Goods and Services Tax Determination

GSTD 2009/2

Goods and services tax: are there GST consequences when a partner in a partnership takes goods held as trading stock for private or domestic use?

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Preamble

1. Yes, when a partner in a partnership takes goods held as trading stock for private or domestic use there is a supply by the partnership to the partner in the course or furtherance of the partnership's enterprise. If the other elements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)^[1] are satisfied, there will be a taxable supply by the partnership to the partner. Division 72 will apply where the partner provides no consideration or inadequate consideration for the supply. Division 130, which deals with goods applied solely to private or domestic use, does not apply.

Explanation

2. The partnership is a separate entity to the partner who takes goods held as trading stock from the partnership for private or domestic use.^[2] When a partner in a partnership takes goods held as trading stock from the partnership for private or domestic use, the partnership makes a supply of the goods to the partner.^[3]

3. A supply of trading stock by a partnership to a partner will be a taxable supply under section 9-5 where:

(a)

the partnership makes a supply for consideration;

(b)

the supply is made in the course or furtherance of an enterprise that the partnership carries on;

(c)

the supply is connected with Australia; and

(d)

the partnership is registered, or required to be registered.

However, the supply will not be a taxable supply to the extent that it is GST-free or input taxed.

4. The Commissioner takes the view that an in specie distribution of trading stock by a partnership to a partner is made for consideration.^[4] The in specie distribution of goods held as trading stock by a partnership to one of its partners has the effect of proportionately reducing the partner's entitlement to a distribution of any surplus remaining after the realisation of assets, and payment of debts and liabilities of the partnership, on the winding up of the partnership. The Commissioner considers that the partner's entitlement or right to a proportion of the surplus after the realisation of the assets, and payment of the debts and other liabilities of the partnership, forms part of the partner's interest in the partnership. The consideration for the supply of the goods to the partner is the proportion of the partner's interest in the partnership, reflected by the value of the goods distributed and may be represented by:

(a)

an amount debited to the capital account of the partner;

(b)

an amount debited to the current account of the partner; or

(c)

a combination of amounts debited to both the partner's capital account and current account.

5. The supply of the goods held as trading stock by the partnership is a supply made in the course and furtherance of the enterprise carried on by the partnership.^[5] The application of the goods held as trading stock in the enterprise carried on by the partnership establishes the necessary connection between the supply of the goods and the partnership's enterprise.

6. Therefore, where the partnership is registered or required to be registered and the supply of the goods is connected with Australia,^[6] the supply of goods by a partnership to a partner by way of an in-specie distribution will be a taxable supply under section 9-5 to the extent that the supply is not GST-free or input taxed.

7. There may also be circumstances where a partnership supplies goods to a partner for the partner's private or domestic use other than by way of an in specie distribution, that is in the course of the partnership's activities. In these circumstances, if the supply is made to the partner for no consideration or for inadequate consideration, Division 72 will apply.^[7]

8. In the circumstances described in paragraph 7 of this Determination, where a supply of goods is made to the partner for the partner's private or domestic use and for nil consideration Division 72 will operate to bring the supply within the GST system. The supply will be a taxable supply to the extent that it is not GST-free or input taxed. The value of the taxable supply will be the GST-exclusive market value of the supply.^[8]

9. If a supply of goods is made to the partner for consideration less than the GST inclusive market value, the supply will be a taxable supply under section 9-5. Section 72-70 will apply and the value of the taxable supply will be the GST-exclusive market value of the supply.

Division 130

10. Division 130 is an adjustment provision that can result in an increasing adjustment of an amount equal to the input tax credits to which you were entitled upon acquisition or importation of goods. You have an increasing adjustment under Division 130 if the goods were acquired or imported solely for a creditable purpose and you now apply them solely to private or domestic use.

11. Division 130 does not apply to a partnership. Subsection 130-5(1) requires, amongst other things, that 'you made a creditable acquisition or creditable importation of goods' and that 'you apply the goods solely to private or domestic use'. The use of the word 'you' in section 130-5 means that the Division only applies where the same entity that acquired or imported the goods also applies the goods to private or domestic use.

12. In the case of a partnership, the entity that acquired or imported the goods is different from the entity that applies the goods to private or domestic use. The partnership acquired or imported the goods but it is the partner in their individual capacity who applies the goods to private or domestic use.

Examples

Example 1

13. Larry and Ralph are in partnership. The partnership is registered for GST and operates a hardware store in Australia. The partnership, as part of a distribution of partnership profits, supplies Larry, by way of an in-specie distribution, tools held as trading stock for Larry's own private and domestic use. The supply of the tools is for consideration^[9] and is made in the course or furtherance of the enterprise carried on by the registered partnership. The in-specie distribution of the tools to Larry by the partnership is a taxable supply by the partnership to Larry.

Example 2

14. Alex and Tom are in partnership operating a corner store in Australia. During the tax period the partnership supplies Alex with bread, milk, soft drinks, confectionary and ice creams. Supplies of milk and bread are GST-free^[10] and not taxable supplies. Supplies of soft drinks, confectionary and ice creams are taxable supplies.^[11] The market value of the soft drinks, confectionary and ice creams is $330 (inclusive of GST). Alex pays consideration of $100. Division 72 applies to the supplies of the soft drinks, confectionary and ice creams because Alex is an associate of the partnership and has provided inadequate consideration. The GST exclusive market value of the taxable supplies is $300 (10/11 x $330) and the GST payable by the partnership is $30 ($300 x 10%).

Date of effect

15. This Determination explains the Commissioner's view of the law as it applies both before and after its date of issue. You can rely upon this Determination on and from its date of issue for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

Commissioner of Taxation
7 October 2009

GSTD 2009/D1

References

ATO references:
NO 2009/1861

Related Rulings/Determinations:

GSTR 1999/1
GSTR 2000/31
GSTR 2003/13
MT 2006/1

Subject References:
associate
carrying on an enterprise
distributions in specie
GST consideration
GST inadequate consideration
GST supply
GST supplies without consideration
increasing adjustment
partnerships

Legislative References:
ANTS(GST)A 1999
ANTS(GST)A 1999 9-5
ANTS(GST)A 1999 38-2
ANTS(GST)A 1999 38-3(1)
ANTS(GST)A 1999 Div 72
ANTS(GST)A 1999 72-5(1)
ANTS(GST)A 1999 72-10
ANTS(GST)A 1999 72-70
ANTS(GST)A 1999 Div 130
ANTS(GST)A 1999 130-5
ANTS(GST)A 1999 130-5(1)
ANTS(GST)A 1999 184-1
ANTS(GST)A 1999 184-5(1)
ANTS(GST)A 1999 195-1
ITAA 1936 318
TAA 1953 Sch 1 105-60