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ATO Interpretative Decision

ATO ID 2002/1057

Goods and Services Tax

GST and distribution of partnership profit to partner that is not registered for GST
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a partnership, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it makes a cash distribution of partnership profit to one of its partners that is not registered for goods and services tax (GST)?

Decision

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act when it makes a cash distribution of partnership profit to one of its partners that is not registered for GST.

Facts

The entity is a partnership. The entity makes a cash distribution of a portion of the partnership profit to one of its partners.

The entity (the partnership) is registered for GST. The partner is not registered nor required to be registered for GST, nor does it carry on any enterprise in addition to its duties as partner in the partnership.

Reasons for Decision

Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act explains that an entity makes a creditable acquisition if:

•
the entity acquires anything solely or partly for a creditable purpose; and
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the supply of the thing to the entity is a taxable supply; and
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the entity provides, or is liable to provide, consideration for the supply; and
•
the entity is registered or required to be registered for GST.

Accordingly, as one of the requirements for a creditable acquisition is that the supply to the entity is a taxable supply, it must be determined whether the partner is making a taxable supply to the entity (the partnership).

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•
the entity makes the supply for consideration; and
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the supply is made in the course or furtherance of an enterprise that the entity carries on; and
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the supply is connected with Australia; and
•
the entity is registered or required to be registered for GST.

In this case, the entity (the partnership) is carrying on an enterprise and is registered for GST. However, the partner is not carrying on an enterprise in its own right nor is it deemed to be doing so by virtue of being a partner in a partnership that is carrying on an enterprise. Furthermore, the partner is not registered for GST or required to be registered for GST. Therefore, any supply that the partner makes, as a partner to the partnership, is not a taxable supply under section 9-5 of the GST Act (even where made for consideration), because the partner does not make the supply in the course or furtherance of an enterprise that it carries on.

Accordingly, as not all of the requirements in section 9-5 of the GST Act are satisfied, the partner is not making a taxable supply to the entity (the partnership). As a result, the entity is not making a creditable acquisition as defined in section 11-5 of the GST Act. As the entity is not making a creditable acquisition, it is not entitled to an input tax credit under section 11-20 of the GST Act.

[Note: Depending on the terms of the partnership agreement, it is possible for a partner, acting in another capacity, to make a taxable supply to the partnership, provided that the requirements in section 9-5 of the GST Act are satisfied.]

Date of decision:  18 December 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-5
   section 11-20

Keywords
Goods and services tax
GST supplies & acquisitions
Creditable acquisitions
GST enterprise
Taxable supply

Business Line:  GST

Date of publication:  28 November 2002

ISSN: 1445-2782

history
  Date: Version:
You are here 18 December 2001 Original statement
  9 December 2005 Archived

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