Special arrangements
GST joint venture
A GST joint venture is a written arrangement for a shared project, such as mining or property development, where an operator accounts for GST on behalf of all participants.
A GST joint venture is a special arrangement that lets a group of businesses working together on a project simplify how they report GST. The classic examples are mineral exploration, oil and gas production, and large property developments, where several parties share the costs and the output. Instead of every participant lodging separate paperwork for each dealing, one participant, the operator, handles GST for the venture.
To qualify, the arrangement must meet specific conditions. It must be a genuine joint venture, which is different from a partnership, set up under a written agreement. The participants must be entitled to a share of the output of the venture, not simply a share of the profit. The agreement must set out the operator and say that it is acting for all participants. Participants must also be registered for GST, and an operator must be nominated.
Once the joint venture is established, the operator does the reporting. Costs the venture incurs are generally treated as purchases by the participants in their respective shares, and the operator claims credits for them. When the venture supplies something, it is treated as made by the participants according to their entitlements. The operator lodges a GST return for the venture, which is then used by each participant for its own accounting.
Participants must still deal with their personal GST obligations. Their GST in the joint venture is separate from the GST of their other business activities, and they usually have a BAS of their own. They need to be registered for GST, and they typically record their share of the venture amounts as part of the BAS. The operator should provide adequate information so participants can include the right figures.
The most common misunderstanding is mixing up a joint venture with a partnership or a general co-operation. Two businesses who simply work together on a job, with each invoicing the client for its own work, are not in a GST joint venture. Another misunderstanding is assuming that any written agreement is enough. The agreement has to satisfy the requirements in the GST law, and the ATO can look at the substance of what happened.
Applying the correct rules is important because errors affect all the participants. If the operator makes a mistake, such as not registering properly or claiming credits that were not allowed, the effect flows to every participant. Records should be kept for at least five years, and participants should be able to see how each amount was worked out.
Because the conditions are technical, this page is general information only. Confirm whether your arrangement qualifies with the ATO or a registered tax professional.
Worked example
Two companies form a written joint venture to develop a quarry, sharing output 60 and 40. The operator pays a $110,000 invoice including GST for equipment and claims the $10,000 credit. The operator records $6,000 of this for the first participant and $4,000 for the second, and they report their shares. Later the operator sells output for $330,000 including GST, so GST of $30,000 is shared in the same proportions.
Practical tips
- Check that the arrangement is a real joint venture with a written agreement, not just two businesses working together.
- Make sure the operator gives participants enough information to include correct amounts on their own BAS.
- Keep the written agreement and all venture records for at least five years.