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Chapter 14: Disposal of partnership assets and interests

A case for reform

Acquisitions and disposals of assets by partnerships and acquisitions and disposals of interests in partnerships are currently treated differently under the CGT and depreciation provisions. This inconsistent treatment, especially the ‘fractional interest’ approach under CGT, gives rise to complexity and can be difficult to comply with. The depreciation treatment, on the other hand, provides scope for avoidance of tax.

A strategy for reform

Disposals of assets should be treated consistently, so making the law easier to comply with.

Key policy issues How could the transfer of unrealised losses be overcome? How could the transfer of unrealised balancing charges be overcome? How could taxpayer compliance costs be reduced?
Reform options Option 1
Extend the current CGT fractional interest approach to the depreciation provisions.
Option 2
Apply an entity treatment to partnerships for depreciation and CGT purposes.