ATO Interpretative Decision
ATO ID 2004/291
Goods and Services Tax
GST and supply to an associate for no considerationFOI status: may be released
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With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a company, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies, for no consideration, machinery to a director who is neither registered nor required to be registered for GST?
Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies, for no consideration, machinery to a director who is neither registered nor required to be registered for GST.
Facts
The entity is a company. The entity owns a piece of machinery that it supplies to a director. The entity supplies the machinery for no consideration.
The supply of the machinery is neither input taxed under Division 40 of the GST Act nor GST-free under Division 38 of the GST Act.
The director holds a majority voting interest in the entity. The director is neither registered nor required to be registered for goods and services tax (GST).
The entity is registered for GST. The supply is made in the course of the entity's enterprise and is connected with Australia.
Reasons for Decision
Under section 9-5 of the GST Act, an entity makes a taxable supply if:
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- it makes the supply for consideration
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- the supply is made in the course or furtherance of an enterprise that it carries on
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- the supply is connected with Australia, and
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- the entity is registered or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
The entity makes the supply of the machinery in the course of its enterprise and the supply is connected with Australia. In addition, the entity is registered for GST, whereby satisfying three of the requirements of section 9-5 of the GST Act.
The remaining requirement of section 9-5 of the GST Act is that an entity makes the supply for consideration.
The entity makes the supply of the machinery to a director for no consideration. Normally, the fact that a supply has been made for no consideration would preclude the supply from being a taxable supply under section 9-5 of the GST Act.
However, while the entity makes the supply to a director for no consideration, the fact that a supply to an associate is without consideration, does not, under section 72-5 of the GST Act, stop the supply being a taxable supply if:
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- the associate is not registered or required to be registered, or
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- the associate acquires the thing supplied otherwise than solely for a creditable purpose.
The term associate is defined in section 318 of the Income Tax Assessment Act 1936 to include an entity that holds a majority voting interest in a company, as an associate of that company. The director holds a majority voting interest in the entity and as such, is an associate of the entity. The director is neither registered nor required to be registered for GST.
Therefore, as the director is an associate of the entity and the director is neither registered nor required to be registered for GST, the fact that the entity supplies the machinery for no consideration, does not stop the supply from being a taxable supply.
The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act.
Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies, for no consideration, machinery to a director who is neither registered nor required to be registered for GST.
Date of decision: 9 October 2003
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
section 72-5
Division 38
Division 40
section 318
Keywords
Goods and services tax
GST supplies without consideration
GST supplies & acquisitions
Taxable supply
ISSN: 1445-2782