Edited version of private ruling

Authorisation Number: 1011710935179

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Ruling

Subject: Adding another partner to partnership

Question

Can the partnership add an additional partner to the practice without changing any of the existing GST registration details or roles?

Answer

Yes, you can add an additional partner to the practice without changing any of the existing GST registration details or roles

Relevant facts and circumstances

You are registered for GST.

You have requested to admit an additional partner to the partnership named above.

You operate an accounting practice with a large client group including a high proportion of medical practitioners and in this capacity need to deal with several large organisations on the issues of reporting, and it is very important that the current nature of this is continued using the existing ABN and TFN.

You have advised that the entity in its entirety as a business and all that is involved in its character of business operations has not and will not change by the admission of the above named partner.

You request that the Commissioner in line with GST Ruling 2003/13 allow the effective continuation of the business by keeping all such GST registration details current.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 25-20

A New Tax System (Goods and Services Tax) Act 1999 Section 25-50

Goods and Services Tax Ruling GSTR 2003/13

Detailed reasoning

Section 25-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that if you are registered for GST and not carrying on an enterprise you must apply to the Commissioner for cancellation of your GST registration.

Goods and Services Tax Ruling GSTR 2003/13 provides guidance on GST and general law partnerships.

Paragraphs 126 and 127 of GSTR 2003/13 state:

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.

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.

Further, paragraphs 148 to 150 of GSTR 2003/13 state:

148. Under general law, any change in the membership of a general law partnership leads to its dissolution. However, as previously discussed in paragraphs 126 and 127 of this ruling, the dissolution may not lead to the winding up of the partnership. The continuing partners and any new partner may conduct the business of the partnership without any break in its continuity. We refer to this as a reconstituted partnership.

149. Whether or not there is a reconstituted partnership depends on the intention of the parties and the terms and conditions of the partnership agreement.

150. A written partnership agreement may expressly provide for the continuation of the firm or business in the event of a change in the membership of the partnership. This provision is often referred to as a continuity or non-dissolution clause. In the absence of a written agreement, such a clause may be implied by the conduct of the partners following the retirement or death of a partner, or introduction of a new partner.

Paragraph 168 of GSTR 2003/13 states:

168. We consider that, for a partnership to be treated as reconstituted, there needs to be an express or implied continuity clause in the partnership agreement, and there should be no break in the continuity of the enterprise or firm. Indicators of continuity of the enterprise or the firm 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.

You have stated that as a result of the dissolution of the partnership:

§ substantially all partnership assets will remain with the continuing partnership

§ the nature of the enterprise remains unchanged

§ the client base remains unchanged, and

§ there has not been any break in the continuity of the partnership.

Paragraph 169 of GSTR 2003/13 provides that none of the indicators is conclusive evidence of a reconstituted partnership, nor is its absence necessarily indicative of a dissolution that results in the winding up of the partnership. The position is determined on the facts and circumstances of each case.

We consider that the changes to the partnership do not result in the winding up of the partnership and for GST purposes, it is a technical dissolution and therefore, a reconstituted partnership.

Paragraph 172 of GSTR 2003/13 states:

172. A reconstituted partnership retains its GST registration despite the change in its membership. As there is no winding up of the partnership, the change in membership does not give rise to any supplies or acquisition from one partnership to another partnership.

Therefore, as you are registered for GST and you have continued to carry on an enterprise following a change in your membership, you are not required to cancel your GST registration under section 25-50 of the GST Act.

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