50/50 Partnership... any way to change without triggering CGT event?

Hi all,

Has anyone, or does anyone know if, after purchase of a CIP under a 50/50 partnership (using individual’s names) whether:
1. a non-50/50 split can be established without triggering a CGT event &/or sale to adjust new ownership split.
2. A non-50/50 split can be allocated upon sale without still incurring a 50/50 CGT liability.

Ie. Assume 2 individuals buy a CIP 50/50 in own names as partnership, over time one contributes far more than the other in time, maintenance, covering costs (during a negative cashflow period) etc. & both parties agree that a 70/30 split is equitable.

The only way I can think of is for the party getting the 70%, to bill the partnership over a period of time using another ABN, for services, materials etc. to the agreed amount or ..... is there another way without triggering a sale type event?

Obviously the fall back would be, sell —> 50/50 split —> pay individual taxes —> one party agree to pay the other $X to compensate out of their after tax split.

 

No.

Is is a partnership or joint ownership?

 

Partnership

 

If it is a partnership the legal ownership is not necessarily how profits will be split. What does the partnership agreement say?

Heard of the 'refinancing principal'? That may be relevant.

Incidentally if starting out it would generally not be a good idea to own commercial property as individual partners.

 

Thanks Terry.

Partnership is setup as 50/50 interest & have been using refinancing principle for many years.

I agree that this is not how ownership should ideally be set up & might be helpful for others to consider. Unfortunately what we learn over 15yrs can't be applied retrospectively.

FWIW, I'd not recommend anyone to setup a CIP in this manner.

 

In that case hasn't the extra contributions been paid back to the partner?

 

Yes & No.

Yes - any unequal injection of funds has been.

No - time & effort for managing property & some maintenance done (non-cash costs)

I was reasonably sure the answer to my initial question was no, however I don’t purport to know everything (nor 1/2 of anything) so threw it out there anyway. Besides, this could be a valuable lesson for others to very carefully consider how to structure the purchase & to think twice about it...

 

Time and effort don't come into it. Only monetary contributions could be repaid with borrowed money (potentially).

I don't know a way to change ownership in this situation without triggering CGT and stamp duty