Business structures
Joint venture
A joint venture is an arrangement where two or more parties combine resources for a specific project, sharing output or profit, without forming a partnership or a separate company.
A joint venture is a collaboration in which two or more parties agree to work together on a specific project or undertaking, such as developing a property, running a mining operation or producing a film. Each participant contributes assets, skills or money, and the results are shared according to the agreement. A joint venture is not a separate legal entity, and it is usually limited to the project rather than being an ongoing general business, which is what separates it from a partnership.
Whether an arrangement is a joint venture or a partnership depends on the facts. In a partnership, the parties carry on a business in common with a view to profit and share the profits. In a joint venture, each party typically takes its own share of the output or revenue, and bears its own costs. Parties should not rely on the label they give the arrangement. The ATO looks at what the parties actually do, and a written agreement helps make the intention clear.
For income tax, each participant in a joint venture generally reports its own share of income and deductions in its own tax return. There is no separate joint venture tax return in the way a partnership lodges one. This makes it important for each party to keep records of its share of the revenue and expenses, and to be clear about who owns which assets.
GST has a specific arrangement for joint ventures that can make life simpler. If the participants meet the conditions for a GST joint venture, they can appoint a joint venture operator, who accounts for GST on behalf of all participants and lodges a single BAS for the venture. The participants must all be registered for GST, and must agree in writing. Without a GST joint venture, each participant deals with its own GST on its share of supplies and purchases, which can lead to a more complicated position.
The operator of a GST joint venture is generally responsible for paying GST on supplies made by the venture and claiming credits for acquisitions, and then passing the proceeds on to participants. Participants should still keep records of their dealings with the operator. Employees and workers compensation, payroll tax and other state obligations apply to whoever employs workers in the venture and are administered by state and territory authorities.
A common misunderstanding is that a joint venture automatically gives the participants limited liability. It does not. Each participant is exposed to risks of the venture to the extent of its agreement and law. Another mistake is not documenting the arrangement, particularly who is the operator and how GST will be handled.
This is general information, so confirm the position for your arrangement with the ATO or a registered tax professional.
Worked example
Two builders, each registered for GST, agree to develop a block of units as a joint venture, sharing costs and sales 50:50. They form a GST joint venture and appoint Builder A as operator. On the venture's sales of $2,200,000 including GST, GST is $200,000. The operator reports $200,000 less credits of $60,000 on one BAS, paying $140,000 net. Each builder reports its own share for income tax.
Practical tips
- Put the joint venture agreement in writing, covering who owns what, how costs and revenue are shared and who is the operator.
- If you want the simplified GST arrangement, check that every participant is registered for GST and that the other conditions are met before you start.
- Do not assume a joint venture is a partnership. The tax and reporting treatment differs, so confirm which one you have.