Edited version of your written advice

Authorisation Number: 1013065136477

Date of advice: 10 August 2016

Ruling

Subject: Goods and services tax ~ Registrations ~ Cancellation ~ Within 4 years

Question 1

Is the entity a non-profit body for the purposes of subparagraph 23-15(2)(b) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

If the answer to Question 1 is 'yes', was the entity required to be registered for GST under section 23-5 of the GST Act during the relevant period?

Answer

No

This ruling applies for the following period(s)

This private ruling continues to have ongoing application if the following given circumstances remain unchanged:

• The entity never makes any distributions to members

• The entity does not intend to make any distributions to members

• The entity does not contemplate winding up

• The current GST Turnover for the entity for each month does not meet the GST Registration Turnover Threshold

• The projected GST Turnover for the entity for each month does not meet the GST Registration Turnover Threshold

The scheme commences on

October 2014

Relevant facts and circumstances

The entity is a X title body consisting of residential units.

The entity was incorporated as a X company under the relevant state legislation.

In accordance with the relevant state legislation, the entity has established a fund for administrative expenses for the control and management of common property, for the payment of insurance and the discharge of other obligations of the X company. Contributions are levied on members for the abovementioned purposes.

There are no distributions made to members from any surplus funds. Any surplus or deficit is carried over to the opening balance of the Administration Fund for the next GST year.

In accordance with the relevant state legislation, the entity has established a Reserve fund for the purpose of accumulating funds to meet contingent expenses, other than those of a routine nature, and other major expenses of the X company likely to arise in future. Contributions are levied on members for the abovementioned purposes.

A Reserve Fund falls within the broad definition of 'Sinking Fund'. Sinking Fund is defined in the Macquarie Dictionary (The Macquarie Dictionary Online (Macmillan Publishers Australia, 2012) as "a fund into which regular payments are made…for meeting future commitments."

There are no distributions made to members from any surplus funds. Any surplus or deficit is carried over to the opening balance of the Reserve Fund for the next GST year.

The entity:

• Has never made any distributions to members.

• Does not intend to make any distributions to members.

• Does not contemplate winding up.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-10(2)(b)

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-15

A New Tax System (Goods and Services Tax) Act 1999 paragraph 23-15(2)(a)

A New Tax System (Goods and Services Tax) Act 1999 subparagraph 23-15(2)(b)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-15(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-15(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-15(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 section 188-20(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-20(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 188-20(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-20(1)(c)

A New Tax System (Goods and Services Tax) Regulations 1999 section 23-15.02

Reasons for decision

Question 1

Summary

Based on the fact that the entity has never made any distributions to members, does not intend to make any distributions to members and does not contemplate winding up, the Commissioner accepts that the entity is a non-profit body for the purpose of subparagraph 23-15(2)(b) of the GST Act.

Detailed reasoning

By virtue of section 23-15 of the GST Act and related GST Regulations, the registration turnover threshold applicable to the entity will be higher if it is a non-profit body.

'Non-profit body' is not defined in the GST Act. Therefore it takes its ordinary meaning having regard to the context in which it appears. There are two elements to the definition:

• The entity must be a body; and

• The body must have the characteristic of being a 'non-profit body'

The term 'body' has a broad meaning. It is defined in the Macquarie Dictionary (The Macquarie Dictionary Online (Macmillan Publishers Australia, 2012) as including '17. A collective group; or an artificial person: body politic, body corporate.'

The entity was incorporated as a X company under the relevant state legislation.

The relevant state legislation states that a X company created under subsection (1) is a body corporate. As a body corporate, the entity comes within the broad meaning of the term 'body' as defined in the Macquarie Dictionary.

Guidance on whether a body has the characteristic of being non-profit is provided in GST Ruling GSTR 2012/2 Goods and services tax: financial assistance payments:

107. The Commissioner's view of when a society, association or club is not carried on for the purpose of profit or gain is explained in TR 97/22. Although this view is expressed in an income tax sense, the Commissioner considers the principles outlined there are equally applicable in describing whether a particular body is a 'non-profit body' for GST purposes.

108. A body is a non-profit body if, by operation of law (for example, a statute governing a body's activities) or by its constituent documents, the body is prevented from distributing its profits or assets amongst its members while the body is functional and on its winding-up. The body's actions must, of course, be consistent with this prohibition.

109. Where the law or the constituent documents do not prohibit distributions, whether the body is not carried on for purposes of profit or gain to the individual members is to be determined by reference to the surrounding circumstances. Factors that are considered relevant include whether distributions have been made, whether there is a stated or demonstrated policy to make or not to make such distributions and whether winding-up is contemplated. Where it is clear from the objects, policy statements, history, activities and proposed future directions of the body that there will be no distributions to members, we accept that the non-profit test has been satisfied.

The activities of the entity are governed by the relevant state legislation

Currently the relevant state legislation does not prohibit distributions to individual members.

It follows that whether the entity is carried on for the purposes of profit or gain to individual members is determined by surrounding circumstances.

Further guidance on relevant circumstances to take into consideration as applicable to a body corporate entity is provided in ATO ID 2016/1 Goods and Services Tax: GST and registration turnover threshold for a body corporate

A body corporate entity is permitted by their governing state or territory legislation to make distributions to proprietors in certain circumstances. Generally such legislative provisions cannot be excluded by a by-law of the body corporate.

We consider that the circumstances in which profits will be available for distribution by a body corporate to its proprietors will be limited. A return of the members' own funds will not amount to a distribution of profits but a return of capital.

The sinking fund and administration fund may include interest income or other income such as income from the rental of common property. The existence of interest income or income from rental property or other activities in the various funds held by the body corporate will not of itself preclude the body corporate from being a non-profit body for the purposes of the GST Act.

However, (contrary to the facts here) an intention to distribute the interest income or profits from rental or other activities, either while the body corporate is functional or upon winding up, would disqualify the body corporate from being a non-profit body for the purposes of the GST Act.

It follows that the existence of income in the Administration and Reserve funds (also known as a Sinking Fund (The Macquarie Dictionary Online (Macmillan Publishers Australia, 2012)) does not preclude the entity from being a non-profit body for the purposes of the GST Act.

The entity:

• Has never made any distributions to individual members.

• Does not intend to make any distributions to individual members.

• Does not contemplate winding up.

On these facts, the Commissioner accepts that the entity is a non-profit body.

Question 2

If the answer to Question 1 is 'yes', was the entity required to be registered for GST under section 23-5 of the GST Act during the relevant period?

Summary

Although the entity is carrying on an enterprise, it is not required to register for GST under section 23-15 of the GST Act because neither the current GST Turnover nor the projected GST Turnover for each month of the relevant period meets the GST Registration Threshold for a non-profit body of $150,000.

Detailed reasoning

Section 23-5 of the GST Act specifies you are required to be registered under the GST Act if:

(a) You are carrying on an enterprise; and

(b) Your GST turnover meets the registration turnover threshold.

You are carrying on an Enterprise

The term 'enterprise' is defined in section 9-20 of the GST Act.

The matter of whether a body corporate registered under the Body Corporate and Community Management Act 1997 (Qld) was carrying on an enterprise as defined in section 9-20 of the GST Act was considered in Body Corporate Villa Edgewater CTS 23092 v FC of T 2004 ATC 2052.

Similar to the entity, the members of the body corporate in this case made contributions into the sinking and administration fund administered by the body corporate. The body corporate levied contributions on its members. It had also incurred a range of expenses in carrying out its functions that were paid out of the administration and sinking funds.

BJ McCabe in Body Corporate, Villa Edgewater CTS 23092 v FC of T 2004 ATC 2052 commented at 2061:

...I note s 9-20(3) says a taxpayer may still be conducting an enterprise even though it only deals with its own membership. That is the situation here. Section 9-20(1) says an enterprise is an activity or series of activities done in a variety of circumstances - most obviously, in the form of a business. A business, according to the dictionary in s195, ``includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.'' The other examples of an enterprise given in s 9-20(1) - such as charities and religious institutions - means that intention to make profits is not an essential feature of a business under this legislation. The position under this statute can be contrasted with the usual (but not universal) expectation that businesses are conducted with a view to profit: see

White v FC of T (1968) 15 ATD 173 at 174-175; (1968) 120 CLR 191 at 216 per Barwick CJ.

I also note the statute says the activities must be carried on in the form of a business. This unusual form of words suggests the parliament intended decision- makers to concentrate on whether the activities of the entity are carried on in a business-like way, rather than on the ends of the activities. That distinction was recognised in a different context in

State Superannuation Board (NSW) v FC of T 88 ATC 4382 at 4389, 4391-4392; (1988) 19 ATR 1264 at 1273, 1276 per Sheppard J.

Having considered case law on the meaning of the phrase 'in the form of a business' BJ McCabe concludes that the body corporate was carrying on an enterprise at 2062:

This legislation imposes a tax on the provision of goods and services. Although some types of transactions are exempt (many food sales do not attract the tax, for example), the tax is meant to be broad-based. I have already concluded the taxpayer provides services, and that contributions made by the lot-owners are connected with those services. I have also noted the applicant has the capacity to enter into contracts with employees and other contractors in its own right. It prepares a budget and spends the money. It has a managing committee and rules of association and conducts meetings of lot-owners to approve certain activities. The entity has statutory responsibilities with respect to the common areas that it must discharge. It does not matter that many of these activities are provided for in the statute and regulations.

I am satisfied in all the circumstances that the activities are carried out in the form of a business. The body corporate is therefore an enterprise, and the contributions are clearly made in the course or furtherance of the enterprise. It follows that the requirements of s 9-5(b) are satisfied.

The Commissioner's view that a body corporate can constitute an enterprise is further confirmed in ATO ID 2016/1 Goods and Services Tax: GST and registration turnover threshold for a body corporate.

The body corporate addressed by this interpretive decision administered, managed and controlled the common property and assets of a residential unit complex in Australia. The body corporate was obliged to make a variety of supplies in the course of administering the common property and assets of the residential unit complex. Its members also contributed to an administration and/or sinking fund in order for the entity to perform its obligations and to carry out its activities.

Given these circumstances the body corporate entity was considered to be a non-profit body that is carrying on an enterprise.

In comparison, the duties of the entity are detailed in the relevant state legislation.

These and other activities of the entity as prescribed in the relevant state legislation are carried out in the form of a business. For this reason the Commissioner accepts that the entity is carrying on an enterprise for the purpose of section 23-5 of the GST Act.

GST Turnover meets the registration turnover threshold

GST Turnover in relation to meeting a turnover threshold has the meaning given by subsection 188-10(1) of the GST Act.

You have a GST turnover that meets a particular turnover threshold if:

• your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

• your projected GST turnover is at or above the turnover threshold.

Current GST Turnover

Current GST turnover is defined in subsection 188-15(1) as follows:

Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

(a) supplies that are input taxed; or

(b) supplies that are not for consideration (and are not taxable supplies under section 72-5); or

(c) supplies that are not made in connection with an enterprise that you carry on.

The definition of supplies was considered by BJ McCabe in Body Corporate, Villa Edgewater CTS 23092 v FC of T 2004 ATC 2052 at 2060:

The definition of supplies is set out in s 9-10. It is very wide. Section 9-10(1) says ``A supply is any form of supply whatsoever.'' Section 9-10(2)(b) says the expression includes ``a supply of services'', and s 9-10(2)(g) says relevantly that supply includes ``an entry into... an obligation... to do anything...''

There is clearly a supply within the meaning of the Act. The applicant is obliged to perform a variety of tasks in the course of administering the common property and assets. The body corporate must clean, mow and tend to the gardens, change the light bulbs and repair damage resulting from wear and tear or accidents: see regulation 109, for example. It is the lot-owners who pay for these tasks to be performed, and the tasks are performed for their benefit: ss 87 and 114 of the BCCM Act. The lot-owners are in that sense the recipients of the service provided by the applicant. It makes no difference whether the entity discharges the obligation through servants or agents, as it is the entity's obligation.

It follows I accept the activities in question (cleaning, mowing, repairs etc) are services within the meaning of the GST Act. The term is undefined in the legislation, but it clearly comprehends the performance of obligations like those imposed on the applicant.

From the detailed income and expenditure statements provided the entity receives X levies and X income from members for various services to be performed including servicing and repairs to fire equipment, security gates, doors, cameras, accounting services, cleaning and rubbish removal, plumbing, pest control etc. The Commissioner accepts that these are supplies of services as contemplated by paragraph 9-10(2)(b) of the GST Act.

Exclusions to current GST Turnover

Because total income (Actual YTD figures) reported by the entity (in respect of both the Administration Fund and Reserve Fund) for the relevant GST years are clearly below the registration turnover threshold, it is unnecessary to consider exclusions specified at paragraphs 188-15(1)(a), (b) and (c) of the GST Act in arriving at the current GST turnover.

Projected GST Turnover

Projected GST turnover is defined in subsection 188-20(1) as follows:

Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a) supplies that are input taxed; or

(b) supplies that are not for consideration (and are not *taxable supplies under section 72-5); or

(c) supplies that are not made in connection with an enterprise that you carry on.

Exclusions to projected GST Turnover

Because projected income (Proposed Budget figures) reported by the entity (in respect of both the Administration Fund and Reserve Fund) for the relevant GST years are clearly below the registration turnover threshold, it is unnecessary to consider exclusions specified at paragraphs 188-20(1)(a), (b) and (c) of the GST Act in arriving at the projected GST turnover.

Registration Turnover Threshold

The registration turnover threshold for a non-profit body is defined in subsection 23-15(2) as:

(a) $100,000; or

(b) such higher amount as the regulations specify.

Section 23-15.02 of A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) provides that for paragraph 23-15(2)(b) of the GST Act, the amount of $150 000 is specified.

It follows that though the entity is carrying on an enterprise, it is not required to register for GST under section 23-15 of the GST Act because neither the current GST Turnover nor the projected GST Turnover for each month of the relevant period meets the GST Registration Threshold for a non-profit body of $150,000.

ATO view documents

GST Ruling GSTR 2012/2 Goods and services tax: financial assistance payments.

ATO ID 2016/1 Goods and Services Tax: GST and registration turnover threshold for a body corporate.

Other references (non ATO view)

Body Corporate Villa Edgewater CTS 23092 v FC of T 2004 ATC 2052

The Macquarie Dictionary Online (Macmillan Publishers Australia, 2012).

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