ATO Interpretative Decision

ATO ID 2003/974

Goods and Services Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a partnership (the partners of which are companies), making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies services to its partners for which there is no reasonable expectation of profit or gain?

Decision

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies services to its partners for which there is no reasonable expectation of profit or gain.

Facts

The entity is a partnership, the partners of which are companies. The companies established the partnership to provide services to them.

The entity's activities consist solely of providing services to the companies (its partners). The entity makes its supplies without a reasonable expectation of profit or gain.

The entity's activities would satisfy the ordinary concept test of a business, as outlined in Taxation Ruling TR 97/11, but for the fact that there is no expectation of profit or gain.

The entity is registered for goods and services tax (GST) and the supply is connected with Australia.

Reasons for Decision

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

•

it makes a supply for consideration; and

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the supply is made in the course or furtherance of an enterprise that it carries on; and

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the supply is connected with Australia; and

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the entity is registered or required to be registered for GST.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed

The entity (the partnership) is supplying the companies (its partners) with services. In return, the companies provide the entity with payments to cover the expenses incurred by the entity in providing those services. Therefore, the entity is making a supply for consideration and the first requirement of section 9-5 of the GST Act is satisfied.

The second requirement in section 9-5 of the GST Act is that the supply is made in the course or furtherance of an enterprise that an entity carries on. Before, determining whether the supply is in the course or furtherance of an enterprise, it is necessary to examine whether the entity's activities amount to carrying on an enterprise.

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 or in the form of an adventure or concern in the nature of trade. Paragraph 26 of Miscellaneous Taxation Ruling MT 2000/1 provides that the term 'in the form of' indicates that, as well as activities that constitute a business or an adventure or concern in the nature of trade, an enterprise also includes an activity or series of activities that would satisfy the ordinary concept test of 'business' or 'adventure in the nature of trade' if it or they had been done for profit.

The entity's activities satisfy all but the profit motive under the ordinary concept tests for a business. Therefore, although all of the entity's supplies are made without a reasonable expectation of profit or gain, its activities are done 'in the form' of a business.

However, paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include activities done by a partnership without a reasonable expectation of profit or gain where all or most of the members of that partnership are individuals. Although, the entity's activities are carried out without a reasonable expectation of profit or gain, all of the entity's partners are companies. Therefore, the exclusion in paragraph 9-20(2)(c) of the GST Act does not apply and the entity is carrying on an enterprise.

As the entity's enterprise consists of the provision of services to the companies (its partners), the entity's supply to the companies is in the course and furtherance of its enterprise. Accordingly, the second requirement in section 9-5 of the GST Act is met.

The entity is registered for GST and the supply is connected with Australia. As such, the entity's supply satisfies the remaining positive requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies services to its partners for which there is no reasonable expectation of profit or gain.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   subsection 9-20(1)
   paragraph 9-20(2)(c)
   Division 38
   Division 40
   Subdivision 72-C

Related Public Rulings (including Determinations)
Miscellaneous Taxation Ruling MT 2000/1
Goods and Services Tax Determination GSTD 2000/8
Taxation Ruling TR 97/11

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

Business Line:  GST

Date of publication:  31 October 2003

ISSN: 1445-2782