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Edited version of private ruling
Authorisation Number: 1011687215077
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Ruling
Subject: GST and contributions to sinking fund
Question
Are the contributions made by the members of your club to a sinking fund exempt from goods and services tax (GST)?
Answer
No, the contributions made by the members of your club to a sinking fund are not exempt from GST.
Relevant facts and circumstances
You are a member of a club that has a facility for use by some of the members.
Originally the members of the club under an agreement covering maintenance and other direct costs, made a contribution equivalent to the cost of the facility, in exchange for a very long term lease of it.
The members receive two invoices in respect of the amounts payable to the club.
The members pay two separate payments to the club's general fund (single account) as membership subscriptions. One of them is the general subscription fee and the other is the contribution to the sinking fund. At present, both these amounts are paid in to a single account held by the club.
The purpose of the sinking fund is to hold funds for long term replacement of the facility and to cover costs of any improvements.
Currently, all membership subscriptions and other receipts credited to the 'club's general fund' are subject to GST.
The club is registered for GST.
Reasons for decision
GST is payable on any taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you make a taxable supply if:
The supply is made for consideration; and
The supply is made in the course or furtherance of an enterprise that the supplier carries on; and
The supply is connected with Australia; and
The supplier is registered or required to be registered for GST
Further, section 9-20 of the GST Act defines an enterprise to include, amongst other things an activity or series of activities done
· in the form of a business; or
· an adventure or concern in the nature of trade; or
· on a regular or continuous basis, in the form of lease, licence or other grant of an interest in property.
Accordingly, an enterprise covers a variety of activities.
The fact that activities of a body are limited to making supplies to some members of that body does not prevent those activities being in the form of a business or in the form of an adventure or concern in the nature of trade. Therefore, the club is carrying on an enterprise by making supplies of services to those members.
The club is providing services to its members for consideration and those services are supplied in Australia. The supplies made by the club are not GST-free under any provision in the GST Act and the supplies are not input taxed.
Based on the facts, the amounts paid to a sinking fund are used exclusively for a small amount of maintenance, but predominantly for building up a reserve of money for long term replacement of the facility and its improvements or any part of the improvements. Therefore, we advise that the contributions made by the members to the club are consideration for the services they provide to club members, or for such services to be provided in the future.
Where the club is registered (or required to be registered for GST) the supplies made by the club to members are taxable supplies.
Therefore, where the requirements of section 9-5 of the GST Act are satisfied, the club is required to pay GST on any amount of subscriptions charged to their members (including contributions to sinking fund).
Accordingly, regardless of the nature of the account in which the subscriptions are held in, the club has a liability to pay GST on all member contributions they receive in respect of their current or future services.