Relevance

The additional test for rights or interests in relation to the income or capital of a partnership is an integrity measure to prevent the alienation of partnership income or capital.

If the test applies but is not satisfied, then the Small Business CGT Concessions should not be available.

When the test applies

The test applies if the CGT event involves the creation, transfer, variation or cessation of a right or interest that would entitle an entity to either:

1. An amount of the income or capital of a partnership; or

2. An amount calculated by reference to a partner’s entitlement to an amount of income or capital of a partnership.

What the test is

If the test applies it is an additional basic requirement that the right or interest is a membership interest of the entity in the partnership either:

1. Immediately after the CGT event happens; or

2. If the CGT event involved the cessation of the right or interest – immediately before the CGT event happens.

In effect, this prevents the alienation of partnership income or capital without a corresponding alienation of a membership interest in the partnership.

An example of this test in operation would be in relation to an assignment of partnership income or capital – such an assignment should not satisfy the test and should not be eligible for the Small Business CGT Concessions.

Disclaimer – The above is intended as commentary and general information only.  It should not be relied upon as taxation advice.  Formal taxation advice should be sought for particular transactions or on matters of interest arising from the above.