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Edited version of private ruling
Authorisation Number: 1011816215443
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Ruling
Subject: GST and sale of interest in partnership property
Question
Do you have a GST liability on the sale of your interest in the Property?
Answer: No
You do not have a GST liability on the sale of your interest in the Property.
Relevant facts and circumstances
You have a share of interest in a Property. The only structure on the Property is a set of cattle yards.
The Property is held by you and a co-owner (co-owner) as tenants in common.
The Property has been leased continuously to a local farmer for cattle grazing.
You and the co-owner are in a partnership (the Partnership) carrying on the leasing enterprise on the Property. The Partnership is registered for GST.
Recently, you sold your interest in the Property to purchasers for consideration.
At the time of the sale of your interest, the Property was leased to a farmer who has leased the property for cattle grazing purposes for the past 10 years.
The co-owner and the purchasers continue to lease the Property to the same farmer.
Reasons for decision
You are liable to pay the GST on any taxable supply that you make.
Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:
you make the supply for consideration
the supply is made in the course or furtherance of an enterprise that you carry on
the supply is connected with Australia, and
you are registered, or required to be registered, for GST.
However, you do not make a taxable supply to the extent that it is GST-free or input taxed.
For the sale of your interest in the Property to be a taxable supply, all the requirements of section 9-5 of the GST Act must be satisfied.
The expression 'you' in section 9-5 of the GST Act is defined in section 195-1 of the GST Act. It applies to entities generally. Entities include an individual and a partnership.
A partnership is defined in section 195-1 of the GST Act by reference to the definition of a partnership in section 995-1 of the Income Tax Assessment Act 1997 (the ITAA 1997). That definition states that a partnership is:
an association of persons carrying on business as partners or in receipt of ordinary income or statutory income jointly, but does not include a company; or
a limited partnership
The first limb of the definition refers to an association of persons carrying on business as partners. This reflects the general law definition of a partnership, which is the relation which subsists between persons carrying on a business in common with a view of profit. We refer to this type of partnership as a general law partnership.
On the information provided, you and the co-owner are not in a general law partnership.
The second limb of the definition includes an association of persons that is not in business, but is nevertheless in receipt of ordinary income jointly. We refer to this type of partnership as a tax law partnership.
Goods and Services Tax Ruling GSTR 2004/6 explains how the GST Act applies to tax law partnerships and co-owners of property.
GSTR 2004/6 explains that tax law partnerships exist only for tax purposes and that most tax law partnerships arise in situations where an association of persons (other than a company or a limited partnership) is 'in receipt of ordinary income or statutory income jointly'. Most tax law partnerships arise because property is acquired or used to derive income jointly.
In your case, the Property was leased for cattle grazing purposes. You and the co-owner jointly carried on an activity of leasing from which income was received jointly. A tax law partnership is thus formed at the time when you and the co-owner entered into an agreement to carry on the leasing enterprise jointly.
In order to establish whether the supply of your interest in the property to the purchasers is a taxable supply it is first necessary to ascertain whether the property interest is held by you or the partnership. On the issue, paragraph 103 of GSTR 2004/6 states:
103. …We further take the view that partners in a tax law partnership have neither interests in the capital of a partnership, nor interests in the partnership. The only interest that a partner in a tax law partnership has is an interest in the property, coupled with a right to a share of the net income or losses in accordance with that interest.
Further, paragraph 234 of GSTR 2004/6 states:
234. Any sale of a property or interest in a property which is used in carrying on an enterprise by a partnership is a supply by the partnership and not by the co-owners. There are GST consequences if the partnership is registered. For instance, the supply may be a taxable supply if the requirements of section 9-5 are met, or the supply of a going concern that is GST-free if it meets the requirements of section 38-325.
In accordance with subsection 184-5(1) of the GST Act the supply made by a partner of their interest in the commercial property is taken to be a supply made by the partnership.
Example 18 in GSTR 2004/6 (paragraphs 196 to 201) further illustrates that where the leasing enterprise is carried on by the partnership, the supply of the co-owner's interest in the property is a supply by the co-owner in the capacity as partner of the partnership. That is, it is a supply made by the partnership.
In this case, the leasing enterprise is carried on by the partnership. Hence, the supply of your interest in the Property is by you in your capacity as partner of the Partnership. As such, the supply of your interest in the Property to the purchasers is a supply made by the Partnership not by you.
Therefore, you as a co-owner (individual), do not have a GST liability on the sale of your interest in the Property.
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