ATO Interpretative Decision

ATO ID 2002/995

Goods and Services Tax

GST and grouping of two trusts
FOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Do the entities, unit trust A and unit trust B, satisfy the membership requirements of a GST group under section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when they apply to form a GST group?

Decision

No, unit trust A and unit trust B do not satisfy the membership requirements of a GST group under section 48-10 of the GST Act when they apply to form a GST group.

Facts

Unit trust A and unit trust B are Australian resident unit trusts.

Both entities have jointly applied to the Commissioner, in the approved form, for approval as a GST group.

Both unit trust A and unit trust B have the same beneficiaries, a company and an individual, to whom the respective trustees of both unit trusts will be making distributions of income and/or capital.

Neither beneficiary is a proposed member of the GST group. Neither beneficiary is a charitable institution, a trustee of charitable fund, or a gift-deductible entity.

Reasons for Decision

Section 48-5 of the GST Act sets out the conditions that must be satisfied for the Commissioner to approve two or more entities as a GST group. In particular, paragraph 48-5(1)(b) of the GST Act requires that each of the entities applying to be part of the GST group must satisfy the membership requirements for that GST group.

The general membership requirements of a GST group are set out in section 48-10 of the GST Act.

For a trust to meet the membership requirements of a GST group, subparagraph 48-10(1)(a)(ii) of the GST Act provides that the trust must also satisfy the conditions listed in regulation 48-10.03 of the GST Regulations.

Subregulation 48-10.03(2) of the GST Regulations provides that for a trust to be a member of a GST group, the trustee:

•
must have at least a 90% stake in a company that is a member of the GST group; or
•
must not distribute any income or capital of the trust to a beneficiary that is not a permitted beneficiary (whether or not a distribution of that kind could be lawfully made).

There are no companies in the proposed GST group, only unit trusts A and B. Therefore, the first limb of subregulation 48-10.03(2) of the GST Regulations does not apply. Accordingly, it is necessary to consider whether unit trust A and unit trust B satisfy the membership requirement under the second limb of subregulation 48-10.03(2) of the GST Regulations.

For the purposes of the second limb of subregulation 48-10.03(2) of the GST Regulations, subregulation 48-10.03(3) of the GST Regulations provides that each of the following is a permitted beneficiary:

•
a company that is a member of the GST group;
•
a charitable institution, a trustee of a charitable fund, a gift-deductible entity;
•
an individual who is a member of the GST group;
•
a family member of an individual who is a member of the GST group.

Both unit trust A and unit trust B have the same beneficiaries, a company and an individual, to whom the respective trustees of both unit trusts will be making distributions of income and/or capital. Neither the company nor the individual are members of the proposed GST group, a charitable institution, a trustee of a charitable fund, a gift-deductible entity, or a family member of an individual who is a member of the GST group (as the GST group members are both unit trusts).

Therefore, unit trust A and unit trust B do not satisfy the membership requirement under the second limb of subregulation 48-10.03(2) of the GST Regulations because the respective trustees of both unit trusts will be making distributions to beneficiaries that are not permitted beneficiaries.

As neither unit trust A nor unit trust B satisfy the conditions listed in regulation 48-10.03 of the GST Regulations, they do not satisfy the membership requirements of a GST group under section 48-10 of the GST Act when they apply to form a GST group.

Date of decision:  5 March 2002

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 48-5
   paragraph 48-5(1)(b)
   section 48-10
   subparagraph 48-10(1)(a)(ii)

A New Tax System (Goods and Services Tax) Regulations 1999
   regulation 48-10.03
   subregulation 48-10.03(2)
   subregulation 48-10.03(3)

Keywords
Goods & services tax
GST special rules
GST groups

Siebel/TDMS Reference Number:  CW265717

Business Line:  Indirect Tax

Date of publication:  30 October 2002

ISSN: 1445-2782

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).