Co-Ownership of Leased Property

In its GST Ruling 2004/06 released on 1 September 2004, the ATO has cleared the confusion caused by the status of "tax law partnerships" in relation to acquisitions and supplies made by these partnerships. Unlike general law partnerships where a business is carried on, tax law partnerships have no legal status. Rather, there is in existence an association of persons who are in receipt of or entitled to ordinary or statutory income jointly.

For the purposes of GST, tax law partnerships may carry on an enterprise, acquire or lease property, receive income or incur expenses and must register for GST if the annual turnover threshold of the partnership exceeds $50,000. Tax law partnerships most commonly occur in cases where two or more individuals or businesses jointly purchase and lease commercial or investment properties.

Significantly, each co-owner will be liable for GST if a supply or transaction is made by one partner on behalf of the partnership and this includes receipts of rent by a partner from leased commercial property. They are also entitled to input tax credits for creditable acquisitions made by the partnership.

The circumstances under which a tax law partnership may be formed are outlined by the ATO in the Ruling. Under its time of association approach, the main circumstances which will trigger the formation of such partnerships include the following:-

• entities jointly acquire property or asset with the intention of converting it to an income producing use;
• a new entity purchases an interest in property with the intention of jointly carrying on an income-producing activity with other co-owners;
• existing co-owners agree to convert a property into an income-producing enterprise.

In such cases, the ATO requires co-owners to review and amend their individual GST registration to a tax law partnership registration before the deadline on 30 June 2005.

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