The central question in this case was whether the land used for a golf course was owned by a partnership or by individual persons as tenants in common. The question arose in the context of an election made by the partnership to treat the sale of land as taxable.
The case discusses the common law principles to be applied in determining whether an asset is owned by a partnership or by persons in their own right. Those principles should also apply in Australia, subject to any legislative provisions in the various State Partnership Acts.
The issue of whether assets are owned by a partnership or by the partners is also important in the context of GST in Australia. Section 184 of the GST Act treats a partnership as a separate entity and the primary liability for supplies made by the partnership falls on the partnership, not the partners. However, the partners are jointly and severally liable for the GST under s 444-30(2) of Schedule 1 to the TAA.
The Partnership traded as the Wrag Barn Golf and Country Club. The Partnership had waived its exemption treat land as taxable, and the question was whether the Partnership was liable to VAT on supplies of the Golf Course to two companies under a lease granted in 2000.
An initial hearing of the First Tier Tribunal ( UKFTT 30) found that the Partnership had made a valid election to treat the land as taxable, but on appeal the Upper Tribunal (2012 UKUT 111) remitted the matter to the First Tier Tribunal to determine whether the golf course was an asset of the Partnership.
The facts were as follows:
- Mum and Dad had owned the land for many years and had carried on a farming business in partnership, initially with each other and later with their two sons.
- in 1987 the parents considered diversifying their business activities and that included the possibility of starting a golfing business. Wrag Barn Golf and Country Club Limited (the Company) was incorporated and the Company registered for GST. The Company incurred costs in relation to the construction of the golf course.
- At some point prior to 27 June 2000, the parents decided that the Company would not carry on the business of the Golf Club and they formed a Partnership to carry on the golf club business. The Partnership registered for VAT and notified the Revenue that it waived its exemption for VAT on the disposal of the golf club.
- On 7 February 1991 the parents and two sons entered into a Partnership Agreement in respect of the golf club business and a Deed of Gift by which the parents conveyed the golf course to themselves and their sons in fee simple on trust to sell in equal shares – the judge at first instance found that this was not a transfer to a new golfing partnership, but was consistent with the sons joining the partnership and carrying on the business of running the golf club.
The taxpayers submitted that the golf course was never an asset of the Partnership and that the golf course was owned by the parents until the Deed of Gift in 1991, whereby the land because the property of the parents and the sons in equal shares (ie, separate from the partnership).
The Court referred to a number of texts which were said to provide valuable guidance on the approach to be taken in determining what are the assets of a partnership and what is the property of an individual partner. The Court concluded that the question of whether a particular asset is or is not partnership property is, where there is no express agreement, a highly fact sensitive issue and no single test is conclusive. The relevant matters to consider included:
- the circumstances of the acquisition, including the source of finance;
- the purpose of the acquisition;
- the manner in which the asset has subsequently been dealt with;
- how the property appears in the firm’s accounts.
The Revenue accepted that the mere fact that property owned by the partners outside the firm is used by the business does not render it partnership property. The question appears to be whether the property was “so involved in partnership dealings” as to raise the inference that the parties intended it to be partnership property.
The Court found that golf course was an asset of the Partnership. A highly relevant consideration was that the rental for the golf course was included in the Partnership accounts as revenue – which the Court found evidenced that the parents and the sons regarded the golf course as an asset of the Partnership. The taxpayer’s contended that this was an error, but the Court did not agree.