GST issues registers
Primary production industry partnership13 Partnerships and associated entities
13.1.1 - Partnership access to input tax credits
Question
Can a partnership have access to input tax credits without reimbursement of partners?
For the source of the ATO view, refer to paragraphs 110 to 113 of GSTR 2003/13 - Goods and services tax: general law partnerships.
Answer
Yes
Explanation
Refer to Paragraphs 110-113 of GSTR 2003/13 - Goods and Services Tax Ruling - Goods and services tax: general law partnerships for further information.
Question 1(a):
Does a taxable supply occur when a property is made available by one family member to another to operate as a farming business; for example, by a parent (landowner) to a partnership of son and daughter-in-law (operating entity). This arrangement involves the operating entity paying all the costs associated with holding the property (such as rates and taxes) in lieu of paying rent to the landowner?
For the source of the ATO view refer to:
- •
- MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
- •
- TR 97/11 - Income tax: am I carrying on a business of primary production?
Answer:
If all the requirements of section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met, there will be a taxable supply.
Explanation:
Section 9-5 of the GST Act provides that you make a taxable supply if:
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- You make a supply for consideration; and
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- The supply is made in the course or furtherance of an enterprise that you carry on; and
- •
- The supply is connected with Australia; and
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- You are registered or required to be registered.
However, the supply is not a taxable supply to the extent that is GST-free or input taxed.
Enterprise
The issue to be is addressed is whether or not the landowner is renting out the property in the course or furtherance of an enterprise.
Section 9-20 of the GST Act looks at the definition of an enterprise and includes an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. However, it does not include anything done by an individual or partnership where all or most of the members are individuals without a reasonable expectation of profit or gain.
If the landowner is only being reimbursed for the costs of running the property, it is unlikely that there is any reasonable expectation of profit or gain; however, each case will need to be determined on the specific facts.
There are more comprehensive guidelines on the ATO view of what constitutes the carrying on of an enterprise in also gives valuable guidance on whether or not a business (of primary production) is being carried on.
Connection with Australia
If the land is in Australia the requirements of paragraph 9-5(c) of the GST Act will be satisfied.
Registration
Division 23 of the GST Act deals with registration.
Section 23-5 of the GST Act provides that you are required to be registered if:
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- you are carrying on an enterprise; and
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- your GST turnover meets the registration turnover threshold.
The turnover threshold (unless you are a non-profit body) is $75,000. Under section 23-10 you may also register if you are carrying on an enterprise or intend to do so whether or not your turnover is at, above or below the registration turnover threshold.
Consideration
The issue to be considered is whether the operating entity is providing consideration when it pays the running costs of the property.
Subsection 9-15(1) of the GST Act provides that:
- (1)
- Consideration includes:
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- any payment, or any act or forbearance, in connection with a supply of anything; and
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- any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
In this context, the payment of rates and other statutory charges represent something of value that the operating entity is making to the landowner in return for the right to farm the land. This meets the criterion for consideration.
If the consideration (payment of rates and taxes) reflects the market value of the supply then the normal GST rules will apply. However, if the consideration does not reflect the market value of the supply, the application of Division 72 of the GST Act will need to be considered.
Division 72 ensures that supplies to, and acquisitions from your associates for inadequate consideration are properly valued for GST purposes. Associate is a defined terms for the purposes of the GST Act and has the meaning given by section 318 of the Income Tax Assessment Act 1936. The definition includes 'a relative of the primary entity'.
Question 1(b)
If the rates and taxes exceed $75,000 per annum, will this make any difference to the outcome?
Answer:
Where an enterprise is being conducted and the rates and taxes exceed $75 000 then the landowner will be required to register for GST as the GST turnover meets the registration turnover threshold requirements. The requirement to register will be subject to the property owner carrying on an enterprise, as previously explained.
Question 2:
Where the amount payable is less than $75,000 would the landowner require an ABN to avoid the operating entity withholding 46.5% of the rates for PAYG withholding?
Does not relate to an indirect tax specific issue
Answer:
To determine if the 'No ABN' provisions will apply in the scenario provided, the specific circumstances surrounding the case are essential. In the absence of these specific facts, general advice can be provided as to the application of the 'No ABN' withholding provisions.
Generally, the 'No ABN withholding' provisions are intended to cover transactions where both the payer and the payee are carrying on an enterprise. The payer will generally be required to withhold an amount from the payment if the payee fails to quote their ABN and none of the other exceptions applies:
The other exceptions include:
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- the payee has made the supply to the payer through an agent, and the agent's ABN is quoted to the payer before payment is made;
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- the payment (excluding GST) does not exceed $75;
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- the supply is wholly input taxed.
If, for example, the landowner is not carrying on an enterprise, on the basis that there is no reasonable expectation of profit or gain, the payer would not be required to withhold any amount from the payment to reimburse the landowner for rates and taxes. The landowner, however, may need to complete a 'statement by a supplier' form.
13.2.2 - Transactions between entities
Question 1:
Does a taxable supply occur when a Primary Production business, formerly operated by a partnership and now operated by a trust, pays a hire fee to the partnership for use of plant. The original partnership is still in existence but its only 'activity' is the ownership of the plant that is used by the trust. The hire fee is usually equal to tax depreciation relating to assets owned by the partnership?
Non-interpretative - other references:
- •
- MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
- •
- TR 97/11 - Income tax: am I carrying on a business of primary production?
Answer:
If all the requirements of section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met, there will be a taxable supply by the partnership.
Explanation:
Section 9-5 of the GST Act provides that you make a taxable supply if:
- •
- You make a supply for consideration; and
- •
- The supply is made in the course or furtherance of an enterprise that you carry on; and
- •
- The supply is connected with Australia; and
- •
- You are registered or required to be registered.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
Enterprise
The issue to be considered is whether or not the partnership is hiring out the equipment in the course or furtherance of an enterprise.
Section 9-20 of the GST Act looks at the definition of an enterprise and includes an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. However, it does not include anything done by an individual or partnership where all or most of the members are individuals, without a reasonable expectation of profit or gain.
If the partnership is being paid an amount equal to the depreciation amount it is possible that there may be an expectation of profit or gain. If this is the case, the partnership may be carrying on an enterprise. However, each case will need to be determined on the specific facts.
There are more comprehensive guidelines on the ATO view of what constitutes the carrying on of an enterprise in Taxation Ruling 97/11 also give valuable guidance on whether or not a business (of primary production) is being carried on.
Connection with Australia
As the equipment is made available in Australia, the requirements of paragraph 9-5(c) will be satisfied.
Registration
Division 23 of the GST Act deals with registration. Section 23-5 of the GST Act provides that you are required to be registered if:
- •
- you are carrying on an enterprise; and
- •
- your GST turnover meets the registration turnover threshold.
The turnover threshold (unless you are a non-profit body) is $75 000. Under section 23-10 you may also register if you are carrying on an enterprise or intend to do so whether or not your turnover is at, above or below the registration turnover threshold.
Consideration
The payment of the hire fee for the use of the equipment will represent consideration for the supply. If the consideration reflects the market value of the supply then the normal GST rules will apply. If the consideration does not reflect the market value of the supply and the partnership and trust are associates, Division 72 of the GST Act will need to be considered.
Division 72 ensures that supplies to and acquisitions from your associates for inadequate consideration are properly valued for GST purposes. Associate is a defined term for the purposes of the GST Act and has the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA). Subsection 318(4) of the ITAA deals with associates of partnerships.
Section 72-70 of the GST Act provides that if a supply to your associate is for consideration that is less than the GST inclusive market value is a taxable supply; its value is the GST exclusive market value of the supply. It is important to note that Division 72 will not apply if the recipient is entitled to full input tax credits.
Question 2:
If the partnership has no ABN, does the no ABN withholding rule apply?
Answer:
Does not relate to an indirect tax specific issue
If the partnership is not carrying on an enterprise for profit or gain because the only income is from the hire of plant, which is an amount equal to the depreciation of the plant for tax purposes, there is no need for the trust to withhold 46.5% because an ABN is not quoted by the partnership. The partnership, however, may need to complete a 'statement by a supplier' form. A copy of this form can be obtained by referring to the online fact sheet - Statement by a supplier (reason for not quoting an ABN to an enterprise).
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