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Edited version of private ruling
Authorisation Number: 1011555616622
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Ruling
Subject: GST and non-profit sub-entities
Question
Is the supply of training sessions to its members by your divisions taxable?
Advice/Answer
No. The supply of training sessions by your divisions to its members is not taxable if you treat those divisions as non-profit sub-entities under Division 63 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Relevant facts
You are a non-profit organisation which is registered for GST.
You are endorsed as an income tax exempt charity by the ATO.
Your core activities are for the advancement of social and community welfare.
You have small local divisions which conduct training sessions for its members. The members pay fees for these sessions.
The annual turnovers for these divisions are below $150,000 and they are not registered for GST.
The divisions are not incorporated in their own rights and operate under your constitution.
The divisions keep their own separate accounting records.
Reasons for decision
An entity that is registered for GST is liable for GST on all taxable supplies made from all its activities regardless of whether or not GST has been applied to the supply.
However, Division 63 of the GST Act provides that certain non-profit entities may choose to treat a separately identifiable branch (or group of activities) as if it was a separate entity for GST purposes and not part of the main organisation. The branch is referred to as non-profit sub-entity.
The non-profit entity must satisfy the criteria in subsections 63-5(2) and 63-15(1) of the GST Act, before it may choose to treat some (or all) of their separately identifiable branches as non-profit sub-entities.
To satisfy the criteria in subsection 63-5(2) of the GST Act an entity must be registered for GST and must be:
· an endorsed charitable institution, endorsed trustee of charitable funds, a gift-deductible entity that is a non-profit body or a government school, or
· a non-profit body that is exempt from income tax under any of the following specified provisions of the Income Tax Assessment Act 1997:
(i) section 50-5 (charity, education, science and religion)
(ii) section 50-10 (community service)
(iii) section 50-15 (employees and employers)
(iv) section 50-40 (primary and secondary resources, and tourism)
(v) item 9.1 or 9.2 of section 50-45 (sports, culture and recreation).
However, the branch which the entity chooses to treat as a non-profit sub-entity must satisfy the criteria in sub-section 63-15(1) of the GST Act as follows:
· the branch must maintain an independent system of accounting; and
· the branch can be separately identified by reference to:
· the nature of the activities carried on through the branch, or
· the location of the branch, and
· the branch is referred to in your records to the effect that it is treated as a separate entity for the purposes of the GST law.
Requirements in subsection 63-5(2) of the GST Act
You are registered for GST and you are a non-profit body whose core activities are for the advancement of social and community welfare. You have been endorsed as an income tax exempt charitable institution by the Tax Office. You therefore satisfy the criteria in subsection 63-5(2) of the GST Act.
Requirements in subsection 63-15(1) of the GST Act
The term 'branch' is not defined in the GST Act and therefore must be given its ordinary meaning.
Branch is defined in the Australian Oxford Dictionary as '…a local division or office etc. of a large business, as of a bank, library, etc...'
Your divisions are your local divisions and thus satisfied the ordinary meaning of branch.
You have advised that the divisions have an independent system of accounting for their activities. Further, the divisions can be separately identified by reference to their location as they are located in different area.
There is no requirement for a non-profit organisation which chooses to treat some units as separate non-profit sub-entities under Division 63 of the GST Act to formally advise the Tax Office. However, the decision must be recorded in the non-profit organisation's records. That is, the decision should be recorded in the minutes of the meeting in which that decision was made. Please note that you cannot revoke the choice to treat the divisions as non-profit sub-entities within 12 months after the day on which you make that choice.
Accordingly, you can treat the divisions as non-profit sub-entities for GST purposes under Division 63 of the GST Act and you are not liable to account for their GST provided you have satisfied all the requirements in subsection 63-15(1) of the GST Act.
A non-profit sub-entity is treated as a separate entity for GST purposes. This means that where the sub-entity's turnover is less than $150,000 it can choose whether or not to register for GST. If it chooses not to register for GST, the sub-entity is not required to charge GST on supplies it makes. However, the sub-entity is also not entitled to claim GST credits for anything acquired to make those supplies. In addition, the transactions relating to the sub-entity should not be recorded on the main organisation's activity statement.
You have advised that the divisions are not registered for GST and their GST turnovers are below $150,000. Therefore, they are not required to be registered for GST and they do not need to charge GST on the fees they receive from their members.
Additional information
It should be noted that where you create multiple sub-entities and your GST turnover is reduced to below $150,000, you cannot elect to cancel your GST registration. The concessions under Division 63 of the GST Act are only available if you, being the main organisation is registered for GST.
Further, if the division's GST turnover exceeds the registration turnover threshold of $150,000 it will be required to register separately for GST and will have the same rights and obligations as other GST registered entities.
When the non-profit sub-entity is registered for GST, the liability for all its GST obligations will be imposed on the persons responsible for the management of the non-profit sub-entity.
You may be able to access more information on non-profit sub-entities from the ATO's website at www.ato.gov.au
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