Managing Joint Ventures in Property Development

When participants in a joint venture (JV) are involved in property development, they may encounter challenges regarding the treatment of the land as trading stock. This can impact deductions for development expenses and potentially lead to a gain for the original landowner before the land is sold.

In an unincorporated joint venture (JV), there's no separate tax return for the JV itself. Instead, each participant files their own tax return, including their share of expenses and income. They're taxed individually on any profits they make from selling their share of the JV's output. This setup is different from partnerships, where all partners are taxed together.

Understanding the Concept of a 'Common Law Employee'

Over the years, the definition of a "common law employee" has been shaped by numerous court rulings. Determining if someone is an employee or an independent contractor is a detailed process that depends heavily on specific facts and involves multiple factors.

In the landmark case of On Call Interpreters and Translators Agency Pty Ltd v FCT [2011] FCA 366 (referred to as "On Call's case"), Justice Bromberg emphasized the need for an objective assessment of the relationship between a worker and the organization benefiting from their work. This involves looking beyond the contract to how the work is actually done and how the working relationship is structured.

The approach developed by Bromberg J is practical: it checks if the worker acts as a business owner, taking entrepreneurial risks and working primarily for their own enterprise, not merely as a representative of the hiring firm. If the answer to these considerations is "yes," the worker is generally seen as an independent contractor. If not, they are likely an employee.

Key indicators used to determine if a business exists, as noted in On Call's case, include:

• Does the business activity involve taking risks to make a profit?
• Does the business consistently interact with its customers?
• Are other individuals besides the owner involved in running the business?
• Is the business building a reputation in the market?
• Does the business promote itself through advertising?
• Are there physical assets like buildings and equipment supporting the business activities?
• Are there systems in place for billing, budgeting, and managing finances typical for such businesses?
• Are the services offered by the business specialized enough to suggest a professional trade?
• Is the business compliant with necessary regulations like taxation and registrations?

If you have questions about determining the status of a worker or setting up a compliant business structure, please get in touch with Tax Ideas Accountants & Advisers at                +61 2 83181545 or book a time directly through our online calendar.

Application of relevant case law principles:

The taxpayer's business structure: