Two people own a property together and use it for short-stay accommodation. One is already GST registered for another business. Can they simply include their share of the property's income and expenses in their existing GST return?

Not necessarily.

The answer depends on the relationship between the owners. If they are carrying on the activity as a partnership or another unincorporated body, the GST Act may treat the body — rather than its individual members — as the relevant “person” for GST purposes.

Recent attention on the GST treatment of unincorporated joint ventures has highlighted some of the difficult issues that can arise. Inland Revenue's draft interpretation guideline PUB00530, GST – Types of unincorporated bodies, released in May, provides some useful guidance.

The draft considers partnerships, joint ventures, trustees of trusts and other unincorporated bodies.

Partnerships

A partnership is not a separate legal entity but describes the relationship between people carrying on a business in common with a view to profit. For GST purposes, however, a partnership is treated as an unincorporated body and therefore as a separate “person”.

Where the partnership is required to be GST registered, it has its own GST registration and files returns separately from the individual partners. Supplies made by partners in their capacity as partners are treated as being made by the partnership. The same applies to supplies received in that capacity.

Inland Revenue illustrates this with a GST-registered piano tuner who also owns, in partnership, a property used for short-stay accommodation. The piano-tuning activity belongs in the individual's GST return, while the accommodation activity belongs in the partnership's return.

It is a useful reminder that the question is not simply who received the income or paid the invoice, but in what capacity they did so.

Joint ventures

Joint ventures (JVs) can be more difficult to identify because there is no particular legal definition of a JV for GST purposes. Inland Revenue describes a JV as an arrangement where parties come together to achieve a particular commercial goal they have in common.

A JV will often have a finite or confined purpose, unlike a partnership formed to conduct a general and ongoing business. There must, however, be something more than “fortuitous co-ownership”.

One example in Inland Revenue’s draft is a long-term property developer who finds a property in a new location suitable for a large-scale development.  He does not have the funds to carry out the development so he approaches a lender.  The parties agree to work together to develop the property, with all decisions mutually agreed and the profits split at the end of the development.  They are working together for a “finite and confined purpose” rather than a “general and ongoing business”.  This satisfies the meaning of a JV. 

There has been a recent law change to allow some JVs to act as “flow-through” provided they meet certain requirements and an election has been made.  In that case, the members of the JV can account for the JV supplies in their individual GST returns.

Trustees of a trust

A trust is not itself a separate legal entity. It is a legal relationship under which trustees hold property for beneficiaries or permitted purposes.

For GST purposes, however, the trustees of a trust are collectively treated as an unincorporated body. Where they carry on a taxable activity and the registration requirements are met, that body accounts for GST.

Of the unincorporated bodies discussed, a trust is usually the easiest to identify because it will generally have a trust deed and identifiable trust property.  

Bare trusts are different. A bare trust, where the trustee has no duties other than to convey the property to the beneficiary as directed, is treated for GST purposes as an agency relationship, with the trustee acting as agent for the beneficiary. 

Other types of unincorporated bodies

Other arrangements, including clubs and syndicates, may also qualify as unincorporated bodies. The key is whether the parties have associated together for a common purpose, rather than simply being co-owners or sharing costs. There must be something more than “fortuitous co-ownership”.  

We expect the draft will be finalised by the end of the year, providing a useful guide for determining the GST treatment when parties carry on activities together.