Private ruling: GST and tax law partnership
Published: June 2012

Ruling: Q1: Should the parties in a joint venture be registered as a tax law partnership rather than as a joint venture? | A1: Yes, the parties in a joint venture should be registered as a tax law partnership rather than as a joint venture. This is because, in this instance, for Goods and Services Tax (GST) purposes, the relationship has the characteristics of a partnership and not that of a joint venture. Please refer to the reasons for decision below. | Q2: Where a tax law partnership exists, can each individual entity in the partnership be registered for Goods and Services Tax (GST) in their own right? | A2: In this instance, apart from being a partner in the partnership, each individual entity is also carrying on an enterprise in its own right.. Therefore, under those circumstances each individual entity can be registered for GST.

Relevant facts and circumstances: The entity is registered for Goods and Services Tax (GST) The entity was initially registered as a GST joint venture pursuant to Division 51 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). It was subsequently determined that the receipt of joint income from the venture, rather than sharing the product or output of the association, among other things, led to the actual structure of the relationship falling into the definition of a tax law partnership. The Tax Office was informed that that the association between the parties was determined to be a partnership for both income tax and GST purposes. Consequently the Tax Office was told that the joint venture was incorrectly registered for GST under Division 51 of the GST Act. The Tax Office was also informed that: · each of the individual entities mentioned are also carrying on an enterprise in their own right and as such each of the individual entities may be registered for GST; and · certain acquisitions being made or to be made will be made by the entities in the capacity of carrying on a separate enterprise. The Tax Office is being asked: · whether the joint venture should be registered as a partnership rather than as a joint venture; and · where the Tax Office agrees a partnership exists whether each individual entities in the partnership can be registered for GST in their own right.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | Income Tax Assessment Act 1997 (ITAA) section 995-1 Question 1:

Reasons for decision: Summary: Section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a 'partnership' has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA). | Detailed Reasoning - Section 995-1 of the ITAA defines a partnership as:: · an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly, or · a limited partnership Goods and Services Tax Ruling GSTR 2004/6 explains how the GST Act applies to transactions involving tax law partnerships. Paragraph 9 of GSTR 2004/6 provides that the first limb of paragraph (a) above refers to 'an association of persons carrying on business as partners. This type of partnership is referred to as a general law partnership. The second limb of paragraph (a) of the definition includes as a partnership an association of persons 'in receipt of ordinary income or statutory income jointly'. The term 'association' is not defined in the GST Act and, therefore takes its ordinary meaning of connection or combination with a common purpose or a body of persons associated together for a common purpose. We refer to this type of partnership as a tax law partnership (paragraph 10 of GSTR 2004/6). For the purposes of the second limb of the definition of partnership the requirement that there be 'receipt of income' jointly is met if an activity being carried on, or intended to be carried on by an association of persons will result in the persons having the right or entitlement to that income ( paragraph 26 of GSTR 2004/6). For GST purposes, an association of persons in receipt of income jointly is a tax law partnership from the time that the persons jointly commence an activity from which the income is or will be received jointly (paragraph 30 of GSTR 2004/6). Paragraph 62 of GSTR 2004/6 outlines a number of factors that point to an enterprise being carried on by a tax law partnership, and not by each co-owner in their own right: · an oral or written agreement (for example, a syndicate agreement or agreement between family members) determines the mutual rights and obligations of the parties. · the income producing property is jointly acquired by the co-owners under a single contract. · property is held by the co-owners as joint tenants. · the co-owners fund their acquisition of the income producing property out of joint borrowings or funds. · the joint activities of the co-owners of an income producing property are for their family's mutual benefit or the mutual benefit of all the co-owners. · the co-owners of the income producing property jointly appoint a manager or agent to manage the enterprise or one co-owner may act, with the authority of all the co-owners, on behalf of all the co-owners in managing the enterprise. · income from the income producing property is paid into a joint bank account of the co-owners. · expenses relating to the income producing property are paid from a joint bank account of the co-owners; and · the co-owners jointly pay all liabilities in relation to the income producing property. Paragraph 70 of GSTR 2004/6 provides that neither the existence nor the absence of any one of these factors is conclusive one way or another. It is the overall weight of evidence that is important and the individual weighting of each factor depends on the circumstances of the particular case. You advised that the relationship between the partners was initially considered as a GST joint venture pursuant to Division 51 of the GST Act as it was the intention at the time. For GST purposes a joint venture is an arrangement between two or more parties sharing of product or output, rather than sale proceeds or profits; a contractual agreement between the participants; joint control; a specific economic project; and cost sharing. GSTR 2004/2 explains the distinction between a joint venture and a partnership. Paragraph 13 of GSTR 2004/2 provides that a joint venture may be carried out in the form of a partnership, company, trust or other arrangement. However, since partnerships, companies, trusts and 'any other unincorporated association or body of persons' are treated as separate entities by the GST Act, for GST purposes, the term joint venture does not include incorporated joint ventures, partnerships or trusts. According to paragraph 14 of GSTR 2004/2, the interpretation of joint venture for GST purposes is also consistent with paragraph 51-5(1)(b), which precludes a partnership from being a GST joint venture. Therefore, for the purposes of the GST Act there is a distinction between a joint venture and a partnership. You informed us that it has been determined that the receipt of joint income from the venture among other things had led to the actual structure of the relationship between the partners falling into the definition of a tax law partnership. Based on the information provided, the present structure of your enterprise does not satisfy the requirements of a joint venture for GST purposes as the parties engaged in the joint venture do not share the product or output. They are in receipt of joint income which will be distributed to the parties proportionally. Therefore, the Tax Office considers that the relationship between the partners is that of a tax law partnership and not that of a joint venture. | Detailed Reasoning - Reasons for decision: Section 23-5 of the GST Act provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. Currently the registration turnover threshold for non-profit bodies is $75,000 The GST Act widely defines what it means to be carrying on an enterprise. Section 9-20 of the GST Act provides that an enterprise is an activity or series of activities done in the form of a business or in the form of an adventure or concern in the nature of trade. Paragraph 110 of the GSTR 2004/6 explains that the partners of an enterprise partnership cannot register for GST, nor can they acquire an ABN in relation to the enterprise carried on by the partnership. However, they may be registered in relation to a separate enterprise that they carry on in their own right. You advised that each partner in the partnership is also carrying on a separate enterprise in their own right. Therefore, if they satisfy the requirements of an enterprise under section 9-20 of the GST Act and meet the GST registration turnover threshold, they are entitled to register for GST in their own right.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.