Taxation Ruling
IT 2124
Income tax: partnership with partner exempt from income tax - partnership depreciation and investment allowance deductions
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FOI status:
may be releasedFOI number: I 1122264PREAMBLE
Head Office was asked to advise whether a partnership would be entitled to the full amount of annual depreciation and investment allowance deductions in respect of plant in circumstances where one of the partners was exempt from income tax.
FACTS
2. The members of the partnership were a number of companies and an exempt superannuation fund. The partnership was established to construct, own and operate a large development project. The assets of the partnership included plant or articles that would normally qualify for depreciation and would be eligible property for investment allowance purposes.
3. The basic entitlement to depreciation deductions arise under section 54 of the Income Tax Assessment Act 1936 which require that the plant and articles be owned and used by the taxpayer during the year of income for the purpose of producing assessable income. However, section 61 provides broadly that where the plant is used only partly for the purpose of producing assessable income the amount of depreciation to be allowed is that which, in the opinion of the Commissioner, is proper. In other words apportionment is called for if the plant is used partly for producing assessable income and partly for private purposes or the plant is used partly for producing assessable income and partly for producing exempt income.
4. On the other hand if plant is to be eligible property for investment allowance purposes section 82AA requires that it be used, among other things, wholly and exclusively for the purpose of producing assessable income.
RULING
5. The whole of the income derived by the partnership, which is not exempt income of the partnership - as distinct from the exempt income of a partner - is assessable income of the partnership and is brought to account as such as if the partnership were a taxpayer, c.f. the definitions in section 90. Deductions are allowable to the partnership on the same basis.
6. In these circumstances it can be seen that the plant would be owned and used by the partnership wholly and exclusively for the purpose of producing assessable income. Section 61 would not operate to reduce any depreciation deduction allowable in determining partnership net income or partnership loss. Nor would the investment allowance deduction be denied to the partnership on the basis that the eligible property is used other than wholly and exclusively for the purposes of producing assessable income of the partnership. Consequently it was accepted that the partnership was entitled to the full depreciation and investment allowance deductions.
7. It should be noted that the exempt superannuation fund's share of net income or partnership loss takes into account a share of the depreciation and investment allowance deductions. That share of those deductions does not therefore benefit any of the other partners.
COMMISSIONER OF TAXATION
10 December 1984