Edited version of private ruling

Authorisation Number: 1011724017748

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Ruling

Subject: GST and grouping

Question 1

Does company A and company B satisfy the membership requirements to form a GST group from a specified date?

Answer:

Yes, company A and Company B do satisfy the membership requirements to form a GST group from a specified date.

Relevant facts and circumstances

Company A is a wholly owned subsidiary of company B.

There are xx shares which have been issued in company A. All of these shares, except for one, are owned by company B. The remaining share is owned by an individual but a trust deed states that this individual must deal with the share as instructed by company B. This means that all of the shares of company A are effectively under the control of company B.

Company B wishes to consolidate into one company and deregister company A in order to reduce the administrative paperwork of maintaining two companies.

Both company A and company B are registered for GST, and

· account for GST on a cash basis

· report GST on a quarterly basis

· are not members of any other GST group, and

· have no branches for GST purposes.

Reasons for decision

Summary

One of the requirements for forming a GST group is that the entities satisfy the membership requirements of the group. The other requirements are administrative in nature and include, agreeing in writing to the formation of the group and notifying the Commissioner in the approved form.

Based on the information provided, company A and company B satisfy all of the membership requirements to form a GST group including the requirement of being in the same 90% owned group.

Detailed reasoning

A GST group consists of two or more business entities that operate as a single business for GST purposes.

Under subsection 48-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) two or more business entities may form a GST group if:

· each of the entities satisfies the membership requirements of the group

· each entity has agreed in writing to the formation of the group

· one of the entities notifies the Commissioner, in the approved form, of the formation of the group

· that entity is nominated, in that notice, to be the representative member of the group, and

· that entity is an Australian resident.

According to subsection 48-10(1) of the GST Act, an entity that is a company will satisfy the membership requirements of a GST group if:

· it is of the same 90% owned group as all of the other members of the proposed GST group that are also companies

· it is registered for GST

· it has the same tax periods as all of the other members of the proposed GST group

· it accounts for GST on the same basis as all of the other members of the proposed GST group

· it is not a member of any other GST group, and

· it does not have any branch that is registered for GST.

In this case, both company A and company B are registered for GST, have the same tax periods and account for GST on the same basis. In addition, company A and company B are not members of any other GST group and have no branches that are registered for GST. Therefore, company A and company B will satisfy the membership requirements of a GST group if they are members of the same 90% owned group.

Section 190-1 of the GST Act provides that two companies are members of the same 90% owned group if one of the companies has at least a 90% stake in the other company or a third company has at least a 90% stake in each of the two companies.

Under section 190-5 of the GST Act, a company (holding company) has at least a 90% stake in another company (subsidiary company) if the holding company:

· controls, or is able to control, at least 90% of the voting power in the subsidiary company (whether directly, or indirectly through one or more interposed companies)

· has the right to receive (whether directly, or indirectly through one or more interposed companies) at least 90% of any dividends that the subsidiary company may pay, and

· has the right to receive (whether directly, or indirectly through one or more interposed companies) at least 90% of any distribution of capital of the subsidiary company.

The facts show that company B owns all of the shares, except for one, in company A and that, under a trust deed, the owner of this remaining share must deal with it as instructed by company B. This means that company B has effective control of all of the shares in company A. As company B is a company that has at least a 90% stake in another company, being company A, it satisfies the requirements of section 190-5 of the GST Act.

Therefore, as both company A and company B are members of the same 90% owned group, they satisfy the membership requirements in subsection 48-10(1) of the GST Act.

In relation to the date of effect, generally the formation of a GST group takes effect from the start of the day specified in the approved form.

In this case, company A and company B are intending to form a GST group from a specified date. Accordingly, company A and company B can specify that date as the date of effect for the formation of their GST group.