Edited version of private ruling

Authorisation Number: 1011839364941

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Ruling

Subject: GST and non-profit sub-entities

Question 1

Can you choose to apply Division 63 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to have its fund-raising activities treated as a non-profit sub-entity?

Answer

Yes

Relevant facts and circumstances

· You are registered for goods and services tax (GST).

· The Australian Taxation Office (ATO) records show that you are a non profit body that is exempt from income tax.

· Your main purpose is to support the well being and the betterment of members, the provision of welfare and commemorative services and where appropriate support within the community.

· You conduct fund-raising activities from time to time to assist with the raising of funds.

· Fund-raising activities include dinner dances with bands, outdoor concerts, raffles and other similar fund-raising activities.

· The total GST turnover raised from these fund-raising activities is less than $150,000.

· You have kept separate records for all of these fund-raising activities and have noted the treatment of the existence of a non-profit sub-entity in your official records

Reasons for decision

Division 63 of the GST Act introduces special rules that enable certain non-profit entities to have greater structural flexibility with regard to their GST registration by allowing them to create non-profit sub-entities.

This division will allow certain non-profit entities the choice to create separately identifiable units of their organisation as though they were separate entities for GST purposes. The separately identifiable units cannot be the core activity of the entity. A determination of what constitutes core activities will be a question of fact in each case.

An entity choosing to apply Division 63 must be registered and must be:

1. a charitable institution, trustee of a charitable fund or a gift deductible entity or, a government school, or

2. a non-profit body that is exempt from income tax under any of these provisions of the Income Tax Assessment Act 1997 (ITAA 1997):

3. section 50-5 (charity, education, science and religion)

4. section 50-10 (community service)

5. section 50-15 (employees and employers)

6. section 50-40 (primary and secondary resources, and tourism)

7. item 9.1 or 9.2 of section 50-45 (sports, culture and recreation).

These non-profit organisations with small independent branches (units) have the option of treating their units as if they were separate entities for GST purposes and not part of the main organisation.

A unit will be considered to be independent if it:

1. maintains an independent system of accounting and

2. can be separately identified by the nature of its activities or by its location.

An independent system of accounting does not necessarily require that a separate bank account be kept or that a separate set of books be kept. It is essential however that the records of the sub entity can be clearly and easily distinguished from the records of the main entity. They should be easy to access and extract. It is recommended that the best means of maintaining clearly identifiable records is to establish separate cash receipts and cash payments books and possibly a separate bank account. Please note that a separate bank account is not essential.

In determining those activities that are separately identifiable by their nature from the main entity it may be necessary to identify the main purpose of the entity, by inspection of the entity's governing documents, use of funds and history if necessary. Those activities that are separately identifiable from the entity's main purpose can be treated as non profit sub-entities provided that the other aspects of the test of eligibility are satisfied.

In the present circumstances, you are registered for GST, the ATO records show that you are a non-profit body that is exempt from income tax. On the basis that your main purpose is to support the well being and the betterment of members, the provision of welfare and commemorative services and the community, then we consider that your fund-raising activities will be incidental to your main purpose and on that basis will be separately identifiable by their nature. This means that as you are registered for GST, you may treat the fund-raising activities as a non-profit sub-entity, so long as all the requirements of Division 63 are satisfied.

However, you cannot treat your membership activities as a non-profit sub-entity as those activities are directly related to the furtherance of the main or core purpose of your organisation and are therefore not regarded as separately identifiable.

Other important points: Regarding non-profit sub-entities

· non-profit sub-entities will not be required to register for GST if their GST turnover is less than $150,000, though they can choose to do so if they wish. Where the non-profit sub-entity has a GST turnover of $150,000 or more it will be required to register separately for GST and will have the same rights and obligations as other GST registered entities, except for the ability to form other non-profit sub-entities

· the liability for all GST obligations of the unit will be imposed on the person(s) responsible for the management of the non-profit sub-entity

· an organisation's decision to treat a branch or unit as a non-profit sub-entity can only apply prospectively. This means transactions that occurred prior to the decision may not be treated as having been undertaken by the non-profit sub-entity

· where an organisation has a number of non-profit sub-entities and the value of the remaining supplies reported by the main organisation falls below $150,000, the main organisation cannot elect to cancel their registration. In order to enjoy the flexible options under Division 63 of the GST Act, the main organisation must remain registered for GST

· an entity cannot revoke the choice within 12 months after the day on which the entity made the choice and cannot make a further choice within 12 months after the day on which the entity revoked a previous choice, and

· If an entity chooses this option it must record each unit that is being treated as a separate entity for the purposes of GST.

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