Joint Venture
9. Taxation of Joint Ventures
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 10 Aug 2015
- Although a joint venture does not always amount to a partnership for regulatory and compliance purposes it may still be recognised as a partnership for taxation purposes.
- Income tax and Goods and Services Tax (GST) provide a definition of a partnership for tax purposes that is wider than the definition used for general legal purposes. For taxation purposes a partnership can include a situation where two or more parties receive income jointly. There is no requirement for example that the two parties carry on a business together.
- What this essentially means is that even though the general law does not recognise your joint venture arrangement as a partnership it might still be taxed as a partnership.
- Whether this is the case will depend on the nature of your specific venture. For example where participants are in receipt of joint income this may be considered differently from where the outcome of your joint venture is some benefit other than income or profit.
- One common example of a joint venture that may be considered a partnership for tax purposes is co-ownership of a rental property. In this example the purchase of property itself is a single investment. It does not constitute the 'carrying on of a business.' The intention of this venture is to share in the profits jointly. Tax law treats the joint venture as if it were a partnership. Each of the co-owners would need to include their share of the profits in their individual tax return.
- A possible exception to this rule is a joint venture between property developers. For example one business may purchase land and another business develops it for sale. The end product of the joint venture is a property development. The developer may be receiving a fee rather than a share of any profits from the sale of the house. In this scenario it may be possible to distinguish the joint venture from a partnership for taxation purposes. In this situation a fee would be tax-deductable for the land owner. However if the two businesses were simply sharing in profits from sale then the shared amount would not be tax deductible.
- Whether the joint venture will be treated as a partnership for tax purposes depends on the nature of your particular arrangement.
- Obtaining legal advice before engaging in any joint venture will ensure that you understand the taxation implications of your arrangements and choose a business structure that maximises your potential profits.
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