ATO ID 2002/491: GST and purpose of a joint venture
Date of decision: 4 December 2001
Business line: Indirect Tax

Issue
Do the entities, participants in a joint venture (Joint Venture 1), meet the requirements to become the participants in a GST joint venture under subsection 51-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the purpose of Joint Venture 1 is to treat a by-product created by a GST joint venture for mineral exploitation,(Joint Venture 2), so that it can be re-used by Joint Venture 2?

Decision
Yes, the entities meet the requirements to become the participants in a GST joint venture under subsection 51-5(1) of the GST Act where the purpose of Joint Venture 1 is to treat a by-product created by Joint Venture 2 ,so that it can be re-used by Joint Venture 2.

Facts
The entities are participants in Joint Venture 1. The purpose of Joint Venture 1 is to treat a by-product created by Joint Venture 2. Joint Venture 2 is a GST joint venture for the exploitation of mineral deposits. Joint Venture 1 treats the by-product in order to extract a certain substance from it. Joint Venture 1 then supplies that substance back to Joint Venture 2 for re-use in Joint Venture 2's activities. Joint Venture 1 is not a partnership and the entities satisfy the GST joint venture participation requirements in section 51-10 of the GST Act. The entities agreed in writing to the formation of a GST joint venture and nominated one of the entities to be the joint venture operator. The nominated joint venture operator notified the Commissioner in the approved form of the formation of the GST joint venture. The entities are registered for goods and services tax (GST).

Reasons for decision
Summary: Division 51 of the GST Act allows entities engaged in joint ventures to form a GST joint venture if they meet certain criteria. Subsection 51-5(1) of the GST Act provides that entities in a joint venture may become participants in a GST joint venture if: The entities in Joint Venture 1 meet the requirements in paragraphs (b) to (f). Therefore, it needs to be determined whether Joint Venture 1 is for the exploration or exploitation of mineral deposits, or for a purpose specified in the GST Regulations. The by-product treated by Joint Venture 1 and the substance that Joint Venture 1 extracts from that by-product are not minerals. Therefore, it could be considered that Joint Venture 1 is not for the exploration or exploitation of mineral deposits. However, Joint Venture 1 is treating a by-product (that is created by Joint Venture 2 in the exploitation of mineral deposits) in order to extract a valuable substance that will be used again by Joint Venture 2 in its exploitation of mineral deposits. Therefore, the activities carried out by Joint Venture 1 are integrally linked to the exploitation of mineral deposits that is carried out by Joint Venture 2. As such, Joint Venture 1 is also considered to be for the exploitation of mineral deposits and the requirement in paragraph (a) is satisfied. The entities in Joint Venture 1 meet all of the requirements to become participants in a GST joint venture under subsection 51-5(1) of the GST Act where the purpose of Joint Venture 1 is to treat a by-product created by Joint Venture 2 so that it can be re-used by Joint Venture 2.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 Division 51 subsection 51-5(1) section 51-10
Subject references: Goods & services tax GST joint ventures