Supplementary Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 1 - Non-profit bodies
1.1 This Chapter explains amendments to the GST Act contained in the Bill that relate to non-profit bodies. The amendments:
- 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;
- 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, amendment 24 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 Amendments 9, 11 to 13, 15 and 17 to 22 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).
School tuckshops and canteens
1.7 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.
1.8 Amendment 14 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.
1.9 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.
1.10 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.
1.11 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.
1.12 Amendment 16 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]
1.13 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]
1.14 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 . [Amendment 24]
1.15 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
1.16 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] .
1.17 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.
1.18 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.
1.19 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.
1.20 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.
1.21 Amendments 5 to 8 and 10 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. Amendments 23 and 24 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.
1.22 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
1.23 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
1.24 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]
1.25 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]
1.26 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
1.27 An entity may object against any reviewable GST decision that the Commissioner has made under new Division 49 . Amendment 25 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 .