The Partner You Didn't Know You Had
Many developers use a property development agreement. A landowner contributes the land. The developer contributes the works. The document is headed joint venture agreement and says in terms that the parties are not partners.
The heading does not decide it, and the difference can be the whole GST liability of the project.
Haven't read Part 1?
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Follow the link below to start from the beginning.
Two tests, not one
The Federal Court has held a property joint venture to be a partnership on its substance, with the partners jointly liable for the GST. The indicators are a mutual interest in profit, shared losses, and each party able to bind the other.
A short way of putting the distinction is that joint venturers share the product and partners share the profit. In a development, sharing the product means each party takes its own completed lots or units and sells them separately, on its own account. Sharing the profit means the lots are sold and the proceeds divided. That test is a starting point, not the whole classification.
There is a second test that is easy to miss. Co-owners who receive income jointly can be a tax law partnership for GST purposes without carrying on a business together at all. Both tests have to be worked through.
What Follows Next
A participant can find itself liable for the entire GST of the joint venture. The purchase of the site may have been structured on an assumption that turns out to be false. And the basic questions become unclear: which entity is registered, which one makes the supplies, and which one is entitled to the credits on construction.
Those questions are answered by identifying who acquires the development inputs and by defining the relationship properly in the agreement. The agreement, the invoicing and the actual movement of money then need to describe the same arrangement.
Before the property development agreement is signed
- Test the arrangement against both the general law and tax law partnership definitions
- Settle which entity is registered, makes the supplies and claims the credits
- Match the invoicing and the bank accounts to that decision from day one
- Deal expressly with how the developer secures its interest while it improves land it does not own
- Check the margin scheme and withholding positions for the entity that will actually sell
Development agreement GST review
To start, tell us the parties and the stage of negotiation. A draft agreement can follow.
Typically, you receive a written view on the GST partnership joint venture question, the registration and credit position for each entity, and the GST matters for your solicitor to address in the agreement.
The scope and fee are agreed first – we are transparent with pricing and our commitments.
If your already operating under a property development agreement – Tell us how the invoices and payments have run, and we will assess where the exposure sits and what can be regularised.
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