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Edited version of your written advice
Authorisation Number: 1013104253300
Date of advice: 25 October 2016
Ruling
Subject: GST and the meaning of the term 'a State' for the purposes of the margin scheme.
Question
Does Entity A (you) come within the meaning of the term 'a State' for the purpose of item 4 of the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes, you come within the meaning of the term 'a State' for the purpose of item 4 of the table in subsection 75-10(3) of the GST Act.
Relevant facts and circumstances
You carry on an enterprise and you are registered for GST.
You are constituted as a corporation under State legislation.
State legislation provides that you have shareholders that hold their shares for and on behalf of a government.
State legislation contains relevant provisions for:
● your purpose
● ownership
● management
● financial arrangements
● appointment and removal of directors.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 7-1
A New Tax System (Goods and Services Tax) Act 1999 Division 75
A New Tax System (Goods and Services Tax) Act 1999 subsection 75-10(3)
Reasons for decision
All legislative references are to the GST Act unless otherwise stated.
Section 7-1 provides that GST is payable on taxable supplies. However, special rules in Division 75 allow you to use the margin scheme for your taxable supply of real property.
Subsection 75-10(3) specifies circumstances in which an approved valuation, made as at a specified date, is to be used in working out the margin for a supply of real property. In particular, the second column in item 4 of the table in subsection 75-10(3) (Item 4) specifies the following circumstances relating to supplies of real property made by way of selling a freehold interest in land, selling a stratum unit or granting or selling a long-term lease:
● the supplier is the Commonwealth, a State or a Territory, and
● the supplier has held the interest, unit or lease since before 1 July 2000, and
● there were no improvements on the land or premises as at 1 July 2000.
In this case, the issue to be examined is whether you come within the meaning of the term 'a State' for the purpose of Item 4 in relation to the requirement that the supplier is 'the Commonwealth, a State or a Territory'.
Goods and Services Tax Ruling GSTR 2006/5 (GSTR 2006/5) provides relevant guidance about the meaning of 'Commonwealth, a State or a Territory'.
Paragraph 11 of GSTR 2006/5 discusses the fundamental principle established by the High Court of Australia in cases concerning the meaning of 'a State' in section 114 of the Australian Constitution. If the corporation is discharging governmental functions as an instrument of the State, that is, the State is carrying on the relevant business or other function through the corporation, then the corporation is the State.
However, if the intention is for the corporation to perform its functions independently of, and not as an instrument of, the State so that the concept of a State activity cannot be realistically applied to that which the corporation does, then the corporation is not the State.
Paragraph 12 of GSTR 2006/5 discusses principles to be considered in determining if a corporation is to be characterised as being the State. The matters covered by the principles include:
● whether a corporation is the State requires consideration of every feature relevant to its relationship with the State
● ownership and management of the corporation and the purposes it is required to pursue
● provision that the corporation must pursue the interests of the State or the public
● a provision that positively permits the corporation to take account of other external interests is a contrary indicator
● financial arrangements, and
● the ability of the executive government to control the appointment and removal of directors.
Therefore, it is necessary to consider the principles in your circumstances.
Purpose you are required to pursue
State legislation provides for your principal functions and your principal objectives.
Therefore, we consider you have the purpose prescribed as your functions and objectives that is imposed on you by legislation and you are required to act in accordance with that purpose.
Ownership
State legislation provides that you have shareholders that hold their shares for and on behalf of a government.
Therefore, as you are wholly owned by the State and as there is no contrary indicator, such as a provision that positively permits you to take account of other external interests as discussed at subparagraph 12(e) of GSTR 2006/5, this is an indicator that you are the State.
Management
State legislation provides that the board sets your overall policy, strategy and direction. All decisions relating to your operations are to be made by or under the authority of the board and your chief executive officer is responsible for the day to day management of your operations, in accordance with the general policies and specific directions of the board.
In exercising its powers, the board's functions include overseeing your operational and financial performance in a manner consistent with discharging your principal functions and achieving your principal objectives. Therefore, although the board manages your operations, it does so within the bounds placed upon it by legislation.
There is no provision that gives a general power to a relevant Council to override decisions of the board. However:
● there are specific areas where certain Professionals may direct the board in certain circumstances, and
● there are specific areas where the board is required to obtain the approval of the Professionals.
You are also subject to various other State legislation.
Financial arrangements
You are subject to certain legislative requirements in relation to your financial arrangements under various other State legislation.
Appointment and removal of XX
State legislation provides for the shareholders to control the appointment and removal of XX.
As discussed at subparagraph 12(j) of GSTR 2006/5, the ability of the government to control the appointment and, more particularly, the removal of XX is an indicator that the corporation is the State.
Conclusion
It is considered that an examination of the principles set out in paragraph 12 of GSTR 2006/5, identifying the features relevant to your relationship with the State, indicates that you are to be characterised as being the State.
Accordingly, consistent with the guidance provided in GSTR 2006/5, it is considered that you come within the meaning of the term 'a State' for the purpose of Item 4.
Note: There are other requirements which must be satisfied, in addition to those in Item 4, before you can apply the margin scheme. For example, under section 75-5, you and the recipient must agree in writing, on or before the making of the supply that the margin scheme is to apply.
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