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Partnership interests

Partnership interests

Duty is payable on the following transactions:

  • on the transfer of a partnership interest from one partner to another partner in an existing partnership

  • a change in a partnership arrangement forming a new partnership, when an existing partner retires or a new partner is admitted to an existing partnership.

Note: retirement of a partner includes retirement as a consequence of the death of a partner.

If a change in a partnership arrangements results in one or more retirement and admission transfers, duty is chargeable only on:

  • the retirement transfer(s), if the dutiable value of the retirement transfer(s) exceeds the dutiable value of the admission transfer(s)

  • the admission transfer(s), if the dutiable value of the admission transfer(s) exceeds the dutiable value of the retirement transfer(s).

Liability does not arise when a partnership is wound up on the retirement of a partner. However, a general liability may arise from the distribution of dutiable property between the former members.

What is a partnership?

A partnership is the relationship which exists between persons carrying on a business in common with a view of profit.

What is a partnership interest?

A partnership interest is an interest in a partnership that has partnership property. Partnership property is defined as property that is dutiable property under section 11 of the Duties Act 1997.

How is duty calculated?

The dutiable value of a partnership interest is determined by using the following formula:

DV = A x X/Y

where:

DV = dutiable value.

A = is the value of the partnership interest, or so much of the consideration for the dutiable transaction as relates to the partnership interest, whichever is the greater.

X = the unencumbered value of all dutiable property of the partnership.

Y = the unencumbered value of all assets of the partnership.

If an interest in a land-related asset is transferred as a result of the transfer of the partnership interest, the dutiable value of the partnership interest is to be reduced by the dutiable value of the interest in the land-related asset that is transferred, but only if ad valorem duty has been paid or is payable on the transfer of the interest in the land-related asset. Each of the following is a land-related asset:

  • land in New South Wales

  • transferable floor space

  • a land use entitlement

  • an interest in an item of dutiable property referred above.

If a partnership interest includes a land-related asset, the minimum duty payable on the transfer of the partnership interest is $50.

Who is liable?

The transferee is liable to pay the duty.

In the case of a retirement transfer or an admission transfer, the partners in the new partnership are the transferee.

What needs to be lodged?

If the retirement transfer or admission transfer is evidenced in writing, the document should be lodged for stamping with the duty payable.

If the retirement or admission transfer is not evidenced in writing, then a statement under section 15 of the Duties Act 1997 should be provided.

Financial statements and capital accounts of the partnership or land related asset must be lodged with the document or a valuation of the business conducted by the partnership. The financial statements are used to determine the net value of the assets of the partnership. The capital accounts are used to determine the retiring partner’s interest in the partnership.

If a partnership owns a land-related asset, evidence of value of the land-related asset is required. For more information, view Revenue Ruling DUT 012.

For more information on Partnership interests, read to Section 29 of the Duties Act 1997.

Examples

  1. A partnership has assets with an unencumbered value of $4,000,000, including dutiable property valued at $3,000,000. The partnership has liabilities of $1,500,000. One of the three partners retires and is paid $833,333.00 for their partnership interest based on a valuation of the partnership interest.

    The dutiable value of the partnership interest = A x X/Y

    A - The value of the partnership interest is 1/3rd of the net assets of the partnership, being $833,333.00. The consideration for the transfer of the partnership interest is $833,333.00.

    X - The unencumbered value of all dutiable property of the partnership is $3,000,000.

    Y - The unencumbered value of all the property of the partnership is $4,000,000.

    The dutiable value of the partnership interest is $624,999.75 ($833,333 x $3,000,000/$4,000,000) with duty of $23,615.00 being payable on the change in the partnership arrangement.

  2. A partnership has assets with an unencumbered value of $3,000,000, including land valued at $2,000,000. The two partners decide to admit a new partner who pays $1,000,000 to be admitted. The continuing partners transfer a one third interest in the land to the new partner.

    Duty of $25,491.50 is payable on the unencumbered value of the 1/3rd interest in the land that is transferred ($666,667).

    The dutiable value of the partnership interest is $666,667 ($1,000,000 x $2,000,000/$3,000,000). As the value of the partnership interest does not exceed the dutiable value of the interest in the land, minimum duty of $50 is payable on the change in the partnership interest.

  3. A partnership with 5 members has assets consisting of dutiable property of $1,000,000 including land valued at $200,000. The land is held by the partners as tenants in common in equal shares. The partnership has no other assets and has debts of $50,000. One partner wishes to leave the partnership and one of the remaining partners pays $190,000 to acquire the departing partner's interest.

    Duty of $590 is payable on the unencumbered value of the 1/5th interest in the land that is transferred ($40,000).

    The dutiable value of the partnership interest is $150,000 (($190,000 x $1,000,000/$1,000,000) less $40,000 being the dutiable value of the interest in the land-related asset that was transferred) with duty of $3,740.00 being payable on the transfer of the partnership interest.

  4. A partnership with 10 members has assets of $5,000,000, including dutiable property valued at $1,000,000. At the end of the financial year three of the partners retire and two new partners are admitted. Each of the retiring partners receives $500,000 for their partnership interest. Each of the new partners pays $600,000 to be admitted to the partnership.

    The dutiable value of the retirement transfers is $300,000 ($1,500,000 x $1,000,000/$5,000,000). The dutiable value of the admission transfers is $240,000 ($1,200,000 x $1,000,000/$5,000,000).

    Duty of $8,990.00 is payable on the dutiable value of the retirement transfers, as the dutiable value of the retirement transfers exceeds the dutiable value of the admission transfers.

Last updated: 17 May 2016