Private ruling: GST rules for entity types - partnerships
Published: December 2013

Ruling: Q1: How should you account for income received from the proceeds of an arrangement in accordance with a Joint Venture Agreement with respect to goods and services tax (GST)? | A1: The income received is not consideration for a taxable supply.

Relevant facts and circumstances: You are registered for GST You entered into a Joint Venture agreement with other entities (JV agreement). The joint venture (JV) is not incorporated, earns less than $75,000 per year and has not registered for GST Each of the individual parties to the JV agreement are registered for GST The JV receives payments from a third party under a contract which are shared by the participants of the JV. The third party does not currently include any GST with the payments.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 7-1 | Section 9-5 | Section 9-20 | Section 23-5 | Division 188 | Section 188-10 | Section 188-15 | Section 188-20 | A New Tax System (Goods and Services Tax) Regulations 1999 | Regulation 23-15.01.

Reasons for decision: Summary: The supply is made by you and other investors collectively as a tax law partnership. This partnership is not registered, and is not required to be registered, for GST. The income you receive from the tax law partnership is not consideration for a taxable supply. | Detailed Reasoning - Enterprise: The supply must be in the course of an enterprise. Accordingly, it is necessary to identify the enterprise that is making the supply and the entity that carries on that enterprise. Section 9-20 of the GST Act relevantly defines an enterprise as an activity or series of activities done in the form of a business or an adventure or concern in the nature of trade. Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides assistance to entities in determining their entitlement to an Australian Business Number (ABN). In doing this the Ruling considers the meaning of certain key words and phrases used to define: § an entity, and § an enterprise. The parties that have agreed to the JV agreement make up the entity that is carrying on the enterprise. Paragraph 60 of MT 2006/1 states: 60. A 'non-entity joint venture' is defined in section 995-1 of the ITAA 1997 to mean: an arrangement that the Registrar is satisfied is a contractual arrangement: (a) under which 2 or more parties undertake an economic activity that is subject to the joint control of the parties; and (b) that is entered into to obtain individual benefits for the parties, in the form of a share of the output of the arrangement rather than joint or collective profits for all the parties.' The parties that have agreed to the JV agreement do not share the output; the parties share the profit or income. The association of the parties to the JV agreement is not a joint venture for the purposes of the GST Act. Paragraphs 41 and 42 of MT 2006/1 state: | Detailed Reasoning - Partnership: 41. The term 'partnership' is defined by section 195-1 of the GST Act to have the meaning given by section 995-1 of the ITAA 1997. Section 995-1 defines a partnership to mean: (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. 42. This definition of partnership is wider than at common law. The first limb of the definition in paragraph (a) reflects the definition of partnership contained in State and Territory partnership Acts. The second limb of the definition in paragraph (a) extends 'partnership' for taxation purposes to include persons in receipt of income jointly. The parties to the JV agreement are carrying on an enterprise and are in receipt of income jointly. While the association is not a partnership at common law, in our view, the association is a tax law partnership for the purposes of the GST Act. | Detailed Reasoning - Required to be registered: While the individual entities that make up the tax law partnership are registered for GST, the tax law partnership itself is not registered for GST. The issue then arises as to whether this partnership is required to be registered for GST. Both general law partnerships and tax law partnerships are registrable entities for GST purposes. An entity is required to be registered under section 23-5 of the GST Act if its GST turnover meets the registration turnover threshold. Division 188 of the GST Act provides the rules that determine whether an entity's GST turnover meets or exceeds a particular turnover threshold. Under section 188-10 of the GST Act, an entity's GST turnover will meet or exceed the registration turnover threshold if: a) its current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that its *projected GST turnover is below the turnover threshold, or b) its projected GST turnover is at or above the turnover threshold. At any particular time, an entity's current GST turnover is measured over the 12-month period ending at the end of the current month (section 188-15), and an entity's projected GST turnover is measured over the 12-month period starting at the beginning of the current month (section 188-20). Regulation 23-15.01 of A New Tax System (Goods and Services Tax) Regulations 1999 sets the GST turnover at $75,000 or more. You have advised that the joint income of the partnership is less than $75,000 per annum. Provided the partnership's projected GST turnover remains below $75,000, the partnership is not required to be registered. | Detailed Reasoning - Income received from the proceeds of an arrangement to supply solar energy: The income you receive from the proceeds of the arrangement in accordance with the JV agreement is your share of the profits of the tax law partnership. While these payments are considered to be income in your hands, the payments are not consideration for a taxable supply you make. Any trust or partnership distributions you receive should not be included at item G1 of your GST activity statements.