If you are considering undertaking a project (eg. property development) you might be looking for a partner to join the assets, knowledge and expertise. What business structure is most suitable for you? Careful planning ensures that a proposed structure is tax efficient. You can set up a partnership or enter into a joint venture agreement. The tax treatment of a partnership differs from a joint venture.

A partnership is not a separate legal entity but it requires to lodge a tax return. There are certain rules related to the allowable deductions for a partnership. Partners are required to include their share of a partnership net income in their individual tax returns. An unincorporated joint venture does not lodge a tax return; instead, each joint venturer lodges a separate tax return.

To distinguish between a joint venture and a partnership the ATO would analyse the nature of the business relationship rather than relying on the wordings of the agreement. The ruling specifically states that an arrangement is a joint venture if the participants are to share product or output rather than profits or sale proceeds. Generally, a partnership is a continuing business; whereas, a joint venture is created for a specific economic project. Joint venture participants are usually liable for their own debts which they incur individually

For GST purposes separate joint venturers may be allowed to form a single group. Generally, transactions between group members are ignored for GST purposes. One entity, known as the representative member, manages the group’s GST affairs. The representative member is responsible for the GST payable and can claim the GST credits on transactions undertaken by group members (except transactions between group members). This arrangement helps to reduce administrative cost in relation to GST compliance.

The distinction between a partnership and a joint venture is vital because of the different tax implications. It’s important to seek professional advice to ensure you are adhering to the requirements. Contact The Quinn Group today on 02 9223 9166 for more information or submit an online enquiry here.