Private ruling: GST and partnership
Published: June 2012

Ruling: Q1: 1. Does the interest of the trust (Trust 1) in the investment property (the property) constitute an interest in a partnership that is required to be registered as a separate entity for goods and services tax (GST) purposes? 2. If the interest of Trust 1 in the property does not constitute an interest in a partnership that is required to be registered for GST purposes, can Trust 1 account for its share of the supplies and acquisitions made in relation to the property under its own Australian business number (ABN)? | A1: 1. No, the interest of Trust 1 in the property does not constitute an interest in a partnership that is required to be registered as a separate entity for GST purposes. 2. Yes, Trust 1 can account for its share of the supplies and acquisitions made in relation to the property under its own ABN.

Relevant facts and circumstances: Trust 1 is registered for GST. Trust 1 is a unit trust with 100% of the units in the trust held by a company (Company A). Company A is a private investment company engaged in property, land and other developments. Company A is the head entity of a consolidated group of which Trust 1 is a member. Company A held an interest in the property which consists of a commercial building. Company A originally built and developed the property with another company (Company B). Company A and Company B appointed another entity as Manager to provide facility and property management services under a Facility & Property Management Agreement (FPMA). The original FPMA was not fully executed; however, the Manager acts in accordance with the agreement. Company B sold its interest in the property to a trust (Trust 2). Trust 2 is registered for GST. Company A entered into a Joint Ownership Agreement (JOA) with Trust 2. Company A and Trust 2 are referred to in the JOA as Owners. Clause 12.2 of the JOA states: Nothing contained in this Agreement will: · be regarded as constituting a partnership between the Owners; or · constitute the Owners partners with one another for any purpose or scope, except to the extent to which the joint receipt of income constitutes the Owners as a partnership for income tax purposes; or · render any of the Owners liable for any debts or Obligations of the other Owners other than as provided in this Agreement, nor will any Owner be constituted the agent of the other Owner except to the limited extent specifically permitted by this Agreement and as may be subsequently agreed upon with consent of the Owners. Subject to clause 12.4, each Owner will have the right to engage in other ventures and business transactions which may be competitive with the Joint Ownership Arrangements and the other Owner will have no Right or interest in any such other venture or transaction. Without limiting the generality of the foregoing the Owners agree that notwithstanding the terms of the Relevant Agreements, the Obligations of the Owners under the relevant Agreements will be several only in their respective Shares and the Owners indemnify each other and agree to keep each other indemnified as necessary to give effect to the intent of this paragraph. The JOA further provides that: · Company A and Trust 2 will own the property as tenants in common and each agrees that its interest in the property will be made available for the purpose of the JOA. · Company A and Trust 2 agree that they will operate and maintain the building as an A Grade CBD office building and so as to maximise the return from the property. · Company A and Trust 2 will each bear its own costs in respect of any ancillary costs. · Company A and Trust 2 may each arrange for valuations of its interest independently as often as appropriate. · the joint ownership arrangements will be strictly limited to the activities and operations specified in the JOA Company A and Trust 2: · make independent decisions regarding their investment, including funding, acquisition or disposal. · do not have a joint bank account. · are audited independently. · receive separate monthly reports from the Manager. The Manager holds bank accounts to operate the business, for instance the rental income is paid to the Manager's trust account. Company A transferred its share in the property to Trust 1 as part of a financial restructure. Company A assigned to Trust 1 its rights and obligations under the JOA.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-20, | A New Tax System (Goods and Services Tax) Act 1999 section 11-5, | A New Tax System (Goods and Services Tax) Act 1999 section 23-5, | A New Tax System (Goods and Services Tax) Act 1999 section 184-1 and | A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision: Summary: In accordance with section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. Subsection 184-1(1) of the GST Act defines an entity to include a partnership. For GST purposes, the term 'partnership' has the same meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 995-1(1) of the ITAA 1997 states: · partnership means: o 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 o a limited partnership. The first limb of paragraph (a) of the definition refers to 'an association of persons (other than a company or a limited partnership) carrying on business as partners'. This reflects the general law definition of a partnership. The second limb of paragraph (a) of the definition includes as a partnership an association of persons (other than a company or a limited partnership) 'in receipt of ordinary income or statutory income jointly'. This partnership is referred to as a tax law partnership. Mutual assent and intention to act as partners is the essential element in demonstrating the existence of a partnership between two or more persons. A lack of intention to be in partnership may mean that a partnership does not exist at law. However, an express intention not to form a partnership, although a strong indicator that the relationship is not a partnership, will not be determinative in all cases. Even a declaration in an agreement between the parties not to form a partnership will be ineffective if all the indications of a partnership are present. | Detailed Reasoning - Is there a partnership between Trust 1 and Trust 2?: Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property explains what a tax law partnership is and how the GST Act applies to transactions involving tax law partnerships. A tax law partnership exists only if there is an association of persons 'in receipt of income jointly'. To be in receipt of income jointly, it is not necessary to have actually received the income. Paragraphs 25 and 26 of GSTR 2004/6 contain our view that there is receipt of income jointly if there is a joint entitlement to income. The expression 'in receipt of' may include not only the actual receipt of income, but also the steps leading to the right or entitlement to that income. We consider that, for GST purposes, an association of persons in receipt of income jointly is a tax law partnership from the time the persons jointly commence an activity from which the income is or will be received jointly. For example, in the case where co-owners jointly acquire vacant land for the purpose of constructing commercial premises for leasing, the acquisition of the vacant land may be the first step in a series of consecutive steps leading to the right or entitlement to rental income. Based on the information provided, Trust 1 and Trust 2 are an association of persons in receipt of income jointly as they have a common purpose of maximising the return from leasing the property and there is joint entitlement to the rental income. Thus, there is a tax law partnership between Trust 1 and Trust 2. | Detailed Reasoning - Is the enterprise carried on by the tax law partnership?: The fact that a tax law partnership exists does not necessarily mean that in every case it is the partnership that carries on an enterprise. In some cases, an enterprise is carried on by each co-owner and not by a tax law partnership. Paragraph 66 of GSTR 2004/6 states: 66. The following factors may point to an enterprise being carried on by each co-owner in their own right, and not by a tax law partnership: o the co-owner is registered for GST in its own right in relation to a broader enterprise and acquires an interest in property in carrying on that enterprise; o there is an agreement between the co-owners not to form a partnership nor to jointly carry on an enterprise; o each co-owner makes independent decisions with regard to the acquisition of an interest in income producing property; o each co-owner's acquisition of their interest in property is made separately; o any borrowings by a co-owner are to fund the acquisition of their interest in the income producing property only; the co-owners do not fund the acquisition of each of their interests out of joint funds or borrowings; o the co-owners act independently of each other in making decisions about their respective investments; o each co-owner acts independently with respect to the appointment of a manager or agent, even though the same manager or agent is usually appointed to act on behalf of all the co-owners; o the gross rental income may be paid into a single trust account operated by a property manager or agent and operating expenses may be met from this trust account. The income is not paid into and the expenses are not paid out of a joint bank account in the name of the co-owners; o the manager or agent accounts to each co-owner separately, both in respect of income and outgoings and will distribute net rental income from the trust account to the co-owners on a regular basis; o each co-owner does not act for the mutual benefit or on behalf of the other co-owners and is primarily concerned with securing an enhanced value or return on their investment; o property is held as tenants in common, rather than as joint tenants; and o although contributing to a mutual fund to pay all liabilities in relation to the income producing property, each co-owner makes the payment in the course of carrying on their own enterprise. The JOA specified that there is nothing in the agreement that will constitute a partnership between the co-owners and that there is nothing that will constitute the co-owners partners with one another. Trust 1 and Trust 2 are registered for GST in their own right. The property is held as tenants in common. Trust 1 and Trust 2 do not have a joint bank account; instead, the rental income is paid to the Manager's trust account. The Manager provides separate monthly reports to each co-owner. The JOA allows each co-owner to engage in other ventures and businesses which may be competitive with the joint ownership arrangements. Based on the facts provided, the leasing enterprise is carried on by each co-owner and not by the partnership. | Detailed Reasoning - Is the partnership required to be registered as a separate entity for GST purposes?: As the partnership is not carrying on the leasing enterprise, section 23-5 of the GST Act is not satisfied. Therefore, the partnership is not required to be registered as a separate entity for GST purposes. | Detailed Reasoning - Question 2: An entity that is carrying on an enterprise in Australia is entitled to an ABN. An entity receives one ABN, regardless of the number of its commercial activities or enterprises. As explained in our response to question 1, each co-owner is carrying on the leasing enterprise. Being a co-owner, Trust 1 must account for its share in the supplies and acquisitions made in relation to the leasing enterprise under its own ABN. Trust 1 is liable to pay the GST payable on its taxable supplies made in relation to the property. Similarly, Trust 1 is entitled to the input tax credits on its creditable acquisitions made in the course of carrying on the leasing enterprise.

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