Edited version of private ruling

Authorisation Number: 1011766674210

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Ruling

Subject: Assessable income

Question

Is the net business income of the pizza business wholly assessable to you under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as a sole trader?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In 2009, you and a family member (AB) signed a contract jointly to purchase a
take-away business.

You state that you were joint owners of the goodwill and the shop equipment.

AB provided the funds to finance, in full, the purchase of the business. He applied for and obtained a bank loan in his own name and paid all interest and costs due on the loan.

You state that the purchase, sale and shop lease contracts were signed jointly as this was a 'legal requirement to obtain finance'.

There was no arrangement between you and AB with regards to the loan and financing of the business.

The business was sold in late 2010 for the same amount it was purchased for and the full proceeds from the sale were retained by AB.

There was no agreement as to who would keep the proceeds of the sale of the business when it was sold.

You intended to operate the business as a sole trader, with AB merely financing the capital purchase of the business.

You operated the bank account for the business in your name only. You did not have a joint account.

No partnership agreement was drawn up, nor was a partnership TFN application lodged.

You applied for and obtained an Australian Business Number (ABN) as a sole trader and Business Activity Statements (BAS) were issued.

You maintained and kept the business records.

There was no public recognition of any partnership.

AB was not engaged in the activities of the take-away business and did not draw or receive any remuneration from the business. AB was not entitled to any share of the net (operating) profits.

AB was employed in an unrelated industry.

Reasons for decision

Summary

The overall impression gained indicates that there was no general law partnership for the
take-away business. From the facts provided, we have concluded that AB merely financed the capital purchase of business.

For taxation purposes it is considered that a partnership does not exist.

Therefore, you are assessable under section 6-5 of the ITAA 1997 on the whole of the net business income of the business.

Detailed Reasoning

Taxation Ruling TR 94/8 outlines the factors in deciding whether persons are carrying on business as partners in a given year of income. The relevant factors to consider are:

Intention

This covers 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 power to operate it

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

(e) extent of capital contributions

(f) entitlement to a share of net profits

(g) business records

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

The mutual assent and intention of the parties

You have not entered into any agreement with AB to create any partnership for any purpose whatsoever.

The conduct of the activity as outlined below gives the overall impression that you have not acted as partners in the business. From a legal perspective you were not carrying on business in common with a view to profit.

Conduct

(a) Joint ownership of business assets

Although the purchase contract was signed by you and AB as joint owners of the goodwill and the shop equipment, there is no evidence of joint ownership of any assets relating to the business.

(b) Registration of business name

The business had a trading name unrelated to your individual names. There was no public recognition of any partnership.

(c) Joint business account and power to operate it

A joint bank account was never established, you operated the bank account for the business.

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

AB was employed in an unrelated industry and was not engaged in the conduct of the business.

(e) Extent of capital contribution.

AB applied for and obtained a bank loan in his own name to finance, in full, the capital costs of purchasing the business. He also paid all interest and costs due on the loan.

(f) Entitlement to share of net profits

AB has not drawn or received any remuneration from the business.

(g) Business records

You did not obtain a partnership tax file number. You applied for and obtained an Australian Business Number (ABN) as a sole trader and Business Activity Statements (BAS) have been issued to you.

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

You intended to operate the business as a sole trader. Although the purchase contract was signed by both parties, this was merely for finance purposes.

On review, the overall impression gained from the above factors indicates that there was no general law partnership for the business.