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Edited version of private ruling
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Ruling
Subject: GST and reconstituted partnership
Question
Can the partnership be treated as a reconstituted partnership when a new partner has been admitted into the partnership?
Answer:
Based on the information received, yes the partnership can be treated as a reconstituted partnership when a new partner has been admitted to the partnership.
Relevant facts
You are a partnership and run a business which is registered for the goods and services tax (GST).
The ownership of the partnership interest is split 50 per cent and the partners are working partners in the business.
Recently a new partner was admitted to the partnership. All three partners now run the partnership's business.
With the incoming of the new partner to the partnership:
· each partner holds a 33&1/3 interest in the partnership;
· the previous partnership's assets remain with the continuing partnership;
· the nature of the partnership's business remains unchanged;
· the business is carried on without any break;
· the client or customer base remains unchanged;
· the business name remains unchanged.
Reasons for decision
Goods and Service Tax Ruling GSTR 2003/13 provides guidance on general law partnership. Paragraph 126 of GSTR 2003/13 explains the circumstances that result in the dissolution of a general law partnership.
126. At general law, dissolution of a partnership may be brought about in a number of different ways, including by a change in its membership or by a cessation of its business. Where the partnership no longer carries on a business, it is dissolved and wound up. However, on departure of a partner (upon resignation, retirement or death), the partnership is either wound up or the continuing partners agree that the business or firm may be carried on by the continuing partners, with or without new partners. In the latter situation, there may be no change in the outward appearance of the partnership business or firm.
Thus, a change in membership of partnership results in the dissolution of the partnership. The dissolution may be a general dissolution or a technical dissolution as explained in paragraph 127 of GSTR 2003/13.
127. A dissolution leading to the winding up of the partnership is called a general dissolution. A dissolution that does not result in the winding up of a partnership is called a technical dissolution. A technical dissolution occurs where the assets and liabilities of the partnership are taken over by the continuing partners (and any new partners) and the partnership business is continued without any apparent break.
In a technical dissolution (reconstitution) the partnership trading name and business does not change after the change in membership. The partnership business is continued without any apparent break. The partnership is considered to be reconstituted partnership in the case of a technical dissolution as per paragraph 148 of GSTR 2003/13.
Paragraph 149 of GSTR 2003/13 explains that whether or not there is a reconstituted partnership depends on the intention of the parties and the terms and conditions of the partnership agreement. Where partners continue to carry on the business following a change in membership of the partnership, an agreement to continue the business is implied by the conduct of the partners in the absence of a written clause in the partnership agreement. The partnership is considered to be reconstituted in this situation.
The factors that indicate that the business is being continued are explained in paragraph 168 of GSTR 2003/13 and include:
· substantially all of the partnership assets remain with the continuing partnership;
· the nature of the enterprise remains substantially unchanged;
· the client or customer base remains substantially unchanged; and
· the business name or name of the firm remains unchanged.
From the information received, the business of the partnership with the admission of the new partner has remained the same with no change in activities, trading name and the current assets remaining with the continuing partnership. Accordingly, the inclusion of the new partner to the partnership has resulted in a technical dissolution leading to a reconstituted partnership. The partnership therefore does not need to apply for a new Australian business number (ABN) and GST registration.
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