The Federal Court has dismissed appeals by taxpayers concerning the Commissioner’s decision to disallow an objection to a notice of assessment for the payment of GST regarding properties sold.
The matter concerned husband and wife taxpayers who entered into an agreement with a third party to develop and construct a real estate project. The husband registered a separate entity for GST in relation to the project and lodged BASs claiming refunds. However, when the properties were sold, no GST was remitted. Accordingly, the Commissioner issued a notice of assessment for the GST liability in relation to the sales of property to the entity for an amount of $611,203. The taxpayers subsequently paid the Commissioner $305,601 (50% of the amount) as they believed the third party would be liable for the other 50%.
The Commissioner then commenced proceedings against the taxpayers to recover the unpaid balance of GST as the third party did not pay the amount and was placed into external administration. Broadly, the Commissioner argued that the agreement between the parties constituted both a general law partnership and a tax partnership, therefore, the partners would be jointly and severally liable for any debts. The taxpayers however contended that the agreement did not constitute a partnership but rather a “non-entity joint venture”.
The Federal Court agreed with the Commissioner and held that the arrangements involved a partnership. It said that a clause in the agreement specifically stated that the parties were to “share equally all costs, liabilities, mortgages and proceeds derived from any sale arising from the property” and that statement was inconsistent with several liability. As to the taxpayers’ contention that the arrangement was a non-entity joint venture, the Court held that the taxpayers did not meet the definition of a non-entity joint venture as there was no appropriate contractual agreement between the parties. Therefore, the Court dismissed the taxpayers’ appeals and held they were liable for the unpaid balance of GST.
(Yacoub v FCT [2012] FCA 678, Federal Court, Jagot J, 29 June 2012.)
[LTN 126, 3/7]