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04 Dec 2014

Relationship property agreements - GST implications

The CIR does not intend to issue a statement on relationship property agreements and GST implications. Ordinary GST provisions and principles continue to apply.

In Tax Information Bulletin Vol 12, No 5 (May 2000):25, the Commissioner withdrew an item entitled “GST – Matrimonial Property Agreements”, which had previously been published in Tax Information Bulletin Vol 1, No 6 (December 1989):1.

The withdrawn item concerned a GST registered sole trader transferring an interest in their taxable activity to their relationship partner as part of an agreement made under what was then known as the Matrimonial Property Act 1976 (since renamed the Property (Relationships) Act 1976 (PRA)).

The withdrawn item accepted that, due to the provisions of the PRA, the relationship partners had always jointly owned the assets and that a partnership was presumed to have existed between them.  However, the item was withdrawn because the Commissioner no longer considered this was correct.

The notice of withdrawal stated that ordinary GST principles applied to these transfers.  It was accepted that further clarification might be needed.  

However, it appears that such situations involving relationship property agreements now occur less frequently.  Indications are that relationship property agreements are more commonly used following the breakdown of a relationship or at the start of a new relationship.  This change may be related to the repeal of gift duty in 2011.  Also, companies and trusts are now more commonly involved as trading entities than was previously the case.  The GST issues in those situations are generally less complicated.  Often the taxable activity is transferred as a going concern, or shares in a company are transferred without GST consequences (being an exempt supply).  This contrasts to the situation in the withdrawn item where the likelihood of an unfavourable GST outcome is greater (ie, a GST output tax liability with no corresponding right to input tax deductions may arise on the transfer of the interest in the taxable activity).

Given that the situation originally giving rise to GST issues infrequently arises in practice, the Commissioner does not intend to allocate further resources to this matter.  Ordinary GST provisions and principles continue to apply.