Edited version of your written advice

Authorisation Number: 1013078128372

Date of advice: 26 August 2016

Ruling

Subject: GST registration turnover threshold for strata body corporates

Question

Is the strata company, known as Entity A, a non-profit body for the purposes of the registration turnover threshold under subsection 23-15(2) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

Yes, Entity A is considered to be a non-profit body for the purposes of the GST Act. As such, the higher registration turnover threshold of $150,000 under subsection 23-15(2) of the GST Act applies to Entity A. Where Entity A's turnover is below this threshold Entity A can, however, voluntarily register for GST if Entity A so chooses.

Relevant facts and circumstances

• Entity A is registered for GST.

• Pursuant to section 32 of the Stata Titles Act 1985 (WA) (WA Strata Titles Act), Entity A is a strata company constituted by the proprietors as a body corporate with perpetual succession and a common seal.

• Section 17 of the WA Strata Titles Act provides that common property shall be held by the proprietors as tenants in common.

• Section 30A of the WA Strata Titles Act provides that the proprietors may resolve by unanimous resolution that the scheme be terminated, in which case the proprietors will be entitled to the proceeds from the sale of the common property in shares proportional to the unit entitlements of their respective lots.

• Pursuant to section 42 of the WA Strata Titles Act, the provisions set out in Schedules 1 and 2 to that Act are deemed to be Entity A's by-laws.

• Entity A has not amended, repealed or added to any of the by-laws in the WA Strata Titles Act; nor does Entity A have any separate policy statements.

• Pursuant to section 44 of the WA Strata Titles Act, Entity A's functions are performed by Entity A's council, subject to that Act and any restriction imposed or direction given at a general meeting; and in accordance with and in the manner provided by Entity A's by-laws.

• Entity A operates for the sole benefit of the proprietors and does not operate with a profit motive.

• Entity A does not have records going back further than seven years, other than in relation to a special levy which was levied earlier than that.

• All of Entity A's current income, and that of past years, consists of levies on members (both quarterly levies and any special levies) and any interest earned on money held in bank accounts.

• All of Entity A's income is held in Entity A's bank accounts for use in performing Entity A's duties, including future maintenance and improvement of the common property.

• All of the special levies that Entity A has raised have been for the purposes of maintaining or improving common property, and any unspent funds have been kept for Entity A's general expenditure.

• Entity A is not presently contemplating undertaking future income generating activities that would be different from those which Entity A is currently, or has previously, undertaken.

• Entity A does not have any stated or demonstrated policies to:

• make, or not to make, distributions or return funds

• identify any person(s) other than the proprietors that any distribution of funds could be made to, if any distribution arose.

• No distributions or return of funds have been made by Entity A to any party in the last seven years and Entity A's strata manager is unaware of Entity A having ever made any distributions or return of funds.

• Entity A holds annual general meetings to elect councillors.

• Entity A's current councillors, appointed for the term of 12 months, do not presently have any intention to propose that Entity A make distributions to members or to any other persons (either now or in the future), or for Entity A to be wound up.

Reasons for decision

Summary

Entity A is a non-profit body for the purposes of the registration turnover threshold under subsection 23-15(2) of the GST Act as Entity A has neither made or intends to make any distributions, nor is it intended that Entity A be wound up.

Detailed reasoning

All legislative references are to the GST Act unless otherwise stated.

Division 23 provides for when an entity is required to be registered, or may register, for GST. Section 23-15 states:

(1) Your registration turnover threshold (unless you are a non-profit body) is:

(a) $50,000; or

(b) such higher amount as the regulations specify.

(2) Your registration turnover threshold if you are a non-profit body is:

(a) $100,000; or

(b) such higher amount as the regulations specify.

Regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 (the GST Regulations) states:

For paragraph 23-15(1)(b) of the Act, the amount of $75,000 is specified.

Regulation 23-15.02 of the GST Regulations states:

For paragraph 23-15(2)(b) of the Act, the amount of $150,000 is specified.

To determine if the registration turnover threshold under subsection 23-15(2) applies in Entity A's circumstances, it is necessary to establish if Entity A is a 'non-profit body' for GST purposes.

The term 'non-profit body' is not defined in the GST Act, however, relevant guidance in relation to the meaning of the term is provided in Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance (GSTR 2012/2). Paragraphs 105 and 106 of GSTR 2012/2 discuss the ordinary meaning and state:

105. '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'.

106. The term 'body' has a broad meaning. It is defined in the Macquarie Dictionary as including '17. A collective group; or an artificial person: body politic, body corporate.'

Therefore, in examining if Entity A is a non-profit body, it is first necessary to consider if Entity A is a 'body' and satisfies the first element of the definition of 'non-profit body'.

In Entity A's case, pursuant to section 32 of the WA Strata Titles Act, Entity A is a strata company constituted by the proprietors as a body corporate. Accordingly, as paragraph 106 specifically refers to a 'body corporate', Entity A is a 'body' and satisfies the first element of the definition.

The second element of the definition that must be satisfied is that the body must have the characteristic of being a 'non-profit body'.

Paragraphs 107 and 108 of GSTR 2012/2 discuss the principles applicable in describing whether a particular body is a 'non-profit body' for GST purposes and the prohibition of distributions to members. The paragraphs state:

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.

In relation to distributions to members, in Entity A's circumstances, Entity A is not prevented from making distributions. Section 30A of the WA Strata Titles Act provides that the proprietors may resolve by unanimous resolution that the scheme be terminated, in which case the proprietors will be entitled to the proceeds from the sale of the common property in shares proportional to the unit entitlements of their respective lots.

However, where the law or the constituent documents do not prohibit distributions, further guidance about how the non-profit test can be satisfied is provided at paragraph 109 of GSTR 2012/2 which states:

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.

This further guidance in relation to circumstances where distributions to members are not prohibited is also discussed in ATO Interpretative Decision ATO ID 2016/1 (ATO ID 2016/1), which is about GST and the registration turnover threshold for a body corporate.

Consistent with the provisions of the WA Strata Titles Act that apply to Entity A, ATO ID 2016/1 confirms that a body corporate entity is permitted by their governing state or territory legislation to make distributions to proprietors in certain circumstances, and that generally, such legislative provisions cannot be excluded by a by-law of the body corporate. Despite this, the ATO ID provides that a body corporate entity is considered to be a non-profit body under section 23-15 if it is clear from the objects, policy statements, history, intention, activities and proposed future directions of the body corporate that there will be no distributions to members.

In considering if Entity A satisfies the non-profit test for GST purposes, the guidance at paragraph 109 of GSTR 2012/2 provides that whether you are not carried on for purposes of profit or gain to the individual members is to be determined by reference to the surrounding circumstances. The 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.

These factors are discussed in ATO ID 2016/1, which explains the context in which a body corporate conducts its affairs as follows:

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

Entity A's specific circumstances are such that:

• Entity A operates for the sole benefit of the proprietors and does not operate with a profit motive

• Entity A's current income, and that of past years, consists of levies on members (both quarterly levies and any special levies) and any interest earned on money held in bank accounts

• Entity A's income is held in Entity A's bank accounts for use in performing Entity A's duties, including future maintenance and improvement of the common property

• Entity A is not presently contemplating undertaking future income generating activities that would be different from those which Entity A is currently, or has previously, undertaken

• Entity A does not have any stated or demonstrated policies to make, or not to make, distributions or return funds

• no distributions or return of funds have been made by Entity A to any party in the last seven years and Entity A's strata manager is unaware of Entity A ever having made any distributions or return of funds

• Entity A's current councillors do not presently have any intention to propose that Entity A make distributions to members or to any other persons (either now or in the future), or for Entity A be wound up.

Therefore, in accordance with the guidance at paragraph 109 of GSTR 2012/2, based on Entity A's objects, history, intentions, activities and proposed future directions, Entity A has neither made or intends to make any distributions, nor is it intended that Entity A be wound up. Accordingly, Entity A satisfies the non-profit test and have the characteristic of being a 'non-profit body' as required by the second element of the definition of 'non-profit body'.

Consequently, as Entity A satisfies both elements of the definition, Entity A is considered to be a non-profit body for the purposes of the GST Act.

As such, the higher registration turnover threshold of $150,000 applies to Entity A.

Where Entity A is below the registration turnover threshold for a 'non-profit body', Entity A can however voluntarily register for GST if Entity A so chooses.

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