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  • Issue 5 GST groups

    5.1 Is there an intention to promulgate Regulations to extend the grouping provisions beyond the circumstances currently specified in Division 48?

    No longer applicable.

    5.2 When will the form for GST group registration be available?

    No longer applicable.

    5.3 Are applications for GST groups required to be lodged before 31 May to be processed before the start of GST?

    No longer applicable.

    5.4 Will there be a public ruling on GST groups?

    Such a ruling is not currently on the rulings program. If there is sufficient demand, a draft public ruling would be issued.

    5.5 Can an employer group with a superannuation fund?

    ATO position

    The short answer to this question is 'it depends'. If both the employer and super fund satisfy the membership requirements of a GST group, then they can be approved as a GST group as long as the other approval requirements in s 48-5 are met (that is, the entities jointly apply in the approved form and the application nominates one of the entities (which must be an Australian resident) to be the representative member for the group).

    5.6 GST on tax loss transfers

    Can the ATO comment on the press article appearing in the AFR 23/10 which noted the view of Ernst and Young that GST may apply to tax loss transfers between group entities? Does the ATO agree that such a transaction will attract GST?

    Where tax losses are transferred to a company that is not a member of the same GST group as the transferor company, the transfer of tax losses will generally be a taxable supply because it is the supply of a right (to deduct the tax losses). Payments made as consideration for the supply of the right to deduct the tax losses will include GST.

    Supplies made for no consideration may still be subject to GST where the supply is between associates. The transferee company may be entitled to input tax credits on the acquisition of the right to deduct the tax losses. The transferee company will be denied input tax credits to the extent that the acquisition relates to making input taxed supplies or where the transferee company is not registered for GST. This is consistent with the general rules of GST.

    However, under the GST legislation, the transfer of losses between members of the same GST group will not be subject to GST. As the 90% common ownership requirements for GST grouping enable a broader range of companies to group for GST purposes than is possible for income tax purposes, GST consequences of transfers of losses can be avoided by the relevant companies grouping for GST purposes. Similarly, the definition of 100% Australian Subsidiary in section 168-85 of the Consolidation exposure draft uses a test which is narrower than the more readily met test for membership of a GST group.

    5.7 Update on individual grouping regulations

    Contributed by CPAA

    (a) Can the ATO clarify whether the establishment of a GST group post 1 July 2000 commences on registration of the group or is deferred to the next tax period or tax year? A member has been advised by ATO that if a group is not registered before the first quarterly BAS is due then grouping will not apply for the whole of the 2000-2001 year. Is this correct?

    When entities lodge an application to form a GST group, the Commissioner will decide the date of effect of the approval to group. This date of effect must be the start of a tax period applying to the GST group in question. However, this date of effect is not necessarily when the decision is made - it may also be a date before or after that date -(see section 48-85). This means that the Commissioner can backdate the date of effect of GST grouping.

    While the date of effect may be before, on or after the date of the Commissioner's decision, the date must be the beginning of a tax period that applies to the members of the GST group. There are a number of guidelines for deciding the date of effect of approvals of a GST group. The guidelines can be accessed on the tax office website at: Date of effect guidelines

    (b) How far back can the date of effect of grouping be backdated to?

    The legislation seems to contain no restriction other than that the date of effect must be the beginning of a tax period. Is backdating to 1 July 2000 permissible?

    As stated above there are guidelines for deciding the date of effect of approvals of a GST group (a copy of the guidelines is reproduced at the end of this document).

    It should also be noted that the earliest date that an individual can become a member of a GST group is 1 October 2000 as the regulations allowing an individual to become a member of a GST group were not gazetted until 28 September 2000.

    It should also be noted that a group of entities should not lodge GST returns on a group basis or treat themselves as being a GST group before they have received approval as a GST group.

    The following is a copy of the backdating guidelines for GST groups:

    Approvals of GST groups and GST joint ventures: date of effect guidelines

    There are a number of guidelines for deciding the date of effect of approvals of a GST group or GST joint venture. The GST legislation specifies that the Commissioner of Taxation must decide the date of effect of such approvals.

    While the date of effect may be before, on or after the date of the Commissioner's decision, the date must be the beginning of a tax period that applies to the members of the GST group or the participants of the GST joint venture.

    Guidelines for deciding date of effect

    The Commissioner has discretion to backdate approvals of GST groups and GST joint ventures. This means entities that apply part-way through a tax period can have their approval backdated to the beginning of the period, if they so request.

    Therefore, if entities make a valid application to form a GST group or GST joint venture within a tax period, the Commissioner will backdate the date of effect of the approval to the beginning of that tax period (if the entities so request).

    Also, if entities lodge a valid application with the ATO within 14 days after the end of the tax period, the Commissioner will (at the request of the applicants) backdate the date of the effect of the approval to the beginning of the tax period that has just finished.

    Example:

    A group of entities that have a quarterly tax period lodge a valid application to form a GST group with the ATO on 9 October 2010. If the entities so request, the Commissioner will backdate the date of effect of the approval of the GST group to 1 July 2010.

    However, the date of effect of a GST group will not be a date before all the applicants satisfy the membership requirements of a GST group. Likewise, the Commissioner will not decide a date of effect of a GST joint venture to be a date before all the applicants satisfy the participation requirements of a GST joint venture.

    Example:

    Company X acquires Company Y on 17 August 2005. Both companies have monthly tax periods. On 18 August 2005, Companies X and Y lodge an application to form a GST group with the ATO. Because the entities did not meet the membership criteria of the GST group until 17 August, the date of effect of the application will be 1 September (or any beginning of a later tax period that the entities so request).

    Where entities apply to form a GST group or GST joint venture − and they lodge that application with the ATO later than 14 days after the end of a tax period − the Commissioner will backdate the date of effect to the beginning of the current tax period. However, the Commissioner will not backdate the date of effect to the beginning of the previous tax period.

    Example:

    Several entities, all with monthly tax periods, lodge a valid application to form a GST joint venture on 15 February 2008. The date of effect of the GST joint venture that the Commissioner will decide may be 1 February 2008 or the beginning of any later tax period that the applicants request. However, the Commissioner will not decide a date of effect of 1 January 2008 or any earlier date.

    When entities make a valid application to form a GST group or GST joint venture, they can request that the Commissioner decide a future date of effect. In these cases, the Commissioner will accept this date as the date of effect as long as:

    • it is the beginning of a tax period, and
    • the entities continue to comply with the requirements of the legislation and regulations.
    End of example

    5.8 Audit trail of groups

    Contributed by TIA

    What approach will the Tax Office take in the following circumstance?

    A group of companies are grouped together for GST purposes. They import goods on a regular basis, and they have been allocated an ABN so that they can lodge the one BAS statement for the group. Customs will collect payments of GST amounts and allocate it to this one ABN.

    Difficulty arises when attempting to reconcile the one payment of the GST to branches. This is impossible, as no audit trail has been implemented; there is no guarantee that all GST has been collected. How will the ATO deal with this situation?

    Could one solution possibly be having one ABN and adding a few letters at the end to identify each branch, therefore could easily identify payments etc.?

    ATO response

    GST groups are not allocated a separate ABN for either the lodgment of GST returns or for the collection of GST on taxable importations. GST group members make their own taxable importations under their own individual ABNs.

    If GST on a taxable importation made by a GST group member is payable at the time customs duty is paid, the GST is payable by the individual group member making the importation. If GST on a taxable importation made by a GST group member is deferred, this deferred amount will be payable by the representative member of the group and will be accounted for on the representative's GST return (which is lodged under the ABN of the representative). [see paragraph 48-40(2)(b)].

    5.9 Formation and revocation of GST groups

    The Tax Office's fact sheet on revocation of membership of a GST group contains an example which indicates that when a company is sold during a tax period it ceases to be a member of any previous GST group with effect from the start of the tax period during which the sale occurs. The company cannot then become a member of any new GST group until the start of a subsequent tax period. The result is that the company being sold is obliged to lodge its own GST return for the tax period during which it is sold.

    This result causes difficulties in respect of intra GST group supplies which may be made between the company being sold and its previous GST group (and also between this company and its new GST group). For example, from the beginning of the tax period which contains the date of sale, intragroup supplies between the company being sold and other members of its previous GST group will correctly be treated as not being subject to GST. However, once the sale occurs and the GST group membership of the company being sold is revoked all these intragroup supplies will then retrospectively be subject to GST. This has the result that the new owners of the company become liable for GST on supplies over which they had no control at the relevant time and which would never have been subject to GST had the company not in fact been sold.

    These practical difficulties would not arise if the Tax Office were to exercise a discretion to allow the relevant company to leave its GST group on the date of sale and (if desired by the new owner) to enter its new GST group immediately thereafter.

    1) Could the Tax Office please consider this issue in the light of the above? It should be noted that other GST jurisdictions allow companies to enter and leave a GST group on any date they request - and this date need not be at the start of a tax period.

    2) If the Tax Office considers that it cannot overcome the above problem by administrative means, would it be prepared to support a request for a legislative amendment to allow companies to enter and leave a GST group on any date?

    I have received a further question from our member that adds on to the grouping issue below. It is as follows:

    Attribution of supplies pre and post GST grouping

    If a company say groups from 1 July 2002, does that mean intra-group supplies made prior to 1 July 2002 (ie under the time of supply concept, which is not part of the GST Act, but is inherent in parts of the GST Act) are subject to GST, or only supplies attributed prior to 1 July 2002. The same issue also arises (in reverse) for entities which degroup.

    3) Does the date of effect of grouping or degrouping affects supplies made after that time or rather, supplies attributed after that time?

    The Tax Office has previously dealt with this issue in the context of insolvencies
    - see replies to questions 10.1 and 10.2 in the Q and As for Representatives of Incapacitated Entities on the Tax Office's website. The Tax Office here states that the rep entity is only responsible for supplies and acquisitions it makes during its period of representation.

    This means that, for example, if the incapacitated entity was on a non-cash basis of accounting prior to the rep being appointed, then the rep entity is not liable for GST on cash it receives for pre-appointment supplies made but not invoiced by the incapacitated entity. Similarly the rep is not entitled to claim an input tax credit for pre-appointment acquisitions if it receives the tax invoice after the rep's appointment. In both cases the Tax Office indicates that the GST liability/entitlement to the ITC belongs to the incapacitated entity.

    4) Will the same answers given on this issue in the insolvency context be applied in the non- insolvency context? Meaning whether the same principles that apply for determining whether a taxable supply etc has been made by either an insolvent company or their representative will be applied for the purposes of determining whether a taxable supply etc has been made by either a degrouped company or by its previous or new GST group.

    ATO response

    1) According to subsection 48-85(2) of the GST Act, the date of effect of approvals and revocations must be the beginning of a tax period applying to the members of the GST group. The Commissioner does not have the discretion to allow companies to enter and leave a GST group on any date other than the beginning of a tax period that would apply to members of a GST group.

    2) In respect to the request for legislative amendments, it is not appropriate for the Tax Office to propose amendments that are legislative in nature. TIA should refer the issue to Treasury.

    3) Basically, Division 48 of the GST Act aims to simplify the administration of GST for related entities by treating supplies between members of a group as being out of the GST net and allowing a single entity to account for the amount that is payable to the Commissioner by each entity of a GST group.

    The first is achieved by ss48-40(2) overriding the general provisions of s9-5 and s11-5 resulting in supplies and acquisitions between members of a GST group being treated as if they are out of the scope of the GST legislation. That is, the supplier or recipient considers the application of ss48-40(2) at the time the entity determines if the supply or acquisition is a taxable supply or a creditable acquisition - which is when the supply or acquisition is made.

    The second objective is achieved by assigning to the representative of a GST group the various components of a member's net amount for a tax period. This means that the representative of the GST group is liable to account for GST for all of the taxable supplies and entitled to claim the ITCs for all of the creditable acquisitions that are attributed to a tax period for which they act as the representative of the GST group.

    Where a supply or acquisition is made in a tax period that is different to the tax period in which the supply or acquisition is to some extent attributed, the supply or acquisition does not change its character. The character, determined when the supply or acquisition is made, remains the same regardless of when the supply or acquisition is attributed. Consequently for GST groups, where a supplier and recipient become members of the same GST group after the taxable supply or creditable acquisition is made, the supply or acquisition does not change its character. Rather the liability to GST or entitlement to ITCs becomes the responsibility of the representative of the GST group, if the supply or acquisition is attributed to some extent while the entities are members of the GST group.

    4) The date of effect that applies to representatives of incapacitated entities does not apply to members of a GST group. This is because the GST legislation does not require the date of effect of representatives of incapacitated entities to take effect from the beginning of a tax period.

    Examples

    Situation 1

    A representative member of a GST group is liable to account for GST on taxable supplies and entitled to input tax credits in respect of creditable acquisitions made before an entity is a member of the GST group (member), where the GST or input tax credits are attributed to a tax period during which the entity is a member.

    Entity A makes a taxable supply before entity A becomes a member of a GST group. The supply (or at least a portion of the supply) is attributed to a tax period that is after entity A becomes a member of the GST group. The representative of the GST group is liable to account for GST on the supply or portion of the supply that is attributed to a tax period during which entity A is a member of the GST group. Entity A is liable to account for GST to the extent that the supply is attributed to a tax period which is before entity A joins the GST group.

    Situation 2

    A representative member of a GST group is not liable to account for GST on taxable supplies nor entitled to input tax credits in respect of creditable acquisitions made while the entity is a member of the GST group (member), where the GST or input tax credits are attributed to a tax period which is before the entity becomes a member.

    Entity A makes a taxable supply after A becomes a member of a GST group. The supply is attributed to a tax period that is before entity A becomes a member of the GST group. Entity A is liable to account for the supplies attributed prior to entity A joining the GST group. The representative of the GST group is liable to account for GST to the extent that the supply is attributed to a tax period that is after entity A becomes a member of the GST group.

    Situation 3

    A representative member of a GST group is liable to account for GST on taxable supplies and entitled to input tax credits in respect of creditable acquisitions made in a tax period during which an entity is a member of the GST group (member), where the GST or input tax credits are attributed to that tax period.

    Situation 4

    A representative member of a GST group is not liable to account for GST on taxable supplies and entitled to input tax credits in respect of creditable acquisitions made while an entity is a member of the GST group (member), where the GST or input tax credits are attributed to a tax period after the entity ceases to be a member.

    Entity A, a member of a GST group, makes a taxable supply before entity A leaves the GST group. The supply (or at least a portion of the supply) is attributed to a tax period that is after entity A leaves the GST group. The representative of the GST group is liable to account for GST on the supply or portion of the supply that is attributed to a tax period during which entity A is a member of the GST group. Entity A is liable to account for GST on the supply to the extent that it is attributed to a tax period that is after it leaves the GST group.

    Situation 5

    A representative of a GST group is liable to account for GST on taxable supplies and entitled to input tax credits in respect of creditable acquisitions attributed to a tax period during which an entity is a member of the GST group (member), where the supplies or acquisitions are made after the entity ceases to be a member.

    Entity A makes a taxable supply after entity A leaves a GST group. The supply (or at least a portion of the supply) is attributed to a tax period that is before entity A leaves the GST group. The representative of the GST group is liable to account for GST on the supply or portion of the supply that is attributed to a tax period during which entity A is a member of the GST group. Entity A is liable to account for GST on the supply to the extent that the supply is attributed to a tax period which is after entity A leaves the group.

    End of example
      Last modified: 22 May 2014QC 28063