Edited version of private advice

Authorisation Number: 1051760429373

Date of advice: 6 October 2020

Ruling

Subject: Goods and services tax registration and liabilities

Question

Would you be acting within the law (the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)) if:

·         you set up a sole trader (labour services) business in your name that does work for other businesses; and

·         your takings from that business are less than $75,000 per year; and

·         you do not register for GST, and

·         you do not pay GST to the Australian Taxation Office (ATO); and

·         you and your spouse obtain a partnership ABN and the revenue from a second business (a management and administrative services business) was attributed to the partnership ABN; and

·         the management and administrative services business would do work for other businesses; and

·         the takings of the management and administrative services business are under $75,000 a year, and

·         no partnership GST registration is obtained and GST is not paid to the ATO on supplies made through the management and administrative services business; and

·         the GST-exclusive gross revenue from the two businesses combined is over $75,000 per year.

Answer

You will not be acting within the law under the specified arrangement unless you and your spouse form an actual partnership, for tax purposes and the partnership operates the management and administrative services business.

If a partnership is not actually formed, you and your spouse should not obtain a partnership ABN.

If you and your spouse set up a partnership to operate the management and administrative services business, then the supplies made through the management and administrative services business would be attributable to the partnership, with the result that neither you nor the partnership would be required to be registered for GST, in which case, provided that neither entity voluntarily registers for GST, GST will not be payable to the ATO on supplies made through either of the two businesses.

If a partnership is not actually formed, then the supplies made through both businesses would be attributable to you as a sole trader/individual, with the result that you would be required to be registered for GST and pay GST to the ATO on these supplies.

Relevant facts and circumstances

You are an individual.

You are not registered for GST.

You carry on a business as a sole trader. The nature of the business is the provision of labour services. The gross GST-exclusive revenue for your labour services business is under AUD $75,000 year

You would like to form a partnership with your spouse (the partnership) which would have a separate ABN to you as a sole trader. The partnership would supply management and administrative services to other businesses. Your spouse would not be actively involved in this business.

The gross GST-exclusive revenue for the management and administrative services business would be under $75,000 a year.

The combined GST-exclusive gross revenue of the two business would be over $75,000 per year.

The two businesses will be based in the indirect tax zone and the services of the businesses will be performed in the indirect tax zone.

You stated 'the ruling I am seeking is to enable me to run 2 businesses which both will generate less than $75,000 p/a each and therefore not be required to register for GST'

You would not supply labour services to the partnership. The partnership would not supply management or administrative services to you.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision

Summary

If you operate both businesses as a sole trader, you will be required to be registered for GST as you would be carrying on enterprises and would meet the $75,000 threshold for compulsory GST registration.

If you operate both businesses as a sole trader, GST would be payable by you on the supplies you make through both businesses, as you would meet the requirements of section 9-5 of the GST Act under such circumstances.

If you and your spouse set up a partnership to operate the management and administrative services business, neither you nor the partnership would be required to be registered for GST as both entities would be under the $75,000 threshold. Under such circumstances, GST would not be payable to the ATO on supplies of services made through either business, provided that neither entity voluntarily registers for GST. This is because the requirement of paragraph 9-5(d) of the GST Act would not be met under such circumstances.

Detailed reasoning

GST registration

An entity is required to be registered for GST if they meet the requirements of section 23-5 of the GST Act, which states:

You are required to be registered under this Act if:

(a)   you are *carrying on an *enterprise; and

(b)   your *GST turnover meets the *registration turnover threshold.

(*Denotes a term defined in section 195-1 of the GST Act)

The registration turnover threshold is $75,000.

The $75,000 threshold can be met based on historical gross (GST exclusive revenue) or projected gross (GST exclusive) revenue.

'You' means the relevant entity that operates an enterprise. 'Entity' includes an individual (such as a sole trader) and a partnership, amongst other things.

You are carrying on a sole trader enterprise - the labour services business. Therefore, you, as an individual meet the requirement of paragraph 23-5(a) of the GST Act.

If you are operating both businesses as a sole trader, you must combine the income of both businesses for the purposes of determining whether you meet the AUD $75,000 threshold as an individual. As the combined GST-exclusive income would be over $75,000, you would be required to be registered for GST if you operate both businesses as a sole trader.

If you and your spouse set up a partnership to operate the management and administrative services business, the partnership would be a separate entity to you as an individual/sole trader. Therefore, under such circumstances, the GST-exclusive income from the two businesses would not be combined for the purposes of determining whether the AUD $75,000 threshold is met by any entity. If a partnership is formed to operate the management and administrative services business:

·         the partnership's relevant turnover would be under $75,000 a year, and therefore, it would not be required to be registered for GST; and

·         your relevant turnover as an individual would be under $75,000 a year, and therefore, you would not be required to be registered for GST.

GST may be payable on supplies made through the businesses

GST is payable on taxable supplies.

You make a taxable supply where you meet the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a)   you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an

*enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) you are *registered or *required to be registered.

However, a supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

The indirect tax zone includes the main landmasses of Australia and certain other areas.

You will satisfy the requirements of paragraphs 9-5(a) to 9-5(c) of the GST Act, as

• you will make supplies of labour services for consideration (paragraph 9-5(a)of the GST Act); and
• you will supply these services in the course or furtherance of your enterprise (paragraph 9-5(b) of the GST Act); and
• the supply of these services will be connected with the indirect tax zone (paragraph 9-5(c) of the GST Act)

If you operated the management and administrative services business as a sole trader, you would also meet the requirements of paragraphs 9-5(a) to 9-5(c) of the GST Act in relation to these services.

You are not registered for GST.

The supply of the services of both businesses is not GST-free or input taxed.

If a partnership is not actually formed, you will be carrying on both businesses as a sole trader. Under such circumstances you would be required to be registered for GST as you would be carrying on enterprises and you would meet the $75,000 threshold (your turnover would be equal to the GST-exclusive turnover of both businesses combined). If a partnership is not formed, you would be liable to pay GST to the ATO on the supplies made through both businesses, as you would meet all of the requirements of section 9-5 of the GST Act under such circumstances.

If you and your spouse set up a partnership to operate the management and administrative services business, neither you nor the partnership would be required to be registered for GST as both entities would be under the $75,000 threshold. Under such circumstances, GST would not be payable to the ATO on supplies of services made through either business, provided that neither entity voluntarily registers for GST. This is because the requirement of paragraph 9-5(d) of the GST Act would not be met under such circumstances.

Taxation Ruling TR 94/8 sets out the factors that indicate that a business may be carried on by a partnership. You will need to consider these factors to determine whether you and your wife will be in a partnership.

There is insufficient information to determine whether the management and administrative services business will be actually operated by a partnership between you and your spouse.

Your spouse would not be actively involved in the management and administrative services business. This is an indication that you and your spouse may not be in partnership, but it is not conclusive.

You stated 'the ruling I am seeking is to enable me to run 2 businesses which both will generate less than $75,000 p/a each and therefore not be required to register for GST'. This suggests that perhaps you will be operating both businesses as a sole trader.

If your spouse has nothing to do with the management and administrative services business, you would be operating this business as a sole trader, in which case the revenue from this business would be attributable to you, as a sole trader/individual for GST purposes.

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