Edited version of your written advice

Authorisation Number: 1051410182072

Date of advice: 9 August 2018

Ruling

Subject: GST and Joint venture

Question

What entity is liable for GST on the property development project (the property)?

Answer

We consider the entity liable for GST is the general law partnership comprising of you and the individual and it is required to be registered for GST for the property development.

This ruling applies for the following periods:

Years ending:

30 June 2015,

30 June 2016,

30 June 2017,

30 June 2018 and potentially 30 June 2019

The scheme commences on:

2015

Relevant facts and circumstances

You own property as a tenant in common:

● You own shares

● You have entered into a written joint venture agreement (agreement) where you will project manage the subdivision of the property to subdivide the land into separate titles all of which are to be sold.

● You expect to sell the lots for a total of $.

● The intent of the agreement was to generate profit from the subdivision and sale of lots.

According to the written agreement the parties:

● Will open an account in joint names with the sole purpose of paying project expenses or distributions

● The contributions for you are %

● The parties shall jointly and severally enter into contracts with third parties for the project

● The parties shall jointly and severally grant a mortgage over the land to complete the project

● The net profit or losses of the project shall be distributed/borne in accordance with the proportions

● You have been lodging your own quarterly activity statements for % share of expenses.

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 51-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

Reasons for decision

In order to determine the nature of the written agreement you entered into we considered the following.

GST Joint Venture

Entities engaged in a joint venture can form a GST joint venture provided they meet the formation requirements of a GST joint venture.

Division 51 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) makes provision for the approval of certain entities engaged in a joint venture to become a GST joint venture. The requirements for a GST joint venture are set out in section 51-5 of the GST Act.

In particular, subsection 51-5(1) of the GST Act provides that two or more entities may become the participants in a GST joint venture if:

1. the joint venture is a joint venture for the exploration or exploitation of mineral deposits, or for a purpose specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations)

2. the joint venture is not a partnership

3. each entity satisfies the participation requirements in section 51-10 of the GST Act

4. each entity agrees in writing to the formation of the joint venture as a GST joint venture

5. the agreement nominates one of the participants or another entity to be the joint venture operator of the joint venture

6. the nominated joint venture operator notifies the Commissioner, in the approved form, of the formation of the joint venture as a GST joint venture, and

7. if the nominated joint venture operator is not a party to the joint venture agreement, the nominated joint venture operator is registered for GST and accounts for GST on the same basis as all of the participants in the joint venture.

All the requirements of subsection 51-5(1) of the GST Act must be satisfied for the entities to become participants in a GST joint venture.

One of the essential requirements of a GST Joint Venture is that the joint venture is not a partnership as per point 2 above. In addition, you do not satisfy another essential participation requirement, which is that the GST Joint Venture needs to register for GST, see paragraph 51-10(c) of the GST Act.

General Law Partnership

Goods and services tax: general law partnerships (GSTR 2003/13) addresses, amongst other things the formation and indicators of a general law partnership.

Paragraph 12 states that a general law partnership is formed when persons commence carrying on business together with a view of profit under an agreement. You have an agreement to subdivide land into separate titles and to sell all of the lots at a profit. This indicates that a general law partnership has been formed.

Paragraph 30 0f GSTR 2003/13 lists the factors that may indicate that an acquisition is made by a partner:

● The acquisition is used in the enterprise of the partnership

● The acquisition is made with the consent of all the partners

● The acquisition is paid for out of partnership profits or from a partnership account

● The invoice or tax invoice shows the firm or business name, or the names of all the partners as recipient.

In your situation the agreement states that you will make contributions to the projects expenses in your proportions and that you will open an account in joint names for the sole purpose of the project. The monies received will be for the sole purpose of paying the project expenses or distributions.

Paragraph 34 of GSTR 2003/13 goes on to discuss that an interest in a partnership includes a right to a proportion of the surplus after the realisation of the assets and payment of the debts and other liabilities of the partnership, and is inclusive of a partner’s entitlement to a share in the capital of the partnership.

The agreement states that the net profit shall be distributed in accordance with the respective proportions.

From the facts given, you have jointly agreed to carry on an activity (development of the land) from which the income will be received jointly. Based on the written agreement provided, we consider you are carrying on the development of the land as partners of a general law partnership.

Under the GST Act an entity includes a partnership. A consequence of this is that the GST Act applies to partnership transactions. If the partnership meets the requirements of a taxable supply it will be required to be registered for GST. You make a supply subject to GST as per section 9-5 of the GST Act if:

● You make a sale for consideration

● The sale is part of your enterprise

● The supply is in Australia and

● You are registered or required to be registered for GST.

You will sell the land for consideration, the selling of the land is part of your property development enterprise and the land is in Australia, therefore we need to consider if the general law partnership is required to be registered for GST.

The partnership is required to be registered for GST if the GST turnover meets the registration turnover threshold (section 23-15 of the GST Act). The registration turnover threshold for the partnership is $75,000. As you advised that the sale price of the lots is expected to be above the projected GST turnover is above the GST registration turnover threshold (subsection 188-10(1)(b) of the GST Act).

Therefore, the general law partnership comprising of you and the individual is required to be registered for GST and the sale of the lots will be a taxable supply.