ATO Interpretative Decision

ATO ID 2003/1019

Goods and Services Tax

• This ATO ID contains references to provisions of the A New Tax System (Goods and Services Tax) Regulations 1999, which have been replaced by the A New Tax System (Goods and Services Tax) Regulations 2019. This ATO ID continues to apply in relation to the remade Regulations.

  A comparison table which provides the replacement provisions in the A New Tax System (Goods and Services Tax) Regulations 2019 for regulations which are referenced in this ATO ID is available.

Issue

Do entity A, a partnership, and entity B, a company, 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) where:

•

entity A consists of two partners, Individual X and Individual Y (a family member (refer note 1) of Individual X); and

•

entity B has Individuals X, Y and Z as its shareholders (refer note 2.) and Individual Z is not a family member of Individual X or Individual Y?

Decision

No, although entity A satisfies the membership requirements of a GST group, entity B does not meet the GST group membership requirements under section 48-10 of the GST Act as Individual Z is not a partner, or family member of a partner, in entity A.

Facts

Entity A is a partnership and entity B is a company. Both entities are registered for goods and services tax (GST).

Entity A consists of two partners, Individual X and Individual Y (a family member of Individual X). Entity A does not have a stake in entity B, for the purposes of the GST Act.

Individuals X, Y and Z are the shareholders of entity B. Individual Z is not a family member of Individual X or Individual Y.

Entity A and entity B have the same tax periods and account for GST on the same basis. Neither entity belongs to any other GST group nor do they have any branches that are registered under Division 54 of the GST Act.

Reasons for Decision

The membership requirements for entities in a GST group are set out in section 48-10 of the GST Act. Some of the requirements apply to all entities. All entities must:

•

be registered for GST,

•

have the same tax periods applying to it as the tax periods applying to all the other members of the GST group,

•

account for GST on the same basis as all the other members of the GST group,

•

not be a member of any other GST group, and

•

not have any branch that is registered under Division 54 of the GST Act.

Entity A and entity B are registered for GST, have the same tax periods, account for GST on the same basis, are not members of another GST group and do not have GST branches registered. Therefore, these requirements are satisfied by both entities.

However, there are additional requirements for both partnerships and companies that have to be met before a GST group can be approved.

Additional membership requirements for a partnership

The additional membership requirements for partnerships are set out in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Regulation 48-10.02 of the GST Regulations sets out the additional requirements that must be satisfied for a partnership to form a GST group with a company. This regulation was amended with effect from 1 April 2003.

Subregulation 48-10.02(3) of the GST Regulations provides that a partnership satisfies the requirements if, for at least 1 company that is a member of the GST group:

(a)

the partnership has at least a 90% stake in the company (worked out in accordance with section 190-5 of the Act as if the partnership were a company); or

(b)

shares of the company are held in such a way that:

(i)

if there is 1 shareholder - the shareholder is a representative (refer note 3) of a partner in the partnership; and

(ii)

if there is more than 1 shareholder - at least 2 shareholders are representatives of different partners in the partnership.

As entity A does not hold a stake in entity B and entity B has more than one shareholder, entity A will only satisfy the regulatory requirements if entity B has at least two shareholders that are representatives of different partners in entity A.

Regulation 48-10.01 of the GST Regulations, provides, in part that the representative of a partner, for a partner that is an individual, is either the partner or a family member of the partner. Two of the shareholders of entity B, Individuals X and Y, are representatives of different partners in entity A. Therefore, although Individual Z is not a partner, or a family member of a partner, in entity A, the requirement in subparagraph 48-10.02(3)(b)(ii) of the GST Regulations is satisfied. That is, entity A satisfies the membership requirements to form a GST group with entity B.

Additional membership requirements for a company

The additional membership requirements for companies are set out in section 48-10 of the GST Act. Subsection 48-10(3) of the GST Act requires one company in a GST group to satisfy the relationship requirements set out in section 48-15 of the GST Act, where one of the members of the GST group is a non-company entity.

Entity B must meet the relationship requirements with entity A set out in subsection 48-15(1) of the GST Act. The relevant requirements are set out in paragraphs 48-15(1)(a) and 48-15(1)(c) of the GST Act and are:

•

the partnership must, as if it were another company, have at least a 90% stake (refer note 4) in this company; or

•

this company must have a membership where each member is either:

•

a partner in the same partnership that is a member of the proposed GST group, or

•

a family member of any such partner,;

and one of the following applies:

•

at least two of the partners are members of the company,

•

one of the partners is a member of the company, and at least one other member of the company is a family member of a different partner,

•

none of the partners is a member of the company, and the members of the company are not all family members of the same partner and no other partner.

Entity A does not have a stake in entity B and does not satisfy paragraph 48-15(1)(a) of the GST Act. Therefore, to satisfy the requirements in paragraph 48-15(1)(c) of the GST Act, each member of entity B must be either a partner, or a family member of a partner, of the partnership that is a proposed member of the GST group. Individual Z is not a partner or a family member of a partner in entity A.

Therefore, entity B does not satisfy the membership requirements of a GST group under section 48-10 of the GST Act.

Note 1 'Family' of a partner, beneficiary or shareholder will be any parent, grandparent, brother, sister, nephew, niece, child or child of a child of either the individual or the individual's spouse. Family also includes the partner's spouse and the spouses of any person mentioned in the previous sentence.

Note 2. Refer to regulation 48-10.01 of the GST Regulations for the definition of 'shareholder'.

Note 3. Refer to regulation 48-10.01 of the GST Regulations for the definition of 'representative'.

Note 4. Refer to section 190-5 of the GST Act for the definition of 'at least a 90% stake'.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 48-10
   subsection 48-10(3)
   section 48-15
   subsection 48-15(1)
   paragraph 48-15(1)(b)
   paragraph 48-15(1)(c)
   subsection 48-15(2)
   section 190-5
   Division 54

Related ATO Interpretative Decisions
ATO ID 2003/1016
ATO ID 2003/1017
ATO ID 2003/1018
ATO ID 2003/919

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

Siebel/TDMS Reference Number:  3626877

Business Line:  Indirect Tax

Date of publication:  14 November 2003

ISSN: 1445-2782