Goods and Services Tax Determination GSTD 2009/2
Date of effect: 7 October 2009

What this ruling is about: This document was published prior to 1 July 2010 and was a public ruling for the purposes of former section 105-60 of Schedule 1 to the Taxation Administration Act 1953. From 1 July 2010, this document is taken to be a public ruling under Division 358 of Schedule 1 to the Taxation Administration Act 1953 . A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. [ Note : This is a consolidated version of this document. Refer to the Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] 1. Yes, when a partner in a partnership takes goods held as trading stock for private or domestic use there is a supply by the partnership to the partner in the course or furtherance of the partnership's enterprise. If the other elements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) [1] are satisfied, there will be a taxable supply by the partnership to the partner. Division 72 will apply where the partner provides no consideration or inadequate consideration for the supply. Division 130, which deals with goods applied solely to private or domestic use, does not apply. Explanation 2. The partnership is a separate entity to the partner who takes goods held as trading stock from the partnership for private or domestic use. [2] When a partner in a partnership takes goods held as trading stock from the partnership for private or domestic use, the partnership makes a supply of the goods to the partner. [3] 3. A supply of trading stock by a partnership to a partner will be a taxable supply under section 9-5 where: However, the supply will not be a taxable supply to the extent that it is GST-free or input taxed. 4. The Commissioner takes the view that an in specie distribution of trading stock by a partnership to a partner is made for consideration. [4] The in specie distribution of goods held as trading stock by a partnership to one of its partners has the effect of proportionately reducing the partner's entitlement to a distribution of any surplus remaining after the realisation of assets, and payment of debts and liabilities of the partnership, on the winding up of the partnership. The Commissioner considers that the partner's entitlement or right to a proportion of the surplus after the realisation of the assets, and payment of the debts and other liabilities of the partnership, forms part of the partner's interest in the partnership. The consideration for the supply of the goods to the partner is the proportion of the partner's interest in the partnership, reflected by the value of the goods distributed and may be represented by: 5. The supply of the goods held as trading stock by the partnership is a supply made in the course and furtherance of the enterprise carried on by the partnership. [5] The application of the goods held as trading stock in the enterprise carried on by the partnership establishes the necessary connection between the supply of the goods and the partnership's enterprise. 6. Therefore, where the partnership is registered or required to be registered and the supply of the goods is connected with Australia, [6] the supply of goods by a partnership to a partner by way of an in-specie distribution will be a taxable supply under section 9-5 to the extent that the supply is not GST-free or input taxed. 7. There may also be circumstances where a partnership supplies goods to a partner for the partner's private or domestic use other than by way of an in specie distribution, that is in the course of the partnership's activities. In these circumstances, if the supply is made to the partner for no consideration or for inadequate consideration, Division 72 will apply. [7] 8. In the circumstances described in paragraph 7 of this Determination, where a supply of goods is made to the partner for the partner's private or domestic use and for nil consideration Division 72 will operate to bring the supply within the GST system. The supply will be a taxable supply to the extent that it is not GST-free or input taxed. The value of the taxable supply will be the GST-exclusive market value of the supply. [8] 9. If a supply of goods is made to the partner for consideration less than the GST inclusive market value, the supply will be a taxable supply under section 9-5. Section 72-70 will apply and the value of the taxable supply will be the GST-exclusive market value of the supply. Division 130 10. Division 130 is an adjustment provision that can result in an increasing adjustment of an amount equal to the input tax credits to which you were entitled upon acquisition or importation of goods. You have an increasing adjustment under Division 130 if the goods were acquired or imported solely for a creditable purpose and you now apply them solely to private or domestic use. 11. Division 130 does not apply to a partnership. Subsection 130-5(1) requires, amongst other things, that 'you made a creditable acquisition or creditable importation of goods' and that 'you apply the goods solely to private or domestic use'. The use of the word 'you' in section 130-5 means that the Division only applies where the same entity that acquired or imported the goods also applies the goods to private or domestic use. 12. In the case of a partnership, the entity that acquired or imported the goods is different from the entity that applies the goods to private or domestic use. The partnership acquired or imported the goods but it is the partner in their individual capacity who applies the goods to private or domestic use. Examples Example 1 13. Larry and Ralph are in partnership. The partnership is registered for GST and operates a hardware store in Australia. The partnership, as part of a distribution of partnership profits, supplies Larry, by way of an in-specie distribution, tools held as trading stock for Larry's own private and domestic use. The supply of the tools is for consideration [9] and is made in the course or furtherance of the enterprise carried on by the registered partnership. The in-specie distribution of the tools to Larry by the partnership is a taxable supply by the partnership to Larry . Example 2 14. Alex and Tom are in partnership operating a corner store in Australia. During the tax period the partnership supplies Alex with bread, milk, soft drinks, confectionary and ice creams. Supplies of milk and bread are GST-free [10] and not taxable supplies. Supplies of soft drinks, confectionary and ice creams are taxable supplies. [11] The market value of the soft drinks, confectionary and ice creams is $330 (inclusive of GST). Alex pays consideration of $100. Division 72 applies to the supplies of the soft drinks, confectionary and ice creams because Alex is an associate of the partnership and has provided inadequate consideration. The GST exclusive market value of the taxable supplies is $300 (10/11 x $330) and the GST payable by the partnership is $30 ($300 x 10%). Date of effect 15. This Determination applies [to tax periods commencing] both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). Commissioner of Taxation 7 October 2009



Examples: Example 1: 13. Larry and Ralph are in partnership. The partnership is registered for GST and operates a hardware store in Australia. The partnership, as part of a distribution of partnership profits, supplies Larry, by way of an in-specie distribution, tools held as trading stock for Larry's own private and domestic use. The supply of the tools is for consideration [9] and is made in the course or furtherance of the enterprise carried on by the registered partnership. The in-specie distribution of the tools to Larry by the partnership is a taxable supply by the partnership to Larry . | Example 2: 14. Alex and Tom are in partnership operating a corner store in Australia. During the tax period the partnership supplies Alex with bread, milk, soft drinks, confectionary and ice creams. Supplies of milk and bread are GST-free [10] and not taxable supplies. Supplies of soft drinks, confectionary and ice creams are taxable supplies. [11] The market value of the soft drinks, confectionary and ice creams is $330 (inclusive of GST). Alex pays consideration of $100. Division 72 applies to the supplies of the soft drinks, confectionary and ice creams because Alex is an associate of the partnership and has provided inadequate consideration. The GST exclusive market value of the taxable supplies is $300 (10/11 x $330) and the GST payable by the partnership is $30 ($300 x 10%). Date of effect 15. This Determination applies [to tax periods commencing] both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). Commissioner of Taxation 7 October 2009 GSTD 2009/D1

Appendix: 2. The partnership is a separate entity to the partner who takes goods held as trading stock from the partnership for private or domestic use. [2] When a partner in a partnership takes goods held as trading stock from the partnership for private or domestic use, the partnership makes a supply of the goods to the partner. [3] 3. A supply of trading stock by a partnership to a partner will be a taxable supply under section 9-5 where: However, the supply will not be a taxable supply to the extent that it is GST-free or input taxed. 4. The Commissioner takes the view that an in specie distribution of trading stock by a partnership to a partner is made for consideration. [4] The in specie distribution of goods held as trading stock by a partnership to one of its partners has the effect of proportionately reducing the partner's entitlement to a distribution of any surplus remaining after the realisation of assets, and payment of debts and liabilities of the partnership, on the winding up of the partnership. The Commissioner considers that the partner's entitlement or right to a proportion of the surplus after the realisation of the assets, and payment of the debts and other liabilities of the partnership, forms part of the partner's interest in the partnership. The consideration for the supply of the goods to the partner is the proportion of the partner's interest in the partnership, reflected by the value of the goods distributed and may be represented by: 5. The supply of the goods held as trading stock by the partnership is a supply made in the course and furtherance of the enterprise carried on by the partnership. [5] The application of the goods held as trading stock in the enterprise carried on by the partnership establishes the necessary connection between the supply of the goods and the partnership's enterprise. 6. Therefore, where the partnership is registered or required to be registered and the supply of the goods is connected with Australia, [6] the supply of goods by a partnership to a partner by way of an in-specie distribution will be a taxable supply under section 9-5 to the extent that the supply is not GST-free or input taxed. 7. There may also be circumstances where a partnership supplies goods to a partner for the partner's private or domestic use other than by way of an in specie distribution, that is in the course of the partnership's activities. In these circumstances, if the supply is made to the partner for no consideration or for inadequate consideration, Division 72 will apply. [7] 8. In the circumstances described in paragraph 7 of this Determination, where a supply of goods is made to the partner for the partner's private or domestic use and for nil consideration Division 72 will operate to bring the supply within the GST system. The supply will be a taxable supply to the extent that it is not GST-free or input taxed. The value of the taxable supply will be the GST-exclusive market value of the supply. [8] 9. If a supply of goods is made to the partner for consideration less than the GST inclusive market value, the supply will be a taxable supply under section 9-5. Section 72-70 will apply and the value of the taxable supply will be the GST-exclusive market value of the supply. | Division 130: 10. Division 130 is an adjustment provision that can result in an increasing adjustment of an amount equal to the input tax credits to which you were entitled upon acquisition or importation of goods. You have an increasing adjustment under Division 130 if the goods were acquired or imported solely for a creditable purpose and you now apply them solely to private or domestic use. 11. Division 130 does not apply to a partnership. Subsection 130-5(1) requires, amongst other things, that 'you made a creditable acquisition or creditable importation of goods' and that 'you apply the goods solely to private or domestic use'. The use of the word 'you' in section 130-5 means that the Division only applies where the same entity that acquired or imported the goods also applies the goods to private or domestic use. 12. In the case of a partnership, the entity that acquired or imported the goods is different from the entity that applies the goods to private or domestic use. The partnership acquired or imported the goods but it is the partner in their individual capacity who applies the goods to private or domestic use. | Example 1: 13. Larry and Ralph are in partnership. The partnership is registered for GST and operates a hardware store in Australia. The partnership, as part of a distribution of partnership profits, supplies Larry, by way of an in-specie distribution, tools held as trading stock for Larry's own private and domestic use. The supply of the tools is for consideration [9] and is made in the course or furtherance of the enterprise carried on by the registered partnership. The in-specie distribution of the tools to Larry by the partnership is a taxable supply by the partnership to Larry . | Example 2: 14. Alex and Tom are in partnership operating a corner store in Australia. During the tax period the partnership supplies Alex with bread, milk, soft drinks, confectionary and ice creams. Supplies of milk and bread are GST-free [10] and not taxable supplies. Supplies of soft drinks, confectionary and ice creams are taxable supplies. [11] The market value of the soft drinks, confectionary and ice creams is $330 (inclusive of GST). Alex pays consideration of $100. Division 72 applies to the supplies of the soft drinks, confectionary and ice creams because Alex is an associate of the partnership and has provided inadequate consideration. The GST exclusive market value of the taxable supplies is $300 (10/11 x $330) and the GST payable by the partnership is $30 ($300 x 10%). | Date of effect: 15. This Determination applies [to tax periods commencing] both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). Commissioner of Taxation 7 October 2009 GSTD 2009/D1




Related rulings: TR 2006/10 GSTR 2000/31 GSTR 2003/13 MT 2006/1
Legislative references: ANTS(GST)A 1999 ANTS(GST)A 1999 9-5 ANTS(GST)A 1999 38-2 ANTS(GST)A 1999 38-3(1) ANTS(GST)A 1999 Div 72 ANTS(GST)A 1999 72-5(1) ANTS(GST)A 1999 72-10 ANTS(GST)A 1999 72-70 ANTS(GST)A 1999 Div 130 ANTS(GST)A 1999 130-5 ANTS(GST)A 1999 130-5(1) ANTS(GST)A 1999 184-1 ANTS(GST)A 1999 184-5(1) ANTS(GST)A 1999 195-1 ITAA 1936 318 TAA 1953 Sch 1 Div 358
Subject references: associate carrying on an enterprise distributions in specie GST consideration GST inadequate consideration GST supply GST supplies without consideration increasing adjustment partnerships