Edited version of your private ruling

Authorisation Number: 1012544516307

Ruling

Subject: GST treatment of membership fees

Question 1

Are membership fees payable to you by member's consideration for supplies that are partly taxable and partly GST-free for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

If the membership fees are consideration for supplies that are partly taxable and partly GST-free, is the value on which the GST is calculated for the supply of memberships determined under section 9-80 of the GST Act?

Answer

Yes.

Question 3

If the value on which the GST is payable is determined under section 9-80, should the taxable proportion of the formula specified in section 9-80 be determined annually by using the following methodology:

· the total GST exclusive value of taxable supplies made at your premises for a specified 12-month period as a proportion of your total sales (exclusive of GST) for the same period; and

· updating the formula annually and applying it to the supply of membership for the immediate proceeding 12 months.

Answer

Yes, we accept that based on the information provided this will be a reasonable method of apportionment.

Relevant facts and circumstances

· We have provided an earlier private ruling concluding that the membership fee is consideration for a number of rights supplied by you to each member.

· We considered that the right to enter your premises was the dominant supply made to each member and that the other rights were ancillary to that dominant right.

· We considered that the terms did not state that you supply to each member the right to acquire goods or services, and concluded that the omission from the terms and conditions of any grant of a right to purchase goods was deliberate and made for sound commercial reasons.

· We found that although a member may consider, subjectively, that he or she pays the membership fee to you in return for the right to purchase goods or services at your premises, that is not the legal effect of the transaction as set out in the terms and conditions. You therefore did not supply a right to purchase goods or services to a member.

· Your current request for a private ruling contains a material change in facts from those already ruled on being that you have amended your terms and conditions to specify that membership entitles persons to acquire goods and services from you.

· All other relevant background facts are contained in your previous ruling application and further submissions, and outlined in our previous private ruling. They have been summarised below:

o You are registered for GST.

o You supply memberships to individuals and to businesses in return for annual GST-inclusive membership fees.

o During a sample period a percentage of goods and services supplied from your Australian premises were GST-free and the remaining percentage were taxable.

o You consider that the taxable and GST-free 'components' of the membership fee are each 'sufficiently significant' such that the supply of membership benefits is a mixed supply (and not a composite supply).

o You consider that the dominant right supplied with your membership is the right to acquire goods or services from your premises, and that the membership has no value without the right to purchase goods or services.

o You have suggested that treating the supply of membership as partially taxable and partially GST-free, based on the proportion of supplies that are taxable and GST-free, would be a reasonable apportionment calculation for determining the taxable proportion of membership fees.

o You propose that this would be updated at the end of each financial year using the methodology outlined (ie proportion of taxable and GST-free supplies for the financial year) and applied for the following 12 months until the next review is undertaken.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Subsection 9-30(1)(b)

Section 9-80

Reasons for decision

Summary

The membership fees payable to you are consideration for supplies that are partly taxable and partly GST-free.

Detailed reasoning

Under section 9-5 of the GST Act you make a taxable supply if you make a supply for consideration, the supply is made in the course or furtherance of an enterprise that you carry on, the supply is connected with Australian and 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).

Supply of membership is a supply of a right to receive a supply

As advised in our previous ruling, we consider that the membership fee is consideration for a number of rights supplied by you to each member (bundle of rights including the right to enter etc). A supply of rights is a supply for GST purposes (section 9-10(2)(e) of the GST Act).

We accept that the terms and conditions as presented for this ruling request, particularly the explicit inclusion of an entitlement to acquire products and services at any location, means that you also supply a right to purchase or acquire goods or services.

Taking into account relevant information, such as the terms of your membership, the marketing materials and information available on your website and your members' likely motives for purchasing a membership, we consider that the primary or dominant purpose of membership is the right to purchase products or services. Other rights, such as those mentioned above, are incidental or ancillary to the member's right to purchase goods or services. Those rights are effectively merged into the dominant supply of the right to purchase goods or services. We consider that the right to purchase goods is the reason the member pays the membership fee.

Therefore the membership fee is consideration for, or in connection with, the supply of a right to purchase goods or services rather than for any other rights under the membership. Although the supply of other rights may each satisfy the statutory definition of a supply there does is not a sufficient nexus between those supplies and the membership fee.

The GST treatment of the supply of the right to acquire various goods or services within your premises (also referred to as membership for convenience) is therefore what needs to be determined.

GST treatment of a supply of membership

You supply a range of goods and services, some of which are GST-free and some of which are taxable.

Under subsection 9-30(1)(b) of the GST Act a supply of a right will be GST-free where it is a supply of a right to receive a supply that would be GST-free under Division 38 of the GST Act. That is, a supply of a right to purchase GST-free goods or services is a GST-free supply whereas a supply of a right to purchase taxable goods or services is a taxable supply.

· The right to acquire taxable goods or services is not a right to receive a GST-free supply. It is therefore a taxable supply.

· The right to acquire GST-free goods or services is a right to receive a supply that would be GST-free supply. It is therefore GST-free.

Each of these rights is separately identifiable and significant. Therefore, a supply of membership is a supply of a right to receive future supplies that would be either GST-free or taxable.

In other words, the membership is a supply of a right to receive supplies, and the GST status of the supplies that may ultimately be received pursuant to the right is unknown.

GSTR 2012/1 explains that the test for paragraph 9-30(1)(b) of the GST Act is whether the membership represents a right to receive a supply that would be GST-free (although in a different context, see paragraphs 76 to 83). The interpretation in the public ruling acknowledges that this allows or requires a prediction of the extent to which the membership would be used to receive GST-free supplies.

We therefore accept that the supply of membership is a supply that is partly GST-free and partly taxable (a mixed supply). It contains separately identifiable taxable and GST-free parts that need to be individually recognised.

Question 2

Summary

As the membership fees are consideration for supplies that are partly taxable and partly GST-free, the value on which the GST is calculated for the supply of membership is determined under section 9-80 of the GST Act.

Detailed reasoning

Ordinarily where the rights are identified have all the same GST status it is not necessary to apportion the membership fee between them. However, in this case a right to purchase goods entitles a member to purchase taxable and/or GST-free goods and is therefore partly taxable and partly GST-free.

Section 9-80 of the GST Act determines the value of taxable supplies that are partly GST-free. If a supply is partly taxable and partly GST-free the value of the part of the supply that is taxable is the proportion of the value that the taxable supply represents.

As you make a supply that is a combination of separately identifiable taxable and non-taxable parts, you need to apportion the consideration for the supply to those parts to work out the value under section 9-80 of the GST Act for the purposes of determining the GST payable on the taxable part.

GSTR 2001/8 provides our view on apportioning consideration for a supply that includes taxable and non-taxable parts. Any reasonable basis can be used to apportion the consideration. Our interpretation of subsection 9-30(1)(b) of the GST Act in GSTR 2012/1 is also that the extent to which membership would be used to receive GST-free supplies must be determined on a fair and reasonable basis.

Your suggested method of apportionment is considered in further detail in our response to question 3.

Question 3

Summary

We accept that it is reasonable that the taxable proportion of the formula specified in section 9-80 of the GST Act is to be determined annually using the methodology you have proposed.

Detailed reasoning

You have advised that you wish to apportion the consideration for your membership supplies to the taxable component by using the total value of taxable supplies from your premises for a specified 12-month period as a proportion of your total supplies for the same period (both on a GST exclusive basis). The remaining consideration will therefore be attributable to your GST-free supplies and GST will not be paid on those amounts.

You intend to update this apportionment annually based on your sales for the proceeding 12 months and apply it to your supplies of membership until recalculated again.

We consider that the basis you have suggested is similar to the example given in GSTR 2012/1. In that ruling we advise that it may be reasonable for an entity to determine how the rights would be used (for example for purchasing GST-free or taxable goods) by reference to the history of how the rights have been used (or what has been purchased) in the past.

We therefore accept that past sales history is a reasonable basis for determining the proportion of your supplies that are GST-free and taxable for the purposes of determining the value of the taxable supply and the GST payable.

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