Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 1 - Non-profit bodies
1.1 This Chapter explains the amendments to the GST Act and the TAA 1953 that relate to non-profit bodies. They include both minor policy and technical changes and include amendments to:
- provide charities with the choice to treat certain fund-raising events as input taxed. Where the fund-raising event does not fit the description provided, a charity may make a request to the Commissioner to apply his discretion to treat the event as input taxed;
- enable certain non-profit bodies to lodge GST returns quarterly, regardless of the date on which they balance their accounts;
- allow charities to claim input tax credits when reimbursing volunteers for expenses those volunteers incur in connection with their activities for the charity; and
- ensure that a non-profit sub-entity can be a member of a GST group so that it can form a GST group with the main entity or with other non-profit sub-entities of the same entity.
1.2 Item 3 inserts new Subdivision 40-F into the GST Act to provide a charity with the choice to treat certain fund-raising events conducted by the charity as input taxed. As a result of treating certain fund-raising events as input taxed, charities may not be required to register for GST as their annual turnover may no longer be over the $100,000 annual turnover threshold. This is because the value of input taxed supplies are excluded from the calculation of annual turnover.
1.3 New section 40-160 provides that a charitable institution, a trustee of a charitable fund or a gift deductible entity may choose to have all the supplies that it makes in connection with a fund-raising event treated as input taxed. This means the charity will not have to charge GST on supplies connected with that event. However, it will also not be able to claim input tax credits on acquisitions made in relation to the fund-raising event.
1.4 The charity must also record the fund-raising event as being treated as input taxed. [New paragraph 40-160(d)]
1.5 It should be noted that where a charity does not make the choice to treat a fund-raising event as input taxed, supplies relating to the event will be treated according to normal principles.
1.6 New section 40-165 describes the types of fund-raising events that a charity may treat as input taxed. For all events described, the fund-raising event must be separate from and not form any part of a series or regular run of like or similar events.
1.7 For the purposes of new Subdivision 40-F , a fund-raising event is:
- a fete, ball, gala show, dinner, performance or similar event [new paragraph 40-165(1)(a)] . A similar event may include a charity auction;
- an event comprising the sale of goods where the consideration received for the item does not exceed $20 or such other amount as specified by regulation. Also, where the selling of such items is not a normal part of the supplier's business [new paragraph 40-165(1)(b)] . It is envisaged that those events that involve the selling of small fund-raising items such as flowers, confectionery and chocolates will be covered under this provision. However, an event that involves the sale of items where the items are alcoholic beverages or tobacco products will not be considered a fund-raising event under new subsection 40-165(2) ;
Example 1.1 A major charity holds an annual flower day where it sells flowers for $2 each. This event fits the meaning of fund-raising event as each item sells for less than $20, the charity is not in the business of selling flowers and the event does not form any part of a series or regular run of like or similar events.
- an event that the Commissioner decides is a fund-raising event. A charity may make an application in writing to the Commissioner to request that an event it is conducting be treated as input taxed [new paragraph 40-165(1)(c)] .
1.8 In making a decision to treat a fund-raising event as input taxed, the Commissioner must be satisfied that the charity is not in the business of conducting such an event and the proceeds from the event are for the direct benefit of the charity [new subsection 40-165(3)] . It should be noted that refusing an application is a reviewable GST decision [item 11] .
1.9 Item 8 inserts a definition of a 'fund-raising event' into section 195-1 of the GST Act and will have the meaning given by new section 40-165 .
1.10 New subsection 40-165(4) provides that the Commissioner may determine in writing the frequency with which events may be held without forming any part of a series or regular run of like or similar events. The determination will be used to provide clarity as to what might constitute a regular run or a series of events. For instance, an event that is held weekly would be considered to be a regular run of like events and therefore would not be a fund-raising event for the purposes of new Subdivision 40-F .
1.11 Item 12 inserts new subsection 70(1B) of the TAA 1953 to stipulate that where a charity has made a choice under new section 40-160 to treat a fund-raising event as input taxed the charity is required to keep a record of the choice. Also, the charity is required to retain that record for at least 5 years after the making of the choice [new paragraph 70(1B)(b)] .
1.12 New subsection 9-30(3) has been amended to make it clear that where an entity chooses to treat certain supplies as input taxed, input tax credits on those supplies are denied regardless of whether the supplies would have been GST-free prior to the choice being made [item 1] . This new provision applies to both Subdivision 40-E (school tuckshops and canteens) and new Subdivision 40-F .
1.13 Section 27-5 of the GST Act provides that, as a general rule, a person's tax periods will be 3 months long and end on 31 March, 30 June, 30 September and 31 December (quarterly tax periods). Section 27-15 of the GST Act provides that the Commissioner must determine that an entity's tax periods are monthly if certain criteria are met. Paragraph 27-15(1)(d) requires an entity to apply monthly tax periods where the income year is not the same as the financial year.
1.14 For many non-profit bodies their income year is not the same as their financial year, hence, the requirement for these bodies to use monthly tax periods for GST purposes. It is considered by the charitable sector that this places an undue compliance burden on their organisations.
1.15 Item 2 provides for certain non-profit bodies to choose either a quarterly or monthly tax period regardless of the date on which they balance their accounts. This is achieved by removing the requirement for certain non-profit bodies to apply monthly tax periods where their income year is not the same as their financial year (section 27-15 of the GST Act).
1.16 New subsection 27-15(2A) provides that paragraph 27-15(1)(d) will not apply to those non-profit bodies that meet the requirement of Division 63 - non-profit sub-entities - whether or not they have chosen to apply the Division. These non-profit bodies fall into one or both of the following categories:
- charitable institutions, trustee of charitable funds or gift-deductible entities (paragraph 63-5(2)(a)); or
- non-profit bodies that are income tax exempt under certain provisions of the ITAA 1997 (paragraph 63-5(2)(b)).
1.17 Division 111 of the GST Act sets out special rules regarding an entity being entitled to input tax credits for reimbursing employees, agents, officers, or partners for expenses they incur in connection with carrying on their enterprise. The reimbursement is treated as consideration for an acquisition that the entity makes from the employee, agent, officer or partner.
1.18 Currently, Division 111 does not enable charities to claim input tax credits on expenses incurred on their behalf by volunteers.
1.19 Item 7 inserts new section 111-18 to provide that a charity will be entitled to input tax credits for reimbursements to volunteers of expenses they incur that are directly related to the charitable activities of the charity.
Example 1.2 A volunteer of a charity uses her car to conduct some of the charity's activities. The charity reimburses the volunteer for the petrol expenses incurred. In this case, the charity will be able to claim input tax credits on these expenses.
1.20 New section 111-18 only applies to volunteers acting on behalf of a charitable institution, a trustee of a charitable fund or a gift-deductible entityand the expenses must be directly related to his or her activities as a volunteer of a charity. [New subsections 111-18(a) and 111-18(b)]
1.21 The amendment applies Division 111 to a charity as if the individual were an employee of the charity. [New subsections 111-18(c) and 111-18(d)]
1.22 Item 6 inserts a reference to the reimbursement of volunteers by charitable bodies in section 111-1 - What this Division is about.
1.23 Division 63 of the GST Act allows certain non-profit entities to choose to treat separately identifiable sections of their organisations as though they are separate entities for GST purposes, these are called non-profit sub-entities.
1.24 It was intended that non-profit sub-entities could use the GST grouping arrangements in Division 48 of the GST Act to group with the main entity or with other non-profit sub-entities of the same entity if they meet the general requirements for grouping in that Division.
1.25 Currently, a non-profit sub-entity may meet most of the membership requirements for a GST group in section 48-10 of the GST Act. However, it cannot meet the requirement in paragraph 48-10(1)(a) that the entity must be a company; or a partnership or trust. Thus, a non-profit sub-entity cannot be a member of a GST group.
1.26 Item 5 inserts new section 63-50 , which specifies the criteria that will enable a non-profit sub-entity to be a member of a GST group. A non-profit sub-entity will satisfy the membership requirements for a GST group if that non-profit sub-entity is GST registered, accounts on the same basis and has the same tax periods as all other members of the group and is not a member of any other GST group - new paragraphs 63-50(a), (b), (c) and (d) . These requirements are the same as the general requirements in section 48-10.
1.27 Further requirements that are particular to non-profit sub-entities are outlined in new paragraph 63-50(e) . For a non-profit sub-entity, all of the other members of the GST group must either be the main entity (the entity of which the non-profit sub-entity is a branch) or other non-profit sub-entities of the same entity.
1.28 Item 4 inserts a note after section 48-10 to highlight that different membership requirements for GST groups apply to non-profit sub-entities than those that apply to other entities. Item 9 modifies the Dictionary definition of the term 'satisfies the membership requirements for a GST group' in section 195-1 to include the membership requirements for non-profit sub-entities.