Edited version of your private ruling

Authorisation Number: 1012588531106

Ruling

Subject: whether you were carrying on a business as a partner in a partnership (for tax purposes)

Question

Were you carrying on a business as a partner in a partnership, for tax purposes?

Answer

No

This ruling applies for the following periods

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2009

Relevant facts

You and the other person purchased a number of assets.

There was no formal written partnership agreement.

You paid a majority of the purchase price of the assets and the other person paid the remainder.

It was your intention that you would retain the majority of the assets and sell at a later date in your name alone and any profit made on the sale would be yours. The other person retained a minority of assets for personal use.

A joint bank account was set up but only on the insistence of the Australian Taxation Office in order that GST refunds could be deposited.

Both you and the other person had the authority to operate the joint bank account. Expenses were paid from private funds.

There were no drawings from the joint account.

No joint income was ever received.

The contract for the purchase of the assets was in both names however invoices etc. were addressed to the person who purchased the items.

Any future sale of the assets will be in the individual's name.

You have kept all records.

You were both actively involved in the purchase of the assets.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

The definition of a partnership under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states:

(a) an association of persons (other than a company or a limited partnership) carrying on a business as partners or in receipt of ordinary income or statutory income jointly; or

(b) a limited partnership.

Taxation Ruling TR 94/8 outlines the factors we take into account in deciding whether persons are carrying on business as partners for income tax purposes.

There are no statutory rules in the income tax law for deciding whether persons are carrying on a business as partners. The question of whether a partnership exists is one of fact. The existence of a partnership is evidenced by the actual conduct of the parties towards one another and towards third parties during the course of carrying on a business.

We look at the following factors in deciding whether persons are carrying on a business as partners in a given year of income.

Intention

(a) the mutual assent and intention of the parties

Conduct

(a) joint ownership of business assets

(b) registration of business name

(c) joint business account and the power to operate it

(d) extent to which parties are involved in the conduct of the business

(e) extent of capital contributions

(f) entitlements to a share of the profits

(g) business records

(h) trading in joint names and public recognition of the partnership.

We will now apply the above factors to your case:

Intention

This is reasonably clear that there was never any intention to operate as a partnership. There was no formal written partnership agreement. There was never any intention of sharing joint income. A joint bank account was operated but it was only opened at the insistence of the ATO to allow for the receipt of GST refunds.

Conduct

(a) joint ownership of business assets

The purchase contract was in both names. A number of assets were purchased and retained according to the capital contribution from each of you.

(b) registration of business name

there was no registration of a business name.

(c) joint business account and the power to operate it

a bank account was operated in both names. This account was only opened at the insistence of the ATO so that GST refunds could be deposited into it. You and the other person had the power to operate the account.

(d) extent to which parties are involved in the conduct of the business.

You were both actively involved in the purchase of the assets.

(e) extent of capital contributions

You paid the majority of the total price of the assets and the other person paid the remaining amount.

(f) entitlement to a share of net profits

It was your intention that upon completion the other person would use one asset for private purposes.

(g) business records

You have kept copies of all invoices and have maintained spread sheets.

(h) trading in joint names and public recognition of the partnership.

The property was purchased in both names.

After comparing the factors against your facts it is considered that a partnership, for tax purposes, never existed for the following reasons:

· There was never an intention to create a partnership

· the assets were purchased jointly, however the profit on sale was not received jointly

· there was no business name

· a joint bank account was opened but expenses were paid from individual savings. The bank account was only opened so that GST refunds could be deposited; and

· There was not a common view held that trading was done in joint names.

The overall conclusion is that no business was carried on in partnership.

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