Edited version of your written advice

Authorisation Number: 1051220144420

Date of advice: 17 May 2017

Ruling

Subject: Registration for GST

Question 1

Is the strata company required to register for GST?

Answer

Yes

Relevant facts and circumstances

The ruling request was lodged on behalf of the proprietors of the lots in a strata scheme.

As the relevant strata plan was registered over 30 years ago under the former State strata titles legislation, the strata scheme is a 'former strata scheme' as defined in the current State strata titles legislation which deems the provisions of the current State strata titles legislation to apply to a former strata scheme.

The current State strata titles legislation provides that, upon registration of the relevant strata plan the proprietors of the lots in a strata scheme shall constitute a strata company which is a body corporate with perpetual succession and a common seal. The current State strata titles legislation also provides that such a strata company shall be regulated in accordance with that legislation and by the by-laws in force in respect of that strata company.

The strata company has held an ABN since 2000 but is not registered for GST. The Australian Securities and Investment Commission (ASIC) website indicates that the strata company is an 'other unincorporated entity'.

It was stated in the ruling request that a contribution is levied on the proprietor of each of the lots and paid into a fund which covers the costs of control and management of the common property. It was stated in the ruling request that no proprietor derives a profit from the levy or expenditure of contributions.

As the property comprise a large number of lots and is over 30 years old it has required an increased amount of maintenance and a corresponding increase in the amount of contributions. The treasurer of the council which exercises and performs the powers and duties of the strata company confirmed that the total annual contributions levied on proprietors now exceeds both the $75,000 registration turnover threshold at which an entity (other than a non-profit body) is required to register for GST and the $150,000 registration turnover threshold at which a non-profit body is required to register for GST.

The treasurer also supplied a copy of the strata company's by-laws.

Relevant legislative provisions

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

Reasons for decision

Summary

The strata company is an entity for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and is carrying on an enterprise. The decision of the Administrative Appeals Tribunal, Body Corporate, Villa Edgewater Cts 23092 and Commissioner of Taxation, held that contributions levied on lot proprietors by a strata company are consideration for the supplies made by the strata company. Consequently, in the present case the strata company was required to register for GST with effect from the month in which the total contributions received by the strata company from lot proprietors during the 12 month period ending at the end that month was at or above $75,000. The registration turnover threshold of $150,000 does not apply because the strata company is not a non-profit body.

Detailed reasoning

Section 23-5 of the GST Act provides that you are required to register for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.

You:

Section 195-1 of the GST Act provides that if a provision of the GST Act uses the expression 'you', it applies to entities generally, unless its application is expressly limited.

'Entity' is defined in subsection 184-1(1) of the GST Act to mean, inter alia, a body corporate. As the current State strata titles legislation deems a company created under that legislation to be a body corporate, the strata company is an entity for GST purposes.

Carrying on an enterprise:

Paragraph 9-20(a) of the GST Act provides that an enterprise is an activity, or series of activities, done…in the form of a business.

Paragraph 153 of Miscellaneous Taxation Ruling MT 2006/1 provides that an activity is essentially an act or series of acts that an entity does and ranges from an entity undertaking a single act, groups of related activities or the entire operations of an entity.

Paragraph 170B of MT 2006/1 provides that the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own and that the ATO considers that not all the main features of a business such as the capacity to earn and distribute profits needs to be present before an activity has the form of a business.

MT 2006/1 refers to the decision of the Administrative Appeals Tribunal (AAT) in Re Body Corporate, Villa Edgewater Cts 23092 and Commissioner of Taxation 55 ATR 112 (Villa Edgewater) which held that a body corporate registered under State legislation whose members were the proprietors of lots in a strata scheme, was carrying on an activity, or series of activities, done in the form of a business. The AAT (Senior Member B J McCabe) stated (in part):

41….I have already concluded that 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.

42. 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…

Paragraphs 231 and 232 of MT 2006/1 state:

231. It was decided in Body Corporate, Villa Edgewater Cts 23092 v. FC of T 2004 ATC 2056; 55 ATR 1162 ( Villa Edgewater case ) that a body corporate was carrying on an enterprise as its activities were done in a businesslike manner. The Tribunal observed that an enterprise may still be conducted even though an entity only deals with its own membership. In determining whether an enterprise was being carried out the Tribunal found that it did not matter that many of the activities were provided for in statute and regulations.

232. In the Villa Edgewater case the entity was a body corporate registered under a State Act. Its members were the owners of lots in an apartment complex. The Tribunal found that the body corporate provided services for its members and the members made contributions connected with the services. It prepared a budget and spent money. The body corporate had the capacity to enter into contracts with employees and contractors in its own right. It had a managing committee and rules of association and conducted meetings of members to approve certain activities. It had statutory responsibilities with respect to the common areas that it must discharge.

GST turnover meets the registration turnover threshold:

To be required to be registered for GST section 23-5 also requires that the strata company's GST turnover meets the registration turnover threshold.

Regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 provides that the registration turnover threshold is $75,000, unless the entity is a non-profit body (in which case the registration turnover threshold is $150,000 (regulation 23.15.02)).

Division 188 of the GST Act deals with GST turnover. Paragraph 188-10(1)(a) provides that an entity has a GST turnover that meets a particular turnover threshold if that entity's 'current GST turnover' is at or above the turnover threshold and the Commissioner is not satisfied that that entity's 'projected GST turnover' is below the turnover threshold.

Section 188-15 provides that an entity's 'current GST turnover' at a time during a particular month is the sum of the values of all supplies that the entity has made during the 12 months ending at the end of that month other than supplies that are input taxed, supplies that are not for consideration or supplies that are not made in connection with an enterprise.

In Villa Edgewater the AAT held that the relevant body corporate (referred to as 'the applicant') was making supplies for consideration by performing services in relation to the common property (Paras 28 and 29):

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…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 clearly comprehends the performance of obligations like those imposed on the applicant.

The AAT also held that the contributions levied on lot proprietors were consideration for the supplies made by the body corporate (Para 34):

In this case, the contributions of the lot-owners under the levy are clearly made in connection with the services (the cleaning, repairs, expenditure on capital items etc.) provided by the body corporate. The connection is made through the budgets for the administration and sinking funds issued in each year. The budgets identify anticipated expenditures and determine the amount of contribution required from lot-owners to fund those expenditures.

The AAT further held that the supplies made by the relevant body corporate were made in connection with an enterprise (Para 42):

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…

In our view in the present case the provisions of the State strata titles legislation and the by-laws of the strata company lead to the same conclusion, i.e. that the contributions levied on proprietors of lots are consideration for supplies made by the strata company in connection with the strata company's enterprise. The State strata titles legislation provides that a strata company shall establish a fund for administrative expenses that is sufficient for the control and management of the common property, payment of insurance premiums and the discharge of other obligations of the strata company and determine from time to time the amounts to be raised for those purposes and contains similar provisions for a strata company to establish a reserve fund for the purpose of accumulating funds to meet contingent expenses.

The next step is to determine whether the sum of the values of all supplies made by the strata company during the 12 months ending with any month is at or above the registration turnover threshold. For the purpose of determining the value of a supply for the purposes of Division 188 in relation to an entity that has not been required to be registered for GST, the value of a supply is the price or consideration paid for the supply (section 188-30).

In the present case it is necessary to determine whether a strata company is a non-profit body (in which case the registration turnover threshold is $150,000 rather than $75,000). 'Non-profit body' is not defined in the GST Act. Paragraph 74 of Goods and Services Tax Ruling GSTR 2012/2 provides that 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. In the present case we accept that the strata company is not carried on for the purpose of profit or gain for the proprietors of the lots, but we cannot find a provision in the State strata titles legislation which prevents the strata company from distributing its profits ort assets amongst its members on winding up. We therefore consider that the strata company is not a non-profit body and that the $75,000 registration turnover threshold applies. Consequently the strata company was required to register for GST with effect from the month in which the total contributions received by the strata company from proprietors of lots during the 12 month period ending at the end of that month was at or above $75,000.

Subsections 188-15(1) and (3) and section 188-22 provide that certain supplies are not taken into account when calculating current GST turnover. We do not consider that those provisions apply in the present case.

As noted above, paragraph 188-10(1)(a) provides that an entity has a GST turnover that meets the registration turnover threshold if that entity's current GST turnover is at or above the registration turnover threshold and the Commissioner is not satisfied that that entity's 'projected GST turnover' is below the registration turnover threshold. 'Projected GST turnover' at a time in a particular month is the sum of the values of all of the supplies that the entity has made or is likely to make during that month and the next 11 months. As contributions are levied regularly to cover ongoing costs of control and management of common property, there is no reason to be satisfied that the strata company's projected GST turnover will be below $75,000. Paragraph 188-10(1)(a) is satisfied and the strata company meets the registration turnover threshold and is required to register for GST with effect from the month in which the total contributions received during the 12 month period ending at the end of that month was at or above $75,000.

Application for GST registration and date of effect of GST registration:

Section 25-1 provides that an entity must make an application for GST registration in the approved form within 21 days after becoming required to be registered (i.e. 21 days after the entity's current GST turnover meets the registration turnover threshold). Paragraph 25-10(1)(b) provides that if an entity applies for GST registration the date from which registration takes effect must not be a day before either:

● the day specified in the application for registration; or

● if the Commissioner is satisfied that the entity became required to be registered on an earlier day - the day that the Commissioner is satisfied is that earlier day.

However subsection 25-10(1A) provides that the Commissioner cannot backdate GST registration more than four years unless there has been fraud or evasion. Section 25-25 provides that if the Commissioner backdates an entity's GST registration that entity will be treated as being subject to the GST system from that date.

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