Trading Stock and Depreciable Property
Rose v FCT 1951 84 CLR 118
The taxpayer was a pastoralist, who entered into a partnership deed with his two sons. To give both one-third interest in all his business assets including trading stock (livestock) and depreciable assets.
The FCT Commissioner assessed the taxpayer in respect of the value of his trading stock and depreciating property. That was the value at the time of disposal. On appeal, the Commissioner argued for assessment on two-thirds of these amounts.
A joint judgment was made by Judge Dixon, Fullagar and Kitto JJ. They held that neither of the following applied to the transfer of property to the partnership. Referring to both s 36 ITAA 1936 dealing with disposals of trading stock outside the ordinary course of business, nor s 59 ITAA 1936 determining the balance of charge on disposals of depreciated property.
The Court held a person does not ”dispose of” asset/s when a taxpayer transfers an undivided fraction of interest in the property, rather than the entirety of ownership of the asset/s.
The case appeared to be contrary to the policy intentions in the legislation. Therefore, the government quickly implemented s 36A & s 59AA ITAA 1936. This essentially reversed the effect and now treats any change in interest in trading stock or depreciable property as a part disposal of the property. Also, a tax-free transfer to a partnership by way of a rollover, where the tax attributes transfer to the partnership.
You can draw on the case today, when property is transferred to a partnership of which the transferor is a partner, unless another specific provision applies. If they elect under s 70-100(4) 1997 they can do so for a tax-free rollover of trading stock. Also, under s 40-340(3) 1997 they can do so for a tax-free rollover of depreciable property.
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