Issue 2: What flexibility exists for non-profits in registering for GST?
Non-interpretative – straight application of the law
The GST legislation allows organisations to either group or branch but not to do both. Organisations would need to look at their structural arrangements to determine what arrangements would best suit their operation with respect to the costs of compliance, particularly the costs of actioning internal transactions. Certain non-profit organisations may also form non-profit sub-entities.
GST groups – Division 48 and Section 63-50
The GST legislation allows certain entities, including entities that are members of the same non-profit association, to form GST groups. When a GST group is formed, the group will effectively be treated as a single entity for GST purposes and transactions between group members will not be subject to GST. Thus, the ability to form a GST group enables grouped entities to obtain cash flow benefits by removing the need to charge GST and claim input tax credits on intra-group transactions. Also, grouping reduces GST compliance costs by removing the requirement to create tax invoices for supplies between grouped entities.
The requirements for non-profit bodies to apply to be treated as a group are that all members of the group:
- are non-profit bodies and are members of the same non-profit association
- are not members of any other GST group
- have the same tax periods and account on the same basis, and
- are all registered for GST.
GST religious groups – Division 49
For many religious organisations use of the GST grouping provisions in Division 48 is administratively impractical because of the complexity of the structures of these organisations. Given the large number of entities involved in some religious organisations, it would be virtually impossible for a representative member of a group encompassing these entities to consolidate accounts within 21 days after the end of each tax period. Further, the size of the group would mean that even the smallest of entities within the group would be required to account for GST monthly.
Division 49 enables religious organisations to utilise the benefits of grouping, while alleviating some of the administrative difficulties that these organisations may experience with a GST group. Division 49 allows certain charitable bodies belonging to the same religious organisation to be approved as a GST religious group, enabling transactions between members of that group to be excluded from GST.
The Commissioner will approve two or more entities as a GST religious group if those entities apply in the approved form. Each applicant must satisfy the membership requirements of a GST religious group and must nominate one of the entities (which must be an Australian resident) to be the principal member for the group.
What are the requirements for forming a GST religious group?
An entity satisfies the membership requirements of a GST religious group if:
- it is registered for GST
- it is endorsed as an income tax exempt charity under Subdivision 50-B of the Income Tax Assessment Act 1997 (ITAA 1997)
- all other members of the GST religious group are so endorsed
- it is part of the same religious organisation as all other members in the same GST religious group, and
- it is not a member of any other GST religious group.
The Commissioner may register a branch of a registered entity if:
- the entity applies, in the approved form, for registration of the branch
- the entity has an ABN or has applied for one, and
- the Commissioner is satisfied that the branch maintains an independent system of accounting, and can be separately identified by reference to
- the nature of the activities carried on through the branch, or
- the location of the branch, and
- the Commissioner is satisfied that the entity is carrying on an enterprise through the branch or intends to carry on an enterprise through the branch, from a particular date specified in the application.
A branch that is so registered is a 'PAYG withholding branch'.
Note: A branch may be both
- a PAYG withholding branch under Subdivision 16-BA, Income Tax Assessment Act 1997 (ITAA 1997), and
- a GST branch under the A New Tax System (Goods and Services Tax Act) 1999 (GST Act).
An entity choosing to apply Division 63 to create a non-profit sub-entity must be registered and must be:
- an endorsed charity, a gift deductible entity which is a non-profit body or a government school, or
- a non-profit body that is exempt from income tax under any of these provisions of the
- Income Tax Assessment Act 1997
- (ITAA 1997)
- section 50-5 (charity, education and science)
- section 50-10 (community service)
- section 50-15 (employees and employers)
- section 50-40 (primary and secondary resources, and tourism),
- item 9.1 or 9.2 of section 50-45 (sports, culture and recreation).
These organisations with small independent branches (units) have the option of treating their units as if they were separate entities for GST purposes and not part of the main organisation.
A unit will be considered to be independent if it:
- maintains an independent system of accounting, and
- can be separately identified by the nature of its activities or by its location.
If an entity chooses this option it must record each unit that is being treated as a separate entity for the purposes of GST.
It means that where the non-profit sub-entity turnover is less than a $150,000 it can choose whether it registers or not. Where the non-profit sub-entity has a turnover of $150,000 or more it will be required to register separately for GST and will have the same rights and obligations as other GST registered entities, except for the ability to form other non-profit sub-entities.
The liability for all GST obligations of the unit will be imposed on the persons responsible for the management of the non-profit sub-entity.
Other important points:
- Non-profit sub-entities are separate entities for GST purposes.
- Non-profit sub-entities are for GST purposes but not pay as you go (PAYG), fringe benefits tax (FBT) or income tax.
- An organisation cannot create a non-profit sub-entity for its core activities such as membership of the main organisation.
- Where an organisation creates multiple non-profit sub-entities and the turnover of the main organisation is reduced to below $150,000 the main organisation cannot elect to cancel their registration. In order to enjoy the flexible options under Division 63 the main organisation must remain registered for GST
- non-profit sub-entities are able to access the same GST concessions available to their parent entity (other than the ability to create further non-profit sub-entities).
Section 63-50 will allow a non-profit sub-entity to be a member of a GST group provided:
- it is registered
- it accounts on the same basis and has the same tax periods as all other members of the group
- it is not a member of another GST group, and
- the other members of the group are the parent entity or another branch of the parent entity that are non-profit sub-entity.
The second option is to allow endorsed charities, government schools and gift-deductible entities to treat certain fundraising activities as input taxed. These fundraising events may include a fete, ball, gala show, dinner, performance or similar event. The event must be separate from and not forming any part of a series, or regular run, of like, or similar events. It may also include an event that involves the sale of small fundraising items such as flowers, confectionery and chocolates (not alcoholic beverages or tobacco products), provided the charitable entity is not in the business of making such supplies. It will also include events such as 'Red Nose Day' and 'Daffodil Day'.
Where the fundraising event does not meet this description, a charitable entity may make a request to the Commissioner to apply his discretion to allow the charitable entity to treat the activity as input taxed. In applying his discretion the Commissioner would need to have broad regard to whether the charitable entity is in the business of making such supplies. Given the difficulty of establishing whether a particular activity or series of activities constitutes a business, it is appropriate to leave this matter for the Commissioner to decide on a case by case basis. In addition, the Commissioner must be satisfied that the proceeds of the fundraising are for the direct benefit of the charity.