• Specific questions and answers

    Question 1. If a number of non-profit organisations apply to be treated as a group can they use the ABN of the nominated representative member of the group on all the tax invoices they issue?

    Non-interpretative – other references (see paragraph 24 of GSTR 2013/1External Link- Goods and services tax: tax invoices)

    Subsection 29-70(1) provides the requirements for a tax invoice. In particular, subparagraph 29-70(1)(c)(i) provides that the identity and ABN of the supplier must be able to be clearly ascertained from the document. The entity providing the supply therefore must use their own ABN on their tax invoices. The GST grouping provisions do not mean that the grouped entities lose their own status as an entity and form one larger entity. For this reason the ABN of the nominated group representative cannot be used by the other entities in the group.

    Question 2. Will parishes (or their equivalent) be able to register as branches (section 54-5) while behaving as a group such as a diocese (or their equivalent) in order to minimise the number of internal transactions attracting GST? Could this approach be applied more broadly across the charitable sector?

    Non-interpretative – straight application of the law

    Section 54-5(3) precludes registering a branch separately if the branch is a member of a GST group. Members of a group are required to charge GST on supplies made to entities external to the group and the representative member completes the business activity statement on behalf of the group. Branches are required to charge and complete individual business activity statements.

    Question 3. There are numerous transactions occurring between bodies of a charity that are separately incorporated and registrable for GST purposes. Often sales between entities within a charity constitute a taxable supply between the bodies, with the purchaser entitled to an input tax credit. Given there is no risk to the revenue in these cases and higher compliance costs there should be provision to allow entities to be grouped.

    Non-interpretative – straight application of the law

    Entities can group subject to section 48-10, charities will need to examine their own structural arrangements in order to ascertain what level best suits the organisation to register as entities.

    An entity means any of the following:

    • an individual
    • a body corporate
    • a corporation sole
    • a body politic
    • a partnership
    • any other unincorporated association or body of persons
    • a trust
    • a superannuation fund.

    Question 4. Can overseas organisations, which give grants for conservation in Australia, form a GST group with the Australian organisation ?

    Non-interpretative – straight application of the law

    A non-profit body can apply to the Commissioner to form a GST group with other non-profit bodies that belong to the same non-profit association. If the bodies do not belong to the same non-profit association, they cannot form a GST group.

    The Commissioner must approve the application provided that:

    • the entities apply in the approved form
    • each of the entities satisfy the membership requirements for the group, and
    • the application nominates one of the entities, which must be an Australian resident, to be the representative member for the group.

    To satisfy the membership requirements, a non-profit body must:

    • be registered for GST
    • have the same tax periods applying to it as the tax periods applying to all those other members
    • account for GST on the same basis as all those other members, and
    • not be part of another GST group.

    A non-profit body must be registered if it carries on an enterprise and its GST turnover meets the registration turnover threshold, currently $150,000. A non-profit body which carries on an enterprise but does not meet the registration threshold can still choose to register if desired.

    Therefore, if the overseas organisations belong to the same non-profit association as the Australian organisation, all the organisations are registered for GST, have the same tax periods and method of accounting for GST, and are not part of another GST group they will be able to form a GST group. If any of the requirements discussed above are not met, they cannot form a GST group. The representative member of the group must be an Australian resident.

    Question 5. What is required for an independent system of accounting for Division 63?

    An independent system of accounting does not necessarily require that a separate bank account be kept or that a separate set of books be kept. It is essential however that the records of the non-profit sub-entity can be clearly and easily distinguished from the records of the parent entity. They should be easy to access and extract. It is recommended that the best means of maintaining clearly identifiable records is to establish separate cash receipts and cash payments books and possibly a separate bank account. Please note that a separate bank account is not essential.

    Question 6. Can a non-profit sub-entity of an entity that is endorsed as a tax concession charity apply the GST concessions that the parent entity has access to? 

    This issue is a public ruling for the purposes of section 105-60 of schedule 1 to the Taxation Administration Act 1953.

    Yes. Since 1 July 2005, charities must be endorsed as a tax concession charity in order to access income tax, fringe benefits tax and GST concessions.

    A non-profit sub-entity cannot be endorsed as a tax concession charity in its own right because it is only recognised as a separate entity for GST purposes. For all other purposes including income tax, it is treated as part of the parent entity. Consequently, the non-profit sub-entity is entitled to access the GST concessions where the parent entity has been endorsed as a tax concession charity.

    Question 7. What is the impact of PAYG as a result of creating a non-profit sub-entity?

    Non-interpretative – straight application of the law

    Where a non-profit sub-entity is created it only exists for GST purposes. As such all PAYG withholding will be conducted by the parent organisation not by the non-profit sub-entity.

    The exception to this would be where a non-profit sub-entity has been created and it has all the attributes required for a PAYG branch. In this case it is possible for the non-profit sub-entity to choose to be treated as a PAYG branch at the same time. If this is the case the sub-entity will account for PAYG withholding under the requirements for a PAYG branch.

    The requirements to create a PAYG branch are contained in section 16-142 of Schedule 1 to the Taxation Administration Act 1953.

    Question 8. What is the position with regard to joint ventures and the charitable sector?

    Non-interpretative – straight application of the law

    The basic features of a joint venture are explained in GSTR 2004/2External Link - Goods and services tax: What is a joint venture for GST purposes?

    There are now regulations (51-5.01(m)) which allow charities to form joint ventures if they should wish to do so. To take advantage of the joint venture provisions an organisation undertaking charitable activities would need to satisfy the following participation requirements:

    • participate or intend to participate in a joint venture
    • be party to a joint venture agreement with the other participants or intended participants of the joint venture
    • be registered, and
    • use the same accounting basis as all other participants.

    One participant (the joint venture operator) of the joint venture would be responsible for paying the GST and would be entitled to the input tax credits that relate to supplies, acquisitions and importations it makes for the purposes of the joint venture on behalf of the other participants of the GST joint venture. Supplies made by the joint venture operator to another participant of the GST joint venture would not be treated as being subject to GST. The joint venture operator would make the GST return of the GST joint venture on behalf of the participants of the joint venture.

    Question 9. Community rents and tenancy schemes – Do private individuals leasing residential premises to providers of community housing need to have an Australian business number (ABN)? Will organisations leasing premises from private individuals have to withhold 46.5% of rental payments if these landlords do not have an ABN?

    Non-interpretative – other references

    • paragraph 22 of GSTD 2000/9External Link - Goods and services tax: if you let out a residence do you need to get an ABN for PAYG purposes or register for GST? and
    • paragraph 3 of MT 2000/2External Link The New Tax System: the requirement to get an ABN for PAYG purposes if you let out a residence.

    Residential landlords do not require an ABN when they are making supplies that are predominantly residential accommodation. In a press release dated 29 May 2000 the Commissioner said

    'Clearly, renting out a commercial property falls within the ABN quotation requirements, but some confusion has arisen where a rental agreement is predominantly for residential purposes and there is some business use of those premises – for example, a freelance journalist working from home.'
    'I want to make it clear that where the basis of the arrangement is a residential rental agreement, owners will not have to quote an ABN to their tenant even if there is some minor business use of the property by the tenant.'
    'There will also be no requirement for residential rental property owners to quote an ABN to an organisation that is providing residential accommodation for its own employees – for example, through the Defence Force Housing Authority.'

    This treatment will extend to situations where the landlord is leasing residential premises to organisations that will use the premises to provide low cost housing. The organisation providing the housing is providing low cost residential accommodation and as such is using the premises predominantly for residential purposes.

    Question 10. Will the definition of turnover include donations received by a charitable institution?

    Non-interpretative – other references (see paragraph 15 of GSTR 2001/7External Link - Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover).

    Turnover is the sum of the values of all the supplies that a charitable institution has made within a 12 month period. It does not include input taxed supplies or supplies for no consideration. If a payment of money or goods is truly a gift the charitable institution is not providing a supply in return for the payment. The gift is not included in GST turnover (See part 6 for more information on 'what is a gift or donation').

    Question 11. How do the associate provisions work?

    Non-interpretative – straight application of the law

    Special rules can apply to supplies between associates. These rules ensure that:

    • supplies to, and acquisitions from, an organisation's associates for no consideration are brought within the GST system, and
    • supplies to an organisation's associates for inadequate consideration are properly valued for GST purposes.

    These special rules apply only where the associate receiving the supply is not entitled to a full input tax credit. This is the case where the associate is:

    • acquiring something partly or wholly for private use
    • acquiring something that will be used to produce input taxed supplies, or
    • not registered, or required to be registered, for GST.

    If the associate receiving the supply is entitled to a full input tax credit, the general GST rules will apply.

    What is the definition of 'associate'?

    Whether a person or organisation is an associate of your non-profit organisation depends on how your organisation is structured.

    In general terms, if your organisation is a company or unincorporated association, your associates are:

    • other organisations (companies or unincorporated associations) that are effectively under the direction or control of your organisation
    • other persons or organisations that effectively have direction or control of your organisation
    • a relative of any person that effectively has direction or control of your organisation
    • a trustee of a trust where your organisation benefits under the trust, and
    • a partner of your organisation if your organisation is in a partnership.

    An associate of a non-profit organisation also includes:

    • a GST branch, and
    • a GST non-profit sub-entity.

    A GST branch is considered to be an associate of:

    • the parent organisation
    • any other GST branch of the parent organisation, and
    • any other associate of the parent organisation.

    A GST non-profit sub-entity is considered to be an associate of:

    • the parent organisation
    • any other non-profit sub-entity of the parent organisation, and
    • any other associate of the parent organisation.

    If you make a supply to an associate for no, or inadequate, consideration, and the associate is not entitled to a full input tax credit, the value of the supply for working out the GST payable will be its market value (excluding GST).

    Question 12. Where one entity purchases items as an agent of a group of legally separate entities with whom they are co-located what is the situation with regards to claiming input tax credits and holding a valid tax invoice?

    Non-interpretative

    The entity that purchases the items is acting as an agent for the other members of the group. Each member of the group makes a creditable acquisition and is entitled to claim input tax credits but only to the extent that the supply relates to them.

    In order to claim an input tax credit you must hold a valid tax invoice. In this case this requirement is satisfied if either the entity claiming the input tax credit or their agent holds a valid tax invoice for a supply.

    Where the total price for the supply is at least $1,000, the tax invoice needs to contain enough information to enable the recipient's identity or ABN to be clearly ascertained.

    Question 13. GST grouping – how exactly will it work?

    Non-interpretative – straight application of the law

    The effect of forming a GST group is that transactions between entities within the group are not treated as taxable supplies, that is, no GST is payable and no input tax credit can be claimed.

    One entity, known as the 'representative member' manages the GST affairs of the group and is responsible for lodging the business activity statement on behalf of all members.

    The representative member is also responsible for all the GST payable and is entitled to all input tax credits that the members of the group are entitled to for supplies and acquisitions made outside the GST group.

    While the representative member is responsible for paying GST, the members of a GST group are jointly and severally liable to pay any amount payable under the GST law by the representative member.

    Companies can form a GST group if each company:

    • is a member of the same 90% owned group as all other members of the GST group or proposed GST group
    • is registered for GST
    • has the same tax periods
    • accounts for GST on the same basis (that is, cash or non-cash), and
    • does not belong to any other GST group.

    A GST group can also be formed by some or all of the non-profit bodies that are members of the same non-profit association. The 90% beneficial ownership requirement does not apply to GST groups formed by non-profit bodies.

    Question 14. What is the effect of forming a GST religious group?

    Non-interpretative - straight application of the law

    A GST religious group is effectively treated as a single entity. A supply that one member of a GST religious group makes to another member of the same group is treated as though it is not a taxable supply. Similarly, an acquisition that a member of a GST religious group makes from another member of the same group is treated as though it was not a creditable acquisition.

    A member of a GST religious group will be entitled to claim input tax credits on acquisitions from entities outside the group where those acquisitions relate to supplies made to members within the group. In determining the amount of input tax credits a member is entitled to, the GST religious group is treated as a single entity. The effect is that each member would look at the creditable purpose of the group as a whole in making the acquisition to determine the extent to which it is creditable.

    It should be noted that unlike the grouping rules in Division 48 a GST religious group does not have to lodge GST returns. Individual members of a GST religious group (not the principal member) will be responsible for GST transactions outside the group. Each member will be required to lodge a GST return each tax period for its own external transactions. Internal transactions between members of a GST religious group will not have to be included in their GST returns.

    Question 15. Can an entity that is a member of a GST religious group be a member of another GST religious group?

    Non-interpretative – straight application of the law

    No. The entity would not satisfy one of the membership requirements, which requires the entity not be a member of any other GST religious group.

    Question 16. Can an entity that is a member of a GST religious group be a member of a GST group?

    Non-interpretative - straight application of the law

    Yes, although this would be an unlikely situation given the purpose of GST religious groups. Division 49 enables religious organisations to utilise the benefits of grouping, while alleviating the difficulties they may experience with forming a GST group. The membership requirements for a GST religious group and a GST group would still apply but the requirements for membership of a GST religious group does not specifically exclude an entity that is a member of a GST group.

    Question 17. Can an entity that is a member of a GST religious group utilise the GST branching provisions of Division 54?

    Non-interpretative - straight application of the law

    Yes, similarly the requirements for membership of a GST religious group do not specifically exclude an entity that has a branch that is registered under Division 54.

    Question 18. Does a non-profit sub-entity satisfy the membership requirements of a GST religious group?

    Non-interpretative - straight application of the law

    Division 63 allows certain non-profit entities to treat separately identifiable units or activities of their organisation as though they are separate entities for GST purposes.

    An unregistered non-profit sub-entity

    Many eligible organisations choose to treat certain activities of the organisation as non-profit sub-entities to effectively take them out of the GST system. Generally these non-profit sub-entities are not required to register and choose not to register for GST. Unregistered non-profit sub-entities do not meet the membership requirement that an entity must be registered and thus would not be eligible to be a member of a GST religious group.

    A registered non-profit sub-entity

    A non-profit sub-entity is treated as though it were a separate entity for GST purposes only. A registered non-profit sub-entity would not meet the membership requirements for a GST religious group because although it is treated as an entity for GST and is registered it is not an entity that is endorsed as exempt from income tax. Not withstanding the fact that its 'parent entity' is an entity that is endorsed as exempt from income tax under Subdivision 50-B of the ITAA 1997.

    Question 19. When must an entity apply for cancellation of GST registration?

    Non-interpretative – straight application of the law

    An entity must notify the Commissioner, in the approved form, to cancel its registration where it is registered but has ceased carrying on an enterprise. This notification must be lodged with the Commissioner within 21 days of the cessation of the enterprise.

    The Commissioner must cancel the registration of an entity where:

    • the entity has applied for cancellation in the approved form
    • the entity has been registered for at least 12 months, and
    • the Commissioner is satisfied that the entity is not required to be registered.

    The Commissioner must also cancel an entity's GST registration (even if the entity has not applied for cancellation of its registration) if:

    • the Commissioner is satisfied that the entity is no longer carrying on an enterprise, and
    • believes that on reasonable grounds it is unlikely to do so for at least 12 months.

    The Commissioner may cancel the GST registration of an entity that has been registered for less than 12 months where:

    • the entity is not required to be registered, and
    • the entity has applied to the Commissioner in the approved form.

    The guide: Leaving the GST system (NAT 14829).

    This guide provides further information on:

    • circumstances in which the Commissioner may cancel a GST registration
    • deciding the date of cancellation
    • how to apply for cancellation, and
    • where to obtain more information.

    An entity can apply for cancellation of its registration using the Application to cancel registration (NAT 2955).

    The date of effect of cancellation of the GST registration

    The date of effect of the cancellation may be any day occurring before, on or after the day on which the Commissioner makes the decision. When applying for cancellation, an entity can nominate the date from which it would like its GST registration cancelled. However, the Commissioner has decided that when retrospectively cancelling an entity's voluntary GST registration before the entity has been registered 12 months or more, he will only choose a date of cancellation that falls on the start of a tax period (that is, 1 July, 1 August, 1 October etc).

    Question 20. What is the effect of cancellation of GST registration?

    Non-interpretative – straight application of the law

    The general effects of the cancellation of GST registration are:

    • the entity has a concluding tax period that ceases at the end of the day on which the cancellation takes effect
    • the entity must include in its business activity statement (BAS) for the concluding tax period any GST payable, any claims for input tax credits and any adjustments that have not been attributed to an earlier tax period
    • the entity may be liable for increasing adjustments in its concluding tax period where it retains assets for which input tax credits have been claimed, (see below for further detail on this aspect)
    • supplies made by the entity after the cancellation date are not subject to GST
    • there is no entitlement for an input tax credit for the GST paid on acquisitions made by the entity after the cancellation date, and
    • the entity will not be required to lodge further BAS for tax periods after its concluding tax period.

    Question 21. What is meant by the terms increasing adjustments and the concluding tax period?

    Non-interpretative – straight application of the law

    As mentioned above, the cancellation of an entity's GST registration triggers a 'concluding tax period' for that entity that finishes at the end of the day on which the cancellation takes effect. The entity must include in its BAS for this concluding tax period any GST payable, any claims for input tax credits and any adjustments that have not been attributed to an earlier tax period.

    The entity may also be required to effectively repay some or all of any input tax credits previously claimed on assets retained by the entity at the time it ceases to be registered. This is done by making an increasing adjustment to the net amount on its BAS for the concluding tax period. The adjustment operates to draw back input tax credits that have previously been claimed by the entity on assets, but takes account of any decrease in the value of the assets that may have occurred while they were used by the entity for a creditable purpose.

    The increasing adjustment is calculated as follows:

    1/11th x the actual application of the asset x applicable value
    The actual application of the asset is the extent – expressed as a percentage – to which the entity has applied the asset for a creditable purpose between when the entity acquired or imported it and the end of the concluding tax period.
    For example, if the asset was acquired solely for a creditable purpose and the extent of the creditable purpose had not changed, the actual application of the asset would be expressed as one hundred percent business use.
    The applicable value is the GST inclusive value of the asset immediately before the cancellation takes effect. If the entity purchased the asset for less than the current market value, (for example, where the asset has appreciated over time), the applicable value is the actual consideration the entity paid.

    Example

    A community group registered for GST on 1 July 2001 and has its GST registration cancelled on 31 December 2001. The only asset remaining at this date is a bus that the community group acquired for $55,000 (including $5,000 GST). The community group purchased the bus on 17 August 2001, and used the bus exclusively for the purposes of the group. The group claimed a full input tax credit of $5,000. At the time of cancellation of the registration, the GST inclusive value of the bus was $44,000.

    The amount of the increasing adjustment is $4,000.

    That is, one-eleventh x 100% (actual use by the group) x $44,000 (GST inclusive market value).

    End of example

    An increasing adjustment is required for all assets for which the entity has received an input tax credit entitlement, irrespective of the value of the adjustment. (The threshold test ($1,000) where an entity has adjustments for a change in creditable purpose does not apply where the entity is ceasing registration.)

    Question 22. When an adjustment does not arise on cessation of GST registration?

    Non-interpretative – straight application of the law

    Where an entity that is registered for GST makes a creditable acquisition it is entitled to an input tax credit depending on the intended extent of the creditable purpose. Over time the actual extent of the entity's use of the acquisition may have changed resulting in a change to the extent of creditable purpose of the acquisition and thus the entitlement to an input tax credit.

    Where the extent of creditable purpose is changed by later events the entity may be required to make an adjustment. The entity may be required to make one or more adjustments depending on the value of the acquisition. Adjustments are made in adjustment periods and they are generally made once per year.

    In situations where an entity has made adjustments to allow for a change in creditable purpose, an adjustment does not arise in respect of an acquisition on cancellation of registration where:

    • there were one or more adjustment periods for the acquisition of the asset, and
    • the last of those adjustment periods has ended before the cancellation of the entity's registration takes effect.

    Question 23. What are the record keeping requirements in relation to the GST?

    Non-interpretative – straight application of the law

    An entity needs to retain records relating to the calculation of the increasing adjustment for the later of five years after the completion of the transaction or when the period of review in relation to the adjustment ceases. The records must be such as to enable your liability under the GST Act to be readily ascertained.

      Last modified: 18 Nov 2013QC 27139