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  • 1.1.5 Are bodies corporate non-profit bodies for the purpose of the registration turnover threshold as provided for in section 23-15 of the GST Act?

    For source of ATO view, refer to paragraphs 105 to 109 of GSTR 2012/2 - Goods and services tax: financial assistance payments

    The meaning of 'non-profit body' for GST purposes is discussed at paragraphs 105-109 of GSTR 2012/2.

    The Commissioner's view of when a society, association or club is not carried on for the purpose of profit or gain is explained in Taxation Ruling TR 97/22. Paragraph 108 of GSTR 2012/2 provides that a body is a non-profit body where, by its constituent documents or by operation of law (for example, a statute governing the body's activities), it is prevented from distributing its profits or assets amongst its members while the body is functional and on its winding-up. The body's actions must be consistent with the prohibition.

    Paragraph 109 of GSTR 2012/2 provides that where the law or the constituent documents do not prohibit distributions, whether the body is not carried on for purposes of profit or gain to the individual members is to be determined by reference to the surrounding circumstances. Factors that are considered relevant include whether distributions have been made, whether there is a stated or demonstrated policy to make or not to make such distributions and whether winding-up is contemplated. Where it is clear from the objects, policy statements, history, activities and proposed future directions of the body that there will be no distributions to members, we accept that the non-profit test has been satisfied.

    Bodies corporate are permitted by their governing state or territory legislation to make distributions to proprietors in certain circumstances. Such legislative provisions cannot be excluded by a by-law of the body corporate. See:

    • Taxation Ruling IT 2505 - Income tax : bodies corporate constituted under strata title legislation, and
    • Taxation Determination TD 93/73 - Income tax: will a strata title body corporate be taxed as a non-profit company if it includes non-profit clauses in its by-laws?

    We consider that the circumstances in which profits will be available for distribution by a body corporate to its proprietors will be limited. In some states or territories, the body corporate does not own the common property. In the other states or territories, it holds the common property on trust or as agent for the members. In most cases the only assets that a body corporate will hold in its own capacity will be limited to the balance of the sinking fund and administration fund and any personal property such as washing machines, driers and lawn mowers etc. which are necessary for the basic purposes of the strata scheme.

    A return of the members' own funds will not amount to a distribution of profits but a return of capital. The sinking fund and administration fund may include interest income or other income such as income from the rental of common property. The existence of interest income or income from rental or other activities in the various funds held by the body corporate will not preclude the body corporate from being a non-profit body for the purposes of the GST Act. However, an intention to distribute the interest income or profits from rental or other activities, either while the body corporate is functional or upon its winding up, would disqualify the body corporate from being a non-profit body for the purposes of the GST Act.

    A non-profit body will be required to register for GST where its GST turnover of taxable supplies and GST-free supplies meets or exceeds $150,000. The making of input taxed supplies (for example, residential rent) is not included in the calculation of the GST turnover for a non-profit body corporate.

    The treatment for GST should be contrasted with the treatment for income tax. In subsection 3(1) of the Income Tax Rates Act 1986, non-profit company means:

    (a) a company that is not carried on for the purpose of profit or gain to its individual members and is, by the terms of the company’s constituent document, prohibited from making any distribution, whether in money, property or otherwise, to its members, or
    (b) a friendly society dispensary.

    In TD 93/73 it is said that this definition excludes bodies corporate. This is because, as stated earlier, the relevant state and territory legislation provides that a body corporate can make distributions to its proprietors in certain circumstances (for example, on winding up). This power can not be excluded by a by-law of the body corporate. Accordingly, for income tax purposes, a strata title body corporate fails the statutory test of prohibition on distribution to members set out in paragraph (a) of the definition and is not a non-profit company.

      Last modified: 05 Aug 2016QC 16473