STATEMENT
This Practice Statement addresses a particular issue that we are aware of in the mining and petroleum industries. The issue relates to the goods and services tax (GST) treatment of taxable supplies made by the joint venture operator on behalf of participants in the joint venture other than sales of the product or output [1] of the joint venture. These supplies are commonly referred to as 'non-product sales'.
There are various types of taxable supplies that may be made by the joint venture operator that can result in non-product sales income being earned. These supplies may vary in value and frequency. For example, the operator may: • sell fuel to subcontractors in a remote location [2] • charge another entity for use of port facilities or a rail network to transport product to ships for export (commonly referred to as 'tolling'), or • receive income from allowing a grazier to agist cattle in an area of a mining tenement that is not currently being explored or exploited.
If a joint venture is formed as a GST joint venture under Division 51 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the nominated joint venture operator accounts for the GST liabilities and entitlements arising from its dealings on behalf of the participants in the course of the activities for which the joint venture was entered into. However, there can be uncertainty among affected entities as to whether supplies that generate non-product sales income can also be dealt with by the joint venture operator.
In practical terms, the industry concern is that there may be increased compliance costs if the joint venture operator is not allowed to account for the GST on these non-product supplies. A different accounting and GST treatment would be required to that adopted by industry members for other aspects of the operations of the joint venture.
This Practice Statement outlines the circumstances in which the operator of a GST joint venture can account for the GST on taxable supplies that generate non-product sales income. It only applies to supplies made by the joint venture operator of a GST joint venture for the exploration or exploitation of mineral deposits (which includes petroleum, sand and gravel) [3] on behalf of the participants in the joint venture.
All legislative references in this Practice Statement are to the GST Act, unless otherwise indicated. References to 'joint ventures' do not include incorporated joint ventures or partnerships.
The GST law provides for the formation of [4] 2 or more entities as the participants in a GST joint venture [5] for the exploration or exploitation of mineral deposits if certain requirements are satisfied. These include the requirement that the entities agree in writing to the formation of the joint venture as a GST joint venture [6] and that the agreement nominates one of those entities, or another entity, to be the joint venture operator of the joint venture. [7] The nominated joint venture operator is required to notify us, in the approved form, of the formation of the joint venture as a GST joint venture. [8]
A consequence of the formation of a GST joint venture is that the GST payable on a taxable supply or taxable importation that the joint venture operator makes on behalf of another entity that is a participant in the joint venture in the course of the activities for which the joint venture was entered into is: • payable by the joint venture operator, and • not payable by the participant. [9]
In this way, the responsibility for payment of GST on a supply made as the joint venture operator, which would ordinarily fall upon the participants, is imposed on the joint venture operator rather than the participants. [10] However, the participants remain jointly and severally liable for the GST that is payable by the joint venture operator [11] unless they have entered into an indirect tax sharing agreement with the joint venture operator. [12]
We accept that the costs of compliance for the mining and petroleum industry can be reduced if the joint venture operator can account for the GST on non-product sales that are typically of the kind described in paragraph 2 of this Practice Statement.
Consequently, we will accept the joint venture operator accounting for any GST on non-product sales made in a particular tax period in the following circumstances: • The joint venture operator is the operator of a GST joint venture for the exploration or exploitation of mineral deposits (which includes petroleum, sand and gravel). [13] • The non-product sales are made by the joint venture operator on behalf of the participants. • The joint venture operator accounts for the non-product sales in the activity statement for the tax period applying to the joint venture operator for the joint venture. • The participants remain jointly and severally liable for the GST payable on the non-product sales or have entered into an indirect tax sharing agreement with the joint venture operator under which the contribution amount takes into account the non-product sales.
MiningCo is the joint venture operator of a coal mining joint venture, which has been formed as a GST joint venture. MiningCo is also one of the participants in the joint venture. The mining lease area owned by the participants that will be exploited is very large. The coal body is being exploited in stages and only part of the lease area is being excavated. The remainder of the lease area is well grassed. MiningCo, as joint venture operator, has agreed to allow a grazier to agist cattle in this area for 6 months for an agreed fee.
MiningCo can include the agistment supply in MiningCo's GST joint venture activity statement.
If the issue addressed in this Practice Statement arises in other industries in which joint ventures operate, industry associations (whose members are affected) should be invited to request that we consider approving a similar practice in respect of their circumstances. The request should be considered on the basis of the circumstances of the GST joint ventures in the particular industry, including the nature and circumstances of the non-product taxable supplies made.
Industry bodies wishing to make such requests should be asked to address the request to: Technical Leadership and Advice – GST PO Box 3524 Albury NSW 2640 or facsimile: 1300 139 031