House of Representatives

Indirect Tax Legislation Amendment Bill 2000

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 7 - Joint ventures

Outline of Chapter

7.1 This Chapter explains the amendments tothe GST Act, the ABN Act, the ITAA 1936, the ITAA 1997 and the TAA 1953 in relation to joint ventures. These minor policy and technical amendments will:

enable entities other than companies to be participants or joint venture operators of a GST joint venture;
provide that a joint venture operator of a GST joint venture may choose to prepare a single GST return on behalf of all the joint ventures for which it is responsible;
insert a definition of 'minerals' in the Dictionary in the GST Act; and
clarify that a joint venture that does not involve the establishment of a joint venture entity is not a company or any other entity for taxation purposes.

Detailed explanation of new law

Entities other than companies

7.2 Division 51 of the GST Act allows companies engaged in joint ventures to be approved as GST joint ventures if they meet certain criteria. The joint venture operator of an approved GST joint venture will then deal with the GST matters arising from the operator's dealings on behalf of the joint venture participants. Thus, companies approved as a GST joint venture can reduce their administrative costs.

7.3 However, there are instances where the entities involved in joint ventures are not companies - for example, a sole trader may sometimes be a participant in a joint venture. Therefore, an amendment to the GST Act is required so that entities that are not companies can be participants or operators of a GST joint venture.

7.4 Items 4 to 11 and item 19 amend Division 51 to remove the references to 'company' and 'companies' and to replace them with 'entity' and 'entities' respectively. Items 22 and 23 amend section 195-1 to refer to an entity rather than a company in relation to GST joint venture references in the Dictionary.

Definition of minerals

7.5 In the GST Act, terms marked with an asterisk are defined in the Dictionary in section 195-1.

7.6 Companies may be approved as a GST joint venture if the joint venture is for the exploration or exploitation of mineral deposits or for a purpose specified in the GST Regulations. The asterisked term mineral deposit is defined in section 195-1 to be a deposit of minerals, and includes a deposit of sand or gravel. The word 'minerals' in this definition is also asterisked. However, this term is not defined in section 195-1.

7.7 Item 24 inserts the definition of 'minerals' in section 195-1, the Dictionary. The definition refers to the definition of minerals in the ITAA 1997. This definition ensures that the term 'minerals' will also include petroleum.

Consolidated GST joint venture returns

7.8 Subsection 51-50(1) states that a joint venture operator must give the Commissioner a GST return in respect of each GST joint venture for which it is an operator. However, some entities may be a joint venture operator for numerous joint ventures. In this case, the lodgment of multiple GST returns for all of the joint ventures for which an entity is an operator may be an onerous task.

7.9 This amendment will reduce compliance costs for these entities, by allowing a joint venture operator to lodge one GST return in respect of all of the joint ventures for which it is the operator. New subsection 51-52 provides that a joint venture operator of 2 or more GST joint ventures may elect to consolidate all of the GST returns in relation to these joint ventures [item 14] .

7.10 To make this election, the joint venture operator must notify the Commissioner in the approved form [new subsection 51-52(1)] . The election will take effect on the day specified in the notice, which must be the first day of a tax period that has not already ceased when the notice is given [new subsection 51-52(2)] .

7.11 New subsection 51-52(3) allows the joint venture operator to withdraw the election by notifying the Commissioner in the approved form. This withdrawal will take effect from the day specified in the notice, which must be the first day of a tax period that has not already ceased when the notice is given. The election cannot be withdrawn within 12 months from when the election took effect. [New subsection 51-52(4)]

7.12 New subsection 51-52(5) provides that the Commissioner may disallow the election if he or she is satisfied that the operator that wishes to make the election under section 51-52 has a history of failing to comply with its obligations either as a joint venture operator or in any other capacity under a taxation law. The disallowance takes effect from the start of the tax period in which the disallowance takes place [new subsection 51-52(6)] . Disallowance of the election is a reviewable GST decision under the TAA 1953.

7.13 While the section 51-52 election has effect, the joint venture operator will, for each tax period applying to it, lodge a single GST return in relation to all the joint ventures for which it is an operator [new subsection 51-50(2A), item 13] . The net amount for this GST return will be the net amount relating to all of those joint ventures [new paragraph 51-50(2A)(b)] . This net amount will be calculated by aggregating the net amounts that would have applied to the individual joint ventures if the election was not in place [new subsection 51-45(2A), item 12] . Negative and positive net amounts of the individual joint ventures will be offset against each other to reach the aggregated net amount for the joint venture operator.

7.14 Items 15-18 amend Division 51 to remove references to 'GST joint venture' and replacing them with 'GST joint ventures'. Item 33 inserts a reference to new subsection 51-52(5) in the table in subsection 62(2) of the TAA 1953.

Clarification of status of joint ventures

7.15 During the registration processes for ABN and GST it has become evident that some potential registrants were unsure as to whether joint ventures could be registered as 'unincorporated associations' which are included in the entity definitions in the ABN and GST law.

7.16 The amendments make it clear that joint ventures that do not involve the establishment of a joint venture entity are not entities for GST or any other taxation purposes.

7.17 Items 3 and 30 insert a definition of 'non-entity joint venture' in the ABN Act and the ITAA 1997 and items 25, 27 and 32 insert referential definitions to the ITAA 1997 definition in the GST Act, the ITAA 1936 and the TAA 1953 respectively.

7.18 The clarification of the status of joint ventures is achieved by excluding non-entity joint ventures from the definitions of 'entity' and 'company' in section 37 and section 41 of the ABN 1999 [items 1 and 2], subsection 960-100(1) and subsection 995-1(1) of the ITAA 1997 [items 28 and 29] , subsection 184-1(1) and section 195-1 of the GST Act [items 20 and 21] and from the definition of 'company' both in section 8AAZA in the TAA 1953 [item 31] and subsection 6(1) of the ITAA 1936 [item 26] .

7.19 In determining whether an arrangement is a non-entity joint venture the Commissioner (or Registrar in the case of administering ABNs) will have regard, along the lines of the relevant parts of the current Accounting Standard AASB 1006, to the following considerations:

A 'non-entity joint venture' means a contractual arrangement whereby 2 or more parties undertake an economic activity which is subject to joint control. It does not involve a partnership nor establishing a separate entity and may simply be an arrangement to share assets. A non-entity joint venture has the following characteristics:

it uses shared assets of the venturers where each venturer uses its own property, plant and equipment, carries its own inventory, incurs its own expenses and liabilities and raises its own finance which represents its own obligations;
it is entered into by the venturers to obtain individual benefits as opposed to joint or collective profitability, that is, each derives a share of output from the joint venture operation rather than shared revenue or profit; and
it has the venturers bound by a contractual agreement, which establishes the operation, management and joint control of the joint venture.


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