Private ruling: GST and technical dissolution of a partnership
Published: December 2013

Ruling: Q1: Can the partnership of ABC & Others retain the same Australian business number (ABN) and Tax file number (TFN) when a partner leaves the partnership? | A1: Yes, the partnership of ABC & Others can retain the same ABN and TFN when a partner leaves the partnership.

Relevant facts and circumstances: The partnership of ABC & Others (you) is carrying on an enterprise and is registered for the goods and services tax (GST). You advised of the departure of a partner and the admission of a new partner, in the partnership. You informed us that: · there is an agreement in place in relation to incoming and outgoing partners that will allow for the continuity of the same partnership; · the partnership assets remain in the continuing partnership; · the enterprise remains unchanged and the client base will not alter; · the nature of the partnership services will not change in any way, it will continue to function on an ongoing basis, the name will not change and the day to day running of the enterprise will not be altered. We are also told that there would be significant expenses and difficulties experienced by the entity if the GST registration had to change. You notified that those expenses and difficulties encompass the following: · invoicing stationery and costs associated with advice to and dealing with other businesses; · clients, suppliers and other contacts, as well as inconvenience of business dealings and clients; · in addition to employee contracts, leases and other service agreements, super funds; · work cover issues and the implications with various banks and other registered bodies; including the compliance necessary to the Tax Office on all levels. You submit that the partnership in its entirety as a business and all that is involved in its character of business operations has not changed and will not change by the departure of the above mentioned partner. You ask that the Commissioner, in line with Goods and Services Tax Ruling 2003/I3, allow the effective continuation of the business to use the existing ABN & TFN to remain as registered.

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

Reasons for decision: Summary: The meaning of "partnership" for the purposes of GST is defined in section 195-1 of A New Tax System (Goods and Services Tax) Act 1999 ("GST Act") by reference to the definition of 'partnership' in subsection 995-1(1) of the Income Tax Assessment Act 1997 ("ITAA 1997"). Section 995-1 of the ITAA 1997 provides: partnership means: (a) 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 (b) a limited partnership. The first limb of paragraph (a) in the above definition refers to 'an association of persons (other than a company or limited partnership) carrying on a business as partners'. This reflects the general law definition of a partnership, which is 'the relation which subsists between persons carrying on a business in common with a view of profit'. The ATO refers to this type of partnership as a 'general law partnership'. Goods and Services Tax Ruling GSTR 2003/13 Goods and Services Tax: general law partnerships ("GSTR 2003/13") contains the ATO view regarding the treatment of general law partnerships for the purposes of GST, and more specifically, when a partnership is considered to have been 'reconstituted'. Paragraph 127 of GSTR 2003/13 has been reproduced below: 127. A dissolution leading to the winding up of the partnership is called a general dissolution. A dissolution that does not result in the winding up of a partnership is called a technical dissolution. A technical dissolution occurs where the assets and liabilities of the partnership are taken over by the continuing partners (and any new partners) and the partnership business is continued without any apparent break. The rationale for distinguishing a technical dissolution from a general dissolution is explained at paragraphs163 to164 of GSTR 2003/13: 163 To regard a change in the membership of a partnership as leading to a winding up of an existing partnership and the formation of a new partnership would lead to administrative and compliance difficulties for the partnership and its partners. This would be the case particularly for partnerships that experience frequent membership changes. . Every change in membership would require cancellation of the partnership's GST registration (and Australian Business Number (ABN)) and re-application for a new GST registration (and ABN) by the continuing partners. 164 We consider that, for GST purposes, it is open and appropriate for the Commissioner to accept that a change in membership does not necessarily result in the general dissolution and winding up of the partnership. | Detailed Reasoning - Technical dissolution: Paragraph 148 of GSTR 2003/13 states the following: 148. Under general law, any change in the membership of a general law partnership leads to its dissolution. However, as previously discussed in paragraphs 126 and 127 of this ruling, the dissolution may not lead to the winding up of the partnership. The continuing partners and any new partner may conduct the business of the partnership without any break in its continuity. We refer to this as a reconstituted partnership. Paragraph 149 of GSTR 2003/13 states that whether or not there is a reconstituted partnership depends on the intention of the parties, and the terms and conditions of the partnership agreement. In addition to the above, paragraph 150 of GSTR 2003/13 explains that a written partnership agreement may expressly provide for the continuation of the business in the event that there is a change to the membership of the partnership, which is often referred to as a 'continuity' or 'non-dissolution clause'. In the absence of a written agreement, such a clause may be implied by the conduct of the partners following the retirement or death of a partner, or introduction of a new partner. | Detailed Reasoning - Continuity clause: As discussed at paragraph 168 of GSTR 2003/13, for a partnership to be treated as reconstituted, there needs to be an express or implied continuity clause in the partnership agreement, and there should be 'no break in the continuity of the enterprise or firm'. Indicators of continuity of the enterprise or the firm include: · substantially all of the partnership assets remain with the continuing partnership; · the nature of the enterprise remains substantially unchanged; · the client or customer base remains substantially unchanged; and · the business name or name of the firm remains unchanged. However according to paragraph 169 of GSTR 2003/13 none of these indicators is conclusive evidence of a reconstituted partnership, nor is its absence necessarily indicative of a dissolution that results in the winding up of the partnership. The position is determined on the facts and circumstances of each case. According to the facts you provided to us: · the assets remain in the continuing partnership; · the enterprise remains unchanged and the client base will not alter; · the nature of the partnership services will not change in any way, it will continue to function on an ongoing basis, will keep the same name and the day to day running of the enterprise will not be altered. You have also informed that there is an agreement in place in relation to incoming and outgoing partners that will allow for the continuity of the same partnership. Practice Statement Law Administration PS LA 2011/8 provides the following guidelines on whether a reconstituted partnership can use the ABN, TFN and GST registration of the original partnership: 23. The following conditions must be satisfied if a reconstituted partnership wishes to continue to use its existing TFN, GST registration or ABN: · There must be at least one continuing partner who is a member of the partnership prior to and following the reconstitution. · There must be an express or implied continuity clause agreed to by the continuing, incoming and outgoing partners. This includes a clause in the partnership agreement, a statement signed by the partners or an oral agreement by the partners. · The following must be satisfied: · substantially all of the partnership assets remain with the continuing partnership · the nature of the enterprise remains substantially unchanged · the client or customer base remains substantially unchanged · the business name or name of the firm remains unchanged 'Substantially' means largely or considerably. This is taken to mean more than 50%, though each case will need to be decided on its own facts. · When lodging the partnership tax return, the following details must be supplied: · The date of the dissolution · The date of the reconstitution · The names of the new, continuing and retiring partners · The TFN or address and date of birth of all new partners, and · Details of the changes if the persons authorised to act on behalf of the partnership have changed. 24. If all of the conditions set out in paragraph 23 of this practice statement are not met, the reconstitution will result in the formation of a new partnership. This new partnership will be required to register for a new TFN, GST registration and ABN. Both partnerships (the old and the new) will need to lodge a partnership tax return. One tax return will be lodged for the old partnership from the beginning of the income year to the date of dissolution and another will be lodged for the new partnership from the date of its formation to the end of the income year. In this case we agree that the conditions above for a reconstituted partnership are satisfied and we are of the view that you can continue as a reconstituted partnership. Provided that the reconstituted partnership lodges its tax return including all the required details above, the partnership will be able to use its existing ABN, TFN and GST registration.