Product Ruling PR 2021/14
Date of effect: 17 November 2021

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities which takes part in the scheme to which this Ruling relates. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. 2. In this Product Ruling, the scheme is offered by Urbau Pty Ltd (Urbau) and involves entry into a joint venture (the Joint Venture) regulated by, and under the terms of, a Joint Venture Deed to facilitate a Project constituting the development of land (the Land) as a residential development comprising Apartment Lots and Retail Lots [1] , if any (the Development), each of which (upon conclusion of the Development) will be strata-divided, partitioned and transferred to a Participant (as a Joint Venturer). [2] 3. This Product Ruling does not address:

Class of entities or scheme: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Participants. 5. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities who: 6. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities: | Qualifications: 7. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 15 to 19 of this Product Ruling. 8. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:

Ruling: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities which takes part in the scheme to which this Ruling relates. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. 2. In this Product Ruling, the scheme is offered by Urbau Pty Ltd (Urbau) and involves entry into a joint venture (the Joint Venture) regulated by, and under the terms of, a Joint Venture Deed to facilitate a Project constituting the development of land (the Land) as a residential development comprising Apartment Lots and Retail Lots [1] , if any (the Development), each of which (upon conclusion of the Development) will be strata-divided, partitioned and transferred to a Participant (as a Joint Venturer). [2] 3. This Product Ruling does not address: | Class of entities: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Participants. 5. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities who: 6. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities: | Qualifications: 7. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 15 to 19 of this Product Ruling. 8. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:


Appendix: Participants constitute an unincorporated joint venture: 20. To determine whether a particular arrangement is a joint venture or partnership, consideration must be given to the true character of the relationship between the parties to the arrangement by reference to all the facts and circumstances of the arrangement. 21. The distinction between a joint venture and a partnership was observed in the decision of the High Court of Australia in United Dominions Corporation Ltd v Brian Pty Ltd (1985) HCA 49, where Dawson J stated: 22. The distinction between a joint venture and a partnership was also observed in the decision of the Supreme Court of New South Wales in A.R.M. Constructions Pty. Limited and Ors v Federal Commissioner of Taxation (1987) 87 ATC 4790 (A.R.M. Constructions), where Yeldham J stated: 23. As per the mutual assent and intention of all the Participants who have a Participating Interest in the Joint Venture Assets, their relationship will constitute an unincorporated joint venture, and not a partnership, primarily on the basis that they will be an association of persons engaging in a specific project (the Development) in order to generate a product (a building of Lots capable of partition between them) to be shared among them as they each thereafter go their separate ways (as opposed to engaging in a continuing business or some other form of common undertaking to derive income or profits for sharing). | Participating Interest in Joint Venture Assets held on capital account: 24. Where, on an assessment of all the facts, an asset held or investment made is a part of a normal operation in the course of carrying on a business, or an asset held or investment made is for the purposes of making a profit or gain either outside the normal course of a business or in the carrying out of an isolated or one-off business operation or commercial transaction [4] , that asset or investment will generally be on revenue account. 25. Pursuant to the terms of the Joint Venture Deed, there is no intention for a Participant to derive a profit or gain from the disposal of their Participating Interest in the Land (and other Joint Venture Assets). Further, and despite the fact that a Participant's Participating Interest will be transferred as a preliminary step in obtaining their particular Apartment Lot, the character of that Participating Interest may be taken from the Participant's original intention in relation to the Apartment Lot (see A.R.M. Constructions), as objectively determined on all the relevant facts. On the basis of a Participant's clear intention to retain their Apartment Lot as their main residence, as assumed at paragraph 19(b) of this Product Ruling, their Participating Interest, like their Apartment Lot, will be on capital account (in contrast to the circumstances noted in paragraph 24 of this Product Ruling). Strata subdivision of Apartment Lots 26. Pursuant to section 112-25, where an original asset is split into two or more new assets and you are the beneficial owner of the original asset and each new asset, the splitting is not a CGT event (subsection 112-25(2)), and each element of the cost base and reduced cost base of the original asset (worked out at the time of the split) is apportioned in a reasonable way and included in the corresponding element of the cost base and reduced cost base of each new asset (subsection 112-25(3)). 27. The property consisting of the Lots developed on the Land under the Project (that is, the original asset), beneficially owned by the Participants pursuant to their respective Participating Interests will be split via a strata subdivision into more Lots (that is, new assets), each of which will continue to be beneficially owned by each Participant in the same proportions. 28. As the subdivision will not result in the change of beneficial owner of the original and each new asset, it will not give rise to a CGT event in accordance with subsection 112-25(2). Partition of Apartment Lots 29. The disposal of a partial interest in the various Lots by Participants (via their Attorney) by way of transfer on partition will give rise to a CGT event A1 under section 104-10 at the time of disposal. A capital gain from this CGT event may be made if the capital proceeds from the disposal of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event may be made if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 30. However, any capital gain or capital loss made by a Participant under those circumstances will be disregarded in accordance with section 118-42 as: 31. Subsection 124-190(1) may provide roll-over relief, at the option of the Participants, in relation to the transfer to them of partial interests in the particular Apartment Lot they will have the right to occupy, as: 32. The choice to obtain roll-over relief under subsection 124-190(1) must be made by the time the Participant lodges their income tax return for the income year in which the transfer occurs, or within any further period allowed by the Commissioner (subsection 103-25(1)). The consequences of choosing to obtain the roll-over are set out in section 124-10, and include: | Transfer of Participating Interest by Outgoing Participant under reformulated Development: 33. The transfer of the Participating Interest of an Outgoing Participant under a reformulated Development to each of the other Participants (in proportion to their respective Participating Interests) will give rise to a CGT event A1 under section 104-10 in respect of the Outgoing Participant at the time of the transfer. A capital gain from this CGT event may be made if the capital proceeds from the transfer of the Participating Interest are more than the asset's cost base or, alternatively, a capital loss from this CGT event may be made if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 34. Pursuant to the general rules about capital proceeds under subsection 116-20(1), the Outgoing Participant's capital proceeds from the transfer of their Participating Interest will be their Initial Equity Contribution, being the money the Outgoing Participant receives, or is entitled to receive, proportionately from the other Participants in respect of the transfer. None of the modifications to the general rules about capital proceeds (as set out in Division 116) apply in relation to the Outgoing Participant's transfer of their Participating Interest. | Transfer of Participating Interest by defaulting Participant: 35. The transfer of the Participating Interest of a defaulting Participant to a new Participant will give rise to a CGT event A1 under section 104-10 in respect of the defaulting Participant at the time of the transfer. A capital gain from this CGT event may be made if the capital proceeds from the transfer of the Participating Interest are more than the asset's cost base or, alternatively, a capital loss from this CGT event may be made if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 36. Pursuant to the general rules about capital proceeds under subsection 116-20(1), the defaulting Participant's capital proceeds from the transfer of their Participating Interest will be their Initial Equity Contribution, being the money the defaulting Participant receives, or is entitled to receive, from the new Participant in respect of the transfer. None of the modifications to the general rules about capital proceeds (as set out in Division 116) apply in relation to the defaulting Participant's transfer of their Participating Interest. | Application of goods and services tax provisions to the Participants: 37. Subsection 7-1(1) of the GST Act provides that GST is payable on taxable supplies. A taxable supply is made if, among other requirements, the supply is made in the course or furtherance of an enterprise that the supplier carries on, and the supplier is registered or required to be registered (paragraphs 9-5(b) and (d) of the GST Act). 38. An 'enterprise' is defined in subsection 9-20(1) of the GST Act to include an activity, or series of activities, done in the form of a business, an adventure or concern in the nature of trade or on a regular or continuous basis in the form of a lease, licence or other grant of an interest in property. Pursuant to paragraph 9-20(2)(c) of the GST Act, an enterprise does not, however, include an activity, or series of activities, done by an individual without a reasonable expectation of profit or gain. 39. As the Participants will not, as a consequence of their participation in the Joint Venture and on the basis of the assumption in paragraph 19(b) of this Product Ruling, expect to make a profit or gain from that participation, they will not be carrying on an enterprise pursuant to paragraph 9-20(2)(c) of the GST Act. The supply by the Participant (via their Attorney) of a partial interest held by them in various Lots under the partition, other than their particular Apartment Lot being retained, will therefore not be a taxable supply under section 9-5 of the GST Act. 40. The supply of a partial interest in various Lots under the partition by Participants otherwise carrying on an enterprise and registered or required to be registered for GST will not be connected to their enterprise or done for the purpose or object of furthering their enterprise, or achieving its goals, and therefore will not (for the purposes of paragraph 9-5(b) of the GST Act) be 'in the course or furtherance of an enterprise' they carry on. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft


What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | Date of effect: 9. This Product Ruling applies from 17 November 2021. It applies only to the specified class of entities that enter into the scheme from 17 November 2021 until 30 June 2024, being its period of application. This Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into during the period of application. | 10. However, the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 11. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. | 12. Entities who are considering participating in the scheme are advised to confirm with their tax adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 13. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention, the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. | 14. Subject to paragraph 3 of this Product Ruling and the assumptions in paragraph 19 of this Product Ruling: | 15. The scheme that is the subject of this Product Ruling is identified and described in the following documents: | Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. | 16. For the purposes of describing the scheme to which this Product Ruling applies, and aside from any relevant Contract of Sale to be executed between the vendor and the Participants in respect of the Land, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which a Participant will be a party to, which are a part of the scheme. | 17. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview: 18. The following is a summary of the scheme: | Assumptions: 19. This Product Ruling is made on the basis of the following necessary assumptions: | Commissioner of Taxation 17 November 2021 | Application of capital gains tax provisions to the Participants | Perhaps in this country, the important distinction between a partnership and a joint venture is, for practical purposes, the distinction between an association of persons who engage in a common undertaking for profit and an association of those who do so in order to generate a product to be shared among the participants. Enterprises of the latter kind are common enough in the exploration for and exploitation of mineral resources and the feature which is most likely to distinguish them from partnerships is the sharing of product rather than profit. | ... I am clearly of the opinion that ... there was merely a joint venture between the appellants to construct buildings, in contrast to an agreement to make profits for sharing, and it was the intention of the parties at all material times to retain the units and town houses so erected, except to the extent that sales might be necessary to repay moneys borrowed from lending institutions ... In my view the parties associated together to produce a product, a building of units capable of partition between them, so that each could thereafter go their own respective ways. Their expressed intention so to do was duly manifested in what they thereafter did and achieved, and their agreement constituted in law something in the nature of a joint venture to construct the building, in contrast to an agreement to make profits for sharing inter se.


Related rulings: TR 92/3
Legislative references: ITAA 1936 Pt IVA ITAA 1997 103-25(1) ITAA 1997 104-10 ITAA 1997 104-10(4) ITAA 1997 112-25 ITAA 1997 112-25(2) ITAA 1997 112-25(3) ITAA 1997 Div 116 ITAA 1997 116-20 ITAA 1997 116-20(1) ITAA 1997 118-42 ITAA 1997 124-10 ITAA 1997 124-10(2) ITAA 1997 124-10(3) ITAA 1997 124-190 ITAA 1997 124-190(1) ITAA 1997 124-190(3) ITAA 1997 Div 230 ITAA 1997 995-1(1) ANTS(GST)A 1999 7-1(1) ANTS(GST)A 1999 9-5 ANTS(GST)A 1999 9-5(b) ANTS(GST)A 1999 9-5(d) ANTS(GST)A 1999 9-20 ANTS(GST)A 1999 9-20(1) ANTS(GST)A 1999 9-20(2)(c) ANTS(GST)A 1999 Div 51 TAA 1953
Case references: A.R.M. Constructions Pty. Limited and Ors v Federal Commissioner of Taxation (1987) 87 ATC 4790 (1987) 19 ATR 337