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Edited version of your written advice
Authorisation Number: 1012744333066
Ruling
Subject: GST registration and purchase of commercial property by the Trustee of two Property Trusts.
Question
When the Trustee for ABC Property Trust and the Trustee for XYZ Property Trust purchase a commercial property as 50-50 tenants in common and lease it after the purchase, which entity should register for the goods and services tax (GST) to account for the leasing activity?
Advice
Based on the information received, when the Trustee for ABC Property Trust and the Trustee for XYZ Property Trust purchase a commercial property as 50-50 tenants in common and lease it after the purchase, a tax law partnership of the ABC Property Trust and XYZ Property Trust is in place for GST purposes as there will be a joint entitlement of income from the lease of the commercial property by the Trustee of the two Property Trusts.
Accordingly, the tax law partnership of the ABC Property Trust and XYZ Property Trust will account for the leasing activity and therefore should register for GST under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Relevant fact
Company A is the trustee for ABC Property Trust and for XYZ Property Trust.
The two Property Trusts will jointly purchase a commercial property for the purpose of leasing it and the acquisition will be 50-50 tenants in common for the commercial property. The rent will be above $75,000 a year plus GST.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 23-5
Reasons for decision
Under section 23-5 of the GST Act, an entity is required to be registered for GST if:
a) the entity is carrying on an enterprise; and
b) the entity's GST turnover meets the registration turnover threshold which currently is $75,000 and $150,000 for non-profit organisation.
We will now apply the information received to section 23-5 of the GST Act.
Paragraph 23-5(a) of the GST Act.
Subsection 9-20(1) of the GST Act define enterprise as an activity or series of activities and includes activity done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.
Goods and Services Tax Ruling GSTR 2004/6 (available from the legal database of www.ato.gov.au ) provides guidance on tax law partnership and co-owners.
Paragraphs 8, 9,10, 20, 24 and 52 of GSTR 2004/6 state:
8. A partnership is defined in section 195-1 of the GST Act by reference to the definition of partnership in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). That definition states:
Partnership means:
a) an association of person other than a company or limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or
b) a limited partnership.
9. The first limb of paragraph (a) of the definition refers to 'an association of person (others than a company or a limited partnership) 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.
10. The second limb of paragraph (a) of the definition includes as a partnership an association of person (other than a company or a limited partnership) 'in receipt of ordinary income or statutory income jointly'. We refer to this type of partnership as a tax law partnership.
20. The reference in the GST Act definition of a partnership to an 'association of persons' means that there must be some link, connection, or existence of a mutual or common purpose between the persons.
24. Persons who are in receipt of income jointly are therefore, an association of persons and a tax law partnership for GST purposes.
52. The definition of 'entity' includes a partnership. The moment a tax law partnership exists it is an entity for GST purposes. The GST Act treats the partnership as an entity separate from the partners.
From the facts given, the Trustee for ABC Property Trust and the Trustee for XYZ Property Trust are considering to purchase a commercial property with each as 50-50 tenants in common as an investment and to lease the property.
In this instance for GST purposes the ABC Property Trust and XYZ property Trust is a tax law partnership since there will be a joint entitlement of income from the lease of the commercial property by the Trustee of the two Property Trusts.
Accordingly, the tax law partnership of ABC Property Trust and the Trustee for XYZ Property Trust is carrying on the leasing enterprise under paragraph 23-5(a) of the GST Act and not the partners (that is the Trustees of the two trusts).
Paragraph 23-5(b) of the GST Act
From the information received the annual rental income from this commercial property will be above $75,000. In this instance, the tax law partnership of ABC Property Trust and the Trustee for XYZ Property Trust is required to be registered for GST.
Summary
Based on the information received, when the Trustee for ABC Property Trust and the Trustee for XYZ Property Trust purchase a commercial property as 50-50 tenants in common and lease it after the purchase, a tax law partnership of the ABC Property Trust and XYZ Property Trust is in place for GST purposes.
As the tax law partnership of the ABC Property Trust and XYZ Property Trust will account for the leasing activity, the partnership should register for GST under section 23-5 of the GST Act.