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Authorisation Number: 1012397512593

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Ruling

Subject: GST and compulsory levy

Question

Whether the compulsory levy charged by XYZ political party (you) on your members who are elected as a Parliamentarian constitutes consideration for a taxable supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

All further legislative references are to the GST Act unless specified otherwise.

Answer

Yes, the compulsory levy charged by you on your members who are elected as a Parliamentarian forms part of the consideration for your supply of membership to such members which would be taxable supplies and subject to GST if those supplies satisfy all the other relevant requirements of section 9-5.

Relevant facts and circumstances

You are a political party.

You are registered for GST.

You provide individual membership of your political party to individuals.

One of the rules in your political party rules sets out membership eligibility the amount of membership fees payable.

The rules of the political party were provided to us.

For the purposes of this ruling it is treated that:

· you carry on an enterprise;

· supplies made by you are connected with Australia; and

· your supplies of membership are taxable supplies and are not to any extent GST-free or input taxed.

Relevant legislative provisions

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

Taxable supplies and your supply of membership

GST is payable on taxable supplies. Section 9-5 states that:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a taxable supply to the extent that it is *GST-free or *input taxed.

(Terms marked with an asterisk (*) are defined in the Dictionary at section 195-1 of the GST Act).

For the purposes of this ruling it is treated that your supplies of membership are taxable supplies and are not to any extent GST-free or input taxed.

The issue at hand is whether the compulsory levy charged by you to certain members constitutes consideration for a taxable supply

What is consideration?

Consideration is defined broadly in section 195-1 of the GST Act to mean 'any consideration within the meaning given by section 9-15 in connection with the supply or acquisition'. Subsection 9-15(1) of the GST Act states that consideration includes any payment, or any act or forbearance, in connection with a supply of anything or in response to or for the inducement of a supply of anything.

The Commissioner recognises that there are two elements to the definition of consideration. The first element is the payment by one entity to another which is satisfied in this case as the sitting member makes a payment of the levy to you.

The second element is the nexus that must be established between the payment and a supply.

Is the supply made for consideration?

Paragraph 56 of Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) states that:

The need for nexus

56. It will not be sufficient for there to be a supply and a payment. GST is not payable on a supply unless it is made for consideration, and the other tests in section 9-5 are satisfied.^F22 There must be a sufficient nexus between the supply and the payment. In the New Zealand Court of Appeal decision of C of IR v. New Zealand Refining Co. Ltd (1997) 18 NZTC 13,187, at 13,193 ('New Zealand Refining (Court of Appeal)') Blanchard J commented:

'It can be seen that ... a linkage between supply and consideration is requisite to the imposition of the tax ... There is a practical necessity for a sufficient connection between the payment and the supply. The mechanics of the legislation will otherwise make it impossible to collect the GST.'

The Commissioner's view is that the nexus test under Australian GST law may establish sufficient nexus between a payment and a supply in a broader range of cases than the nexus test applied in Canada and the European Community because of the inclusion of the term 'in connection with' in the Australian definition of consideration. This is provided at paragraphs 64 to 72 of GSTR 2001/6:

The nexus test in Australia

64. A supply is not subject to GST in Australia unless it is made for consideration. Consideration 'for a supply or acquisition' is defined in section 195-1 as any consideration, within the meaning given by section 9-15, that is 'in connection with the supply or acquisition'.

65. We consider that, in the context of the GST Act, the expression 'you make the supply for consideration' in paragraph 9-5(a) has a similar meaning to 'there is consideration for the supply that you make'.

66. The references in the GST Act to 'supply for consideration' and more commonly to 'consideration for a supply' underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST.

67. In a similar fashion to the GST legislation in New Zealand, the nature of the nexus required between supply and consideration is specified in the definition of consideration. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply.

68. In determining whether a payment is consideration under subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made.

69. This test may establish a nexus between consideration and supply in a broader range of cases than the 'direct link' test that applies in the European Community and in Canada. While caution needs to be exercised in applying decisions on connective terms in other contexts, the term 'in connection with' has been held to be broader in scope than 'for'.

70. The meaning given to the term 'in connection with' in Berry v. FC of T (1953) 89 CLR 653 (' Berry's case') is similar to that which was described by the Court of Appeal in New Zealand Refining , but needs to be applied with regard to the structure of the definition of supply in the GST Act. In Berry's case, Kitto J held that 'in connection with' was a broader test than 'for'. At page 659, his Honour commented that consideration will be in connection with property where:

'the receipt of the payment has a substantial relation, in a practical business sense, to that property'.

71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive.

In this case, the membership fee paid to you is consideration for your supply of membership which would be a taxable supply where all other relevant requirements of section 9-5 are met.

Additionally, it is a condition of membership under the political party rules that certain members shall pay a levy to you to be used for general purposes. The political party rules also provide that the payment of the levy shall be deemed to constitute payment of the political party membership fee.

You have contended that there is no additional supply made by you for which the levy is paid. However, in accordance with the Commissioner's views highlighted above, our opinion is that in this case a substantial relationship exists between the levy and your supply of membership such that the levy is sufficiently connected with your supply of membership by the legislative definition of consideration.

Our view is supported by the fact that failure to pay any amounts required by a member shall render that member liable to loss of entitlement of rights as provided by the political party rules.

Our view is further supported by the Commissioner's decision to treat the provision of an interest-free loan as forming part of the consideration for a supply of club membership in the context where an individual is required to provide an annual subscription fee and an interest-free loan to a sporting club and in return, the club supplies the individual with membership to the club.

In coming to that decision, the Commissioner referred to the principles found in Customs and Excise Commissioners v Exeter Golf and Country Club Ltd (1979) 1 BVC 316; Exeter Golf and Country Club Ltd v Customs and Excise Commissioners (1981) 1 BVC 385 (Exeter's case), where the Court considered whether, in addition to the payment of an annual subscription, the provision upon entrance of an interest-free loan as a condition of membership of a club, is part of the consideration for the supply by the club's facilities to its members. In concluding that the interest-free loan formed part of the consideration for the supply of the club's facilities to its members, the Court described the loan as being a transfer of money from 'A' to 'B' on the term that the borrower shall have the use of the money for the period that the loan has been agreed to be outstanding.

Our view is that these principles adopted by the Commissioner are equally applicable in this case.

As such, our view is that the levy forms part of the consideration for your taxable supply of membership and is subject to GST.

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