Anything goes?** - Partnerships of trusts using a common trustee

Last week’s post considered the issues surrounding whether a partnership exists.

One issue that is raised relatively regularly in this context is whether a partnership of discretionary trusts, each with the same corporate trustee, can be a ‘partnership’ in the context of the various Partnership Acts in each state.

While it is a common commercial approach for a single corporation to act as trustee for multiple trusts, there is at times debate about whether a single trustee can act for multiple trusts who are seeking to trade in partnership.

Each state has different legislation in this regard, however the definition of a ‘partnership’ is substantially similar, generally being defined as a ‘relation which subsists between persons carrying on a business in common with a view of profit’.

‘Person’ is defined in the Acts Interpretation Act of each state as an individual or a corporation. Arguably therefore, one corporate trustee of multiple trusts seeking to form a partnership with themselves is not a partnership under the Partnership Acts because it is not a relationship which subsists between persons (with emphasis on the use of the plural word ‘persons’).

Against this argument is the fact that the Acts Interpretation Act in each state confirms both that plural words are deemed to have singular application and that an interpretation that best achieves the purpose of an act is to be preferred to any other interpretation.

On this basis a corporate trustee forming partnership with itself (in multiple capacities) will be a valid partnership under the Partnership Acts.

Furthermore, at least from a tax perspective, the Tax Office treats a single corporate trustee of multiple trusts purporting to be in partnership as a tax law partnership.

In particular in PSLA 2011/8, the Tax Office confirms that an entity or person can act in multiple capacities and in these instances they are taken to be a different entity or person, particularly where a trustee is a company.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Death in Vegas song ‘Aisha’.

View here:

Shut the door**: yes, a partnership exists

There are no statutory rules in the income tax law for deciding whether persons are carrying on business as partners.

For tax purposes, a tax law partnership will exist if 2 or more people are in receipt of income jointly.

However, whether a partnership also exists for general law purposes is more complicated.

This is because the question of whether a partnership exists is a mixed question of law and fact, as explained in arguably the leading case in relation to this point, Re Raymond William Jolley v Commissioner of Taxation [1989] FCA 62.

In other words, the existence of a partnership must be determined by applying the legal principles to the actual conduct of the parties towards one another and towards third parties during the course of carrying on business.

The Tax Office has confirmed that the primary factors it takes into account in this regard in Taxation Ruling TR94/8 as summarised below.

The starting point is the mutual intention of the parties. In this regard, the Tax Office confirms that a written or oral agreement is prima facie evidence of the required intention.

A fully signed written agreement is said to be desirable, but not necessary to demonstrate mutual assent and intention. That is, an agreement to act as partners can also be inferred from a course of conduct agreed to by all parties.

Generally, a lack of intention to be in partnership means that a partnership will not exist at law. Conversely however, a stated intention of partnership is not, of itself, sufficient to establish a partnership, as the intention must be manifested by the other key factor, being the conduct of the parties.

The conduct of the parties is analysed with reference to the following factors:

1. joint ownership of business assets;
2.  registration of a business name;
3. a joint business account and the power of each party to operate it;
4. the extent to which the parties are involved in the conduct of the business;
5. the extent of the capital contributions by the parties;
6. entitlements of the parties to a share of net profits;
7. extent of business records maintained;
8. whether the parties trade in joint names and publicly recognise the partnership. In this regard the existence of the following is considered relevant -
1. invoices, receipts, tenders, business letters and applications for approval in the partnership name;
2. written and oral contracts with the partnership;
3. advertising in the partnership name.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Death in Vegas song ‘Hands around my throat’.

 View here: