ATO Interpretative Decision

ATO ID 2003/1016

Goods and Services Tax

GST and grouping of two or more companies where some of the companies are owned by a holding company
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Issue

Do entities A, B, C, D, E and F, all companies, satisfy the membership requirements under section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the formation of a GST group where:

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entity A owns 100% of entity B and C, entity B owns 67% of entity D and 50% of entity E,
•
entity F is not related to any of the other entities,
•
entities A, B, E and F are registered for goods and services tax (GST), and
•
entities B, E and F account for GST on a different basis to entity A?

Decision

No, none of the entities satisfy the membership requirements of a GST group under section 48-10 of the GST Act as they do not belong to the same 90% owned group, they do not account on the same basis and they are not all registered for GST.

Facts

Entities A, B, E and F are registered for GST. Entities C and D are not. Entities B, E and F account for GST on a different basis from entity A. The ownership structure of the entities is shown in the following diagram:

Entity A has an individual as the only member (shareholder). Entity A is the only member of entity B and entity C. Entity B owns a 67% membership (shareholding) in entity D and a 50% membership in entity E. Entity F has as its only members two individuals and so is not related to any of the other companies.

Reasons for Decision

The membership requirements of entities proposing to form a GST group are set out in section 48-10 of the GST Act.

In relation to companies, each entity must:

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be a company of the same 90% owned group as all the other members of the GST group or proposed GST group that are also companies
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be registered for GST
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have the same tax periods applying to it as the tax periods applying to all the other members of the GST group or proposed GST group
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account for GST on the same basis as all the other members of the GST group or proposed GST group
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not be a member of any other GST group, and
•
not have any branch that is registered under Division 54 of the GST Act.

Same 90% owned group

Section 190-1 of the GST Act provides that two companies are members of the same 90% owned group if one of the companies has, at least, a 90% stake in the other company or a third company has, at least, a 90% stake in each of the two companies.

Section 190-5 of the GST Act provides that a company (the holding company) has, at least, a 90% stake in another company (the subsidiary company) when it:

•
controls, or is able to control, at least 90% of the voting power in the subsidiary company (whether directly, or indirectly, through one or more interposed companies), and
•
has the right to receive (whether directly, or indirectly, through one or more interposed companies) at least 90% of any dividends that the subsidiary company may pay, and
•
has the right to receive (whether directly, or indirectly, through one or more interposed companies) at least 90% of any distribution of capital of the subsidiary company.

In this case, entity A (the holding company) owns 100% of both entity B and entity C. Therefore entities A, B and C are members of the same 90% owned group and satisfy this membership requirement.

Entity A also owns 67% of entity D and 50% of entity E indirectly through entity B. However this does not represent a 90% stake and entities A, D and E cannot be part of the same 90% owned group.

Entity F is wholly owned by two individuals and, as such, cannot be part of the same 90% owned group of companies as entities A, B, C, D, and E.

The only entities that potentially could be members of the same GST group are entities A, B and C.

GST Registration

Entity C is not registered for GST and cannot be a member of a GST group. Entities A and B are registered for GST and can be members of the same 90% owned group. They meet the first two membership requirements of a GST group.

Accounting Basis

Entities A and B do not account for GST on the same basis as each other and cannot be members of the same GST group.

As such, none of the entities satisfy the membership requirements of a GST group under section 48-10 of the GST Act.

[Note: Division 48 of the GST Act was amended with effect from tax periods starting on or after 1 July 2010. Prior to the amendments, entities were required to apply to the Commissioner for approval to form a GST group.]

Date of decision:  4 July 2003

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 48-10
   Division 54
   section 190-1
   section 190-5

Related ATO Interpretative Decisions
ATO ID 2002/492
ATO ID 2003/1019

Keywords
Goods and services tax
GST special rules
GST branches
GST groups
GST regulations
GST tax periods

Siebel/TDMS Reference Number:  3224087

Business Line:  Indirect Tax

Date of publication:  14 November 2003

ISSN: 1445-2782

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