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ATO Interpretative Decision

ATO ID 2001/650

Goods and Services Tax

GST and a special levy charged by a body corporate
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a body corporate, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it charges a special levy to its members?

Decision

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it charges a special levy to its members.

Facts

The entity is a body corporate. The entity manages a residential unit complex in Australia and supplies services to its members. These services consist of managing the affairs of the complex including maintaining and servicing the residential unit complex. The entity requires its members to contribute to a sinking fund in order to carry out these services. The contributions to the sinking fund are a taxable supply under section 9-5 of the GST Act (see ATO ID 2001/110).

The entity had a public liability judgement issued against it, which cannot be recovered from any insurance company. In order to pay this judgement debt, the entity is charging each member a special levy in addition to the sinking fund levy. This transaction is in the course and furtherance of the entity's enterprise.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•
it makes a supply for consideration; and
•
the supply is made in the course or furtherance of an enterprise it
•
carries on; and
•
the supply is connected with Australia; and
•
the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply if it is a GST-free supply or an input taxed supply.

In determining whether a transaction is a taxable supply, it is first necessary to determine if the transaction comes within the scope of the word 'supply' as defined in section 9-10 of the GST Act.

Sub-paragraph 9-10(2)(g)(i) of the GST Act provides that an entry into, or release from, an obligation to do anything will amount to a supply under the GST Act. Generally, the supply a body corporate makes to its members is the entry into an obligation to manage the affairs of the complex.

The entity is providing body corporate services to its members, which includes an obligation to manage the affairs of the residential unit complex in relation to a public liability judgement. Therefore, it is considered that these services would be a supply for GST purposes. The payment made by the members in the form of a special levy would be consideration for the services provided by the body corporate in relation to the public liability judgement.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it charges a special levy to its members.

[Note: A public liability judgement would not generally be subject to GST. However, when the body corporate passes this expense on to the members (in the form of a special levy), the public liability judgement loses the characteristics of a judgement payment. The body corporate members are providing consideration for the body corporate's supply to them. They are not providing consideration for the public liability judgement.]

Date of decision:  7 June 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-10
   subparagraph 9-10(2)(g)(i)
   Division 38
   Division 40

Keywords
Goods and services tax
GST property and construction
GST body corporates
GST supplies and acquisitions
GST supply
Taxable supply

Siebel/TDMS Reference Number:  CW212822

Business Line:  Indirect Tax

Date of publication:  29 November 2001

ISSN: 1445-2782

history
  Date: Version:
You are here 29 November 2001 Original statement
  13 June 2008 Updated statement

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