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity.’ this does not deem there to be multiple legal persons (Sec. 960-100(3) ITAA 1997).  While a trustee of multiple trusts constitutes separate entities, it arguably cannot be a partnership as there are not at least 2 legal persons in receipt of income jointly.

A trust distribution does not constitute salary and wages or is received in the capacity of beneficiary and not as an employee or for services (Curtain World P/L v FCT [1999] AAT 14).  It is questionable whether there is an employer with an obligation to make superannuation contributions (12(1) SGAA 1992) so a superannuation contribution is relevantly deductible.

The Henry Review, Recommendation 10 recommended alterations to the PSI rules to legislate minimum owner-manager payments for services.  The Government response to this is unclear.

The Victorian Legal Services Board has acknowledged that partnerships of trusts are qualifying structures for LPA 2004 (Vic).  Care is required in registering the correct entity as the law practice or incorporated legal practitioner.

There is also some uncertainty regarding how a corporate agent for a partnership of discretionary trust accounts for income and GST (GSTR 2008/3).