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Ruling

Subject: GST and change in partnership membership

Question 1

Are you required to notify the Commissioner of a change in partnership details upon the death of a partner and subsequent transfer to the beneficiaries of their interest in the deceased's property?

Answer

There will be a change in the membership of the association of persons when:

Each of these events constitutes the dissolution of the existing tax law partnership and the formation of a new one.

As each of these events occurs, you are required to notify the Commissioner of the termination of the existing tax law partnership. You are also required to apply for a new ABN and, if appropriate, register for GST.

Question 2

When are you required to notify the ATO of the changes?

Answer

You are required to notify the Commissioner within 21 days of the event occurring.

Relevant facts and circumstances

You are a group of entities who jointly own commercial properly as tenants in common.

The property is leased to a third party.

You are registered for GST as a partnership.

You want to know if the partnership's GST registration changes at:

You understand that there will be a 2 stage process.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Income Tax Assessment Act 1997 Subsection 995-1(1).

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

Reasons for decision

Question 1

Partnership is defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) by reference to the definition of 'partnership' in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 995-1 of the ITAA 1997provides:

General Law Partnerships

Paragraph 10 of Goods and Services Tax Ruling 2003/13 Goods and services tax: general law partnerships (GSTR 2003/13) explains that the first limb of paragraph (a) of the definition refers to 'an association of persons (other than a company or a limited partnership) carrying on business as partners'.

Paragraph 12 of GSTR 2003/13 further explains that a general law partnership is formed when persons commence carrying on a business together with a view of profit under an agreement either written or oral.

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'.

As explained in paragraph 11 of GSTR 2003/13, the second limb refers to an association of persons that is not in business, but that is nevertheless in receipt of ordinary income or statutory income jointly. We refer to this type of partnership as a tax law partnership.

Tax Law Partnerships

Paragraph 25 of Goods and services tax ruling GSTR 2004/6 Goods and Services Tax: tax law partnerships and co-owners of property (GSTR 2004/6) explains that for the purposes of the second limb of the definition of partnership the requirement that there be 'receipt of income' jointly is met if an activity being carried on, or intended to be carried on by an association of persons will result in the persons having the right or entitlement to that income.

Paragraph 30 of GSTR 2004/6 explains that for GST purposes, an association of persons in receipt of income jointly is a tax law partnership from the time that the persons jointly commence an activity from which the income is or will be received jointly.

A key difference between the general law and tax law partnerships is the activity that occurs in a general law partnership in operating a business, as opposed to a tax law partnership where often there is a simple passive receipt of income.

In your case each partner owns an interest in a commercial property as a tenant in common. The partners have leased the property to third parties and are in receipt of leasing income from that arrangement. Therefore the nature of the partnership that you have formed is correctly characterised as a tax law partnership that is conducting a leasing enterprise.

Paragraph 219 of GSTR 2004/6 explains that an enterprise partnership terminates if, among other things, there is a change of persons comprising the association of persons in receipt of income jointly.

Paragraph 220 of GSTR 2004/6 explains that if one or more of the co-owners on the property dispose of their interest in the property, this constitutes a change in the association of persons.

Paragraph 225 of GSTR 2004/6, the ATO takes the view that a tax law partnership cannot be reconstituted.

Therefore, there will be a change in the membership of the association of persons when:

Each of these events constitutes the dissolution of the existing tax law partnership and the formation of a new one.

Accordingly, as each of these events occurs, you are required to notify the Commissioner of the termination of the existing tax law partnership. You are also required to apply for a new ABN and, if appropriate, register for GST.

In accordance with section 25-50 of the GST Act, you are required to notify the Commissioner within 21 days of the event occurring.

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