Revised 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 government schools with the same GST concessions as charities. Under the existing GST legislation there are a number or instances where charities, including non-government schools, receive concessional treatment that is not available to government schools;
- provide charities and government schools 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 or government school 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 and government schools to claim input tax credits when reimbursing volunteers for expenses those volunteers incur in connection with their activities for the charity or government school;
- 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;
- remove the requirement that all supplies made through a school tuckshop or canteen must be supplies of food, in order for a non-profit body to be able to choose to treat all of its supplies of food as input taxed; and
- provide charitable bodies that belong to the same religious organisation the ability to eliminate internal transactions within their religious organisation for GST purposes. This is achieved by allowing certain members of the same religious organisation to utilise the benefits of grouping while alleviating some of the administrative difficulties that these organisations may experience in relation to the current grouping rules.
1.2 For the purposes of providing government schools with the same GST concessions as non-government schools, item 8A inserts a definition of 'government school' into section 195-1 of the GST Act. A school (including a proposed school) will be considered a government school if it is conducted by or on behalf of an Australian government agency and provides (or will provide once it starts operation) any of the following education courses:
- pre-school courses;
- full-time primary courses; or
- full-time secondary courses.
1.3 Items 2A, 2C to 2F and 4B insert references to 'government school' into the GST Act to enable government schools to receive the following GST concessions that are available to non-government schools:
- Subdivision 29-B - the ability to account on a cash basis regardless of turnover;
- Subdivision 38-G - GST-free treatment of non-commercial activities including sale of donated second-hand goods;
- Subdivision 38-H - GST-free treatment of raffles and bingo;
- Division 63 - the choice to treat some or all of their separately identifiable branches or activities as separate entities for GST purposes;
- New Subdivision 40-F - provides the choice to treat certain fund-raising activities as input taxed; and
- New section 111-18 - the ability to claim input tax credits when reimbursing volunteers.
1.4 It was not considered necessary to amend Subdivision 40-E - school tuckshops and canteens, as government schools already have access to this concession under subsection 40-130(1).
1.5 Similarly, it was not considered necessary to amend new subsection 27-15(2) that allows certain non-profit bodies to lodge their GST returns monthly regardless of the date on which they balance their accounts. New subsection 27-15(2) will apply to entities that meet the requirements of subsection 63-5(2) which is being amended to include government schools.
1.6 It should be noted that where a government school chooses to apply Division 63 to treat a separately identifiable branch or activity as a separate entity for GST purposes, the registration turnover threshold that applies to the separately identifiable branch or activity is $100,000 under subsection 23-15(2).
1.7 Item 3 inserts new Subdivision 40-F into the GST Act to provide a charity or a government school with the choice to treat certain fund-raising events conducted by the charity or government school 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.
1.8 New section 40-160 provides that a charitable institution, a trustee of a charitable fund, a gift deductible entity or a government school 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 or government school 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.
1.9 The charity or government school must also record the fund-raising event as being treated as input taxed. [New paragraph 40-160(d)]
1.10 It should be noted that where a charity or government school 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.
Meaning of fund-raising event
1.11 New section 40-165 describes the types of fund-raising events that a charity or government school 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.
1.12 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 or government school 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)] .
1.13 In making a decision to treat a fund-raising event as input taxed, the Commissioner must be satisfied that the charity or government school 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 10] .
1.14 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 .
Frequency of events
1.15 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 .
1.16 Item 11 inserts new subsection 70(1B) of the TAA 1953 to stipulate that where a charity or government school has made a choice under new section 40-160 to treat a fund-raising event as input taxed the charity or government school is required to keep a record of the choice. Also, the charity or government school is required to retain that record for at least 5 years after the making of the choice [new paragraph 70(1B)(b)] .
Input tax overrides GST-free in certain circumstances
1.17 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 .
Substituted accounting periods
1.18 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.
1.19 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.
1.20 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).
1.21 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, gift-deductible entities or government schools (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)).
Reimbursement of volunteer's expenses
1.22 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.
1.23 Currently, Division 111 does not enable charities and government schools to claim input tax credits on expenses incurred on their behalf by volunteers.
1.24 Item 7 inserts new section 111-18 to provide that a charity or government school will be entitled to input tax credits for reimbursements to volunteers of expenses they incur that are directly related to the activities of the charity or government school.
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.
1.25 New section 111-18 only applies to volunteers acting on behalf of a charitable institution, a trustee of a charitable fund, a gift-deductible entity or a government schooland the expenses must be directly related to his or her activities as a volunteer of a charity or government school. [New paragraphs 111-18(a) and 111-18(b)]
1.26 The amendment applies Division 111 to a charity or government school as if the individual were an employee of the charity or government school. [New paragraphs 111-18(c) and 111-18(d)]
1.27 Item 6 inserts a reference to the reimbursement of volunteers by charitable bodies and government schools in section 111-1 - What this Division is about.
Membership of GST groups
1.28 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.
1.29 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.
1.30 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.
1.31 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.
1.32 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.
1.33 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.
School tuckshops and canteens
1.34 Under Subdivision 40-E, a non-profit body may choose to treat all of its supplies of food through a school tuckshop or canteen it operates as input taxed, provided the shop operates on the grounds of the school and all the supplies made through the shop are food. A non-profit body cannot apply this provision where other supplies such as stationery and uniforms are also made through the shop.
1.35 Item 2G repeals paragraph 40-130(2)(a) to remove the requirement that all supplies made through a school tuckshop or canteen must be supplies of food.
1.36 A non-profit body will be able to choose to treat all of its supplies of food through a school tuckshop or canteen it operates on the grounds of the school as input taxed regardless of whether it makes other supplies that are not food.
Example 1.1 Outback Creek Public School operates a tuckshop on the school grounds. The tuckshop sells food and uniforms. The school can choose to treat all of its supplies of food as input taxed under section 40-130.
1.37 Division 48 of the GST Act enables 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.
1.38 However, 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. Because of 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 by 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.
1.39 Item 4A inserts new Division 49 , which will enable religious organisations to utilise the benefits of grouping, while alleviating some of the administrative difficulties that these organisations may experience with Division 48. This new Division will allow 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 the GST. [New section 49-1]
1.40 The Commissioner will approve 2 or more entities as a GST religious group if those entities jointly apply in the approved form. Each of the applicant entities must satisfy the membership requirements of a GST religious group and must nominate one of the entities (which must also be an Australian resident) to be the principal member for the group. [New section 49-5]
1.41 The terms 'GST religious group', 'member' of a GST religious group, 'satisfies the membership requirements'of a GST religious group and 'principal member' for a GST religious group are defined in section 195-1 by reference to new Division 49 . [Items 8B to 8E]
1.42 An entity will satisfy 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 ITAA 1997;
- all the 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 or proposed GST religious group; and
- it is not a member of any other GST religious group.
[New section 49-10]
Effect of forming a GST religious group
1.43 A GST religious group is effectively treated as a single entity. As such, 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 [new section 49-30] . Similarly, an acquisition that a member of a GST religious group makes from another member of the same group is treated as though it were not a creditable acquisition [new section 49-35] .
1.44 Under Division 11, 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 [new section 49-50] . The effect of this 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.
1.45 Furthermore, adjustments for adjustment events or changes in creditable purpose cannot arise in respect of these transactions between members of the same GST religious group [new sections 49-40 and 49-45] .
Example 1.2 Eastside Parish and Southside School are members of the same GST religious group. Eastside Parish supplied Bibles to the Southside School at a cost of $660. As the parish and the school are members of the same GST religious group, Eastside Parish does not have to charge GST on the supply to Southside School and Southside School is not entitled to claim an input tax credit on the acquisition. Furthermore, Eastside Parish does not have to provide Southside School with a tax invoice.
1.46 It should be noted that unlike the grouping rules as provided in Division 48, a GST religious group does not have to lodge GST returns. Under the new grouping rules for GST religious groups, individual members (not the principal member) will be responsible for GST transactions outside of 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.
1.47 For the purposes of determining the annual registration turnover of a member of a GST religious group, internal transactions between the member and other members of the same group will be included in annual turnover.
1.48 Items 1A to 1D and 2B insert references to GST religious groups in the checklists of special rules for taxable supplies, acquisitions and adjustment events and the general checklist for special rules. Item 7A and 8F insert references to GST religious groups in the notes to the dictionary definitions for creditable acquisitions and taxable supplies, noting the meanings of these terms are affected by the new Division.
1.49 The principal member of a GST religious group may apply to the Commissioner to approve another entity as a member of the group, remove an entity from the group, or approve another group member as the principal member of the GST religious group [new subsection 49-70(1)] . The Commissioner must also remove an entity from the group without an application to change membership being made, if satisfied that the entity does not satisfy the membership requirements for the GST religious group [new subsection 49-70(2)] .
Revocation of approval as a GST religious group
1.50 The principal member of a GST religious group can apply to the Commissioner to revoke the approval of the GST religious group [new subsection 49-75(1)] . The Commissioner must also revoke the approval of the GST religious group without an application for revocation being made, if satisfied that no member, or only one member of the GST religious group satisfies the membership requirements [new subsection 49-75(2)] .
Date of effect of approvals and revocations
1.51 The Commissioner will decide the date of effect of any approval or revocation of approval under new Division 49 . The date of effect must be a day on which, for all members of the GST religious group in question, a tax period begins, but the date of effect may be a different date to the date of the decision to approve or revoke. [New section 49-85]
1.52 The principal member must notify the Commissioner of any circumstances under which the Commissioner must revoke the approval of a group member under new subsection 49-70(2) or revoke the approval of the group as a whole under new subsection 49-75(2) . This notification must be given within 21 days after the circumstances occurred which necessitated the revocation. The notification may take the form of an application under new subsection 49-70(1) or new subsection 49-75(1) . [New section 49-80]
1.53 If the Commissioner makes a decision under new Division 49 , the Commissioner must give notice of that decision. This notice will generally be given to the principal member of the GST religious group, except in the case where the decision relates to the initial approval of the GST religious group, in which case the notification will be given to the member nominated as the principal member. [New section 49-90]
Reviewable GST decisions
1.54 An entity may object against any reviewable GST decision that the Commissioner has made under new Division 49 . Item 10A inserts new table items 24A-F in subsection 62(2) of the TAA 1953, listing reviewable GST decisions in relation to GST religious groups:
- refusing an application for approval as a GST religious group under new section 49-5 ;
- refusing an application for a change in membership of a GST religious group under new subsection 49-70(1) ;
- revoking an approval of a GST religious group under new subsection 49-70(2) ;
- refusing an application for revocation of a GST religious group under new subsection 49-75(1) ;
- revoking the approval of a GST religious group under new subsection 49-75(2) ; and
- deciding the date of effect of approvals or revocations relating to GST religious groups under new subsection 49-85 .