Edited version of private ruling

Authorisation Number: 1011799073281

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Ruling

Subject: GST and special levies raised by a body corporate

Question 1

Is a special levy raised by a body corporate an input taxed supply?

Answer

We have previously ruled that levies raised by a body corporate are not input taxed supplies.

Question 2

Are the annual administration and sinking fund levies raised by a body corporate an input taxed supply?

Answer

We have previously ruled that levies raised by a body corporate are not input taxed supplies.

Question 3

Are levies raised by a body corporate done as agent for the proprietors?

Answers

No.

Question 4

Is it correct that if the principal is not registered the agent (if registered) can not make taxable levies to the principal?

Answer

Not applicable.

Question 5

Do bodies corporate need to register for GST?

Answer

Yes, where they meet the turnover requirements.

Relevant facts

You are a body corporate and is registered for GST.

Post 1 July 2000 the body corporate formed a company and trust to purchase and hold the management rights in the complex and the managers unit.

The body corporate borrowed the funds from a finance company to lend to the company and trust in order for them to make the purchase.

Later the body corporate raised a special levy by ordinary resolution to repay the finance company loan.

Levies of $X were raised from the resolution.

GST was paid on the special levy.

A private ruling was provided which confirmed that a special levy on unit holders in a strata scheme, which is used to refinance a loan, is a taxable supply and not an input taxed supply.

Later a review of the private ruling was sought. We confirmed the advice that previously issued to you on this matter.

You have raised some new matters and questions in relation to special levies and bodies corporate generally.

Reasons for decision

Question 1

Summary

A special levy raised by a body corporate is not an input taxed supply.

Detailed reasoning

The issue of whether levies raised by a body corporate are input tax supplies has previously been ruled upon for you. We have previously advised that they are not input taxed supplies, and we have also reviewed this decision for you. We refer to this advice.

The Commissioner may not give a private ruling about a matter if the matter has already been, considered by the Commissioner for the applicant (see paragraph 259-35(2)(b) of Schedule 1 to the Taxation Administration Act 1953 (TAA)).

The review we provided for you on 19 January 2010 cannot be reviewed under the TAA as it is not a reviewable decision under subsection 110-50(2) of Schedule 1 to the TAA, and it cannot be reviewed under the Administrative Decisions (Judicial Review) Act 1977.

If you disagree with a ruling, you can choose not to follow it. You can change your mind at any time (subject to time limits imposed by the law). If you choose not to follow your ruling and your tax position is later found to be incorrect, you will owe any tax shortfall plus interest. You may also have to pay penalties unless you can show that you have exercised reasonable care in deciding to adopt your tax position.

Question 2

Summary

The annual administration and sinking fund levies raised by a body corporate are not input taxed supplies.

Detailed reasoning

The issue of whether levies raised by a body corporate are input tax supplies has previously been ruled upon for you. Please refer to our previous advice, and our response to Question 1 above.

Question 3

Summary

Levies raised by a body corporate are not done so as agent for the proprietors.

Detailed reasoning

Under Section 62 of the Strata Schemes Management Act 1996 (NSW) an owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.

Under this section the strata law in NSW holds the body corporate responsible, in its own right, for maintaining the common property and undertaking relevant business of the strata. It has obligations imposed on it - not on the members - by the Act. We note that the obligations conferred are similar to those under s87 of the Queensland strata legislation as considered in Body Corporate, Villa Edgewater CTS 23092 v FC of T [2004] AATA 425 (Villa Edgewater Case).

As the body corporate is tasked with the responsibility in its own right, it is not acting as agent for the individual unit holders. It is not merely an intermediary who has been authorised by another party to do something on that party's behalf.

The body corporate is obliged to perform a variety of tasks in the course of administering the common property and assets. It makes no difference whether the body corporate discharges their obligations through using servants or agents; it is the body corporate's obligation. The owners are the recipients of these services provided by the body corporate, and the body corporate levies the unit holders. Contributions of the unit holders by way of these levies are made in connection with the services provided by the body corporate. The body corporate is therefore making supplies for consideration.

A body corporate is an entity for GST purposes (section 184-1, A New Tax System (Goods and Services Tax) Act 1999 (GST Act)). The supply of services to unit holders is part of the enterprise of the body corporate. An intention to make profits is not an essential feature of a business under the GST Act, and a taxpayer may still be conducting an enterprise even though it only deals with its own membership (Villa Edgewater Case). As bodies corporate provide services and are required to operate in a business-like manner they are considered to be enterprises for GST purposes.

You have also raised views that the levies should not be taxable based on the treatment of time-share interests, in particular relying on ATO ID 2010/23. In this decision it was determined that the levy attaches to a timeshare interest which is a financial supply, and the levy is therefore also input taxed. In your case, the supply the body corporate makes to its members is the entry into an obligation to maintain and manage the complex in a sound condition. Residential premises can be supplied without the need for body corporate services. The services of the body corporate are separate and additional to the supply of residential premises. The consideration attaches to the supply by the body corporate of management services rather than a supply of residential premises.

It is important to also note that ATO ID 2010/23 reverses a previous ATO ID (2001/385) which has now been withdrawn. The withdrawal document refers taxpayers to the current ATO ID (2010/23), but also advises that information on supplies made by a body corporate entity to its members is available in the Property and Construction Industry Partnership - Issues Register - Section 01 - Bodies Corporate/Owners Corporations and Strata Managers (Construction Industry Partnership document). This shows that the impact of the decision in ATO ID 2010/23 on the treatment of bodies corporate was considered, and that it is not to be relied on for bodies corporate. We have attached the Construction Industry Partnership Document which contains the relevant ATO view for your circumstances.

Question 4

Summary

Your view is that if the principal is not registered the agent (if registered) cannot make taxable levies to the principal.

Detailed reasoning

The body corporate is not acting as an agent, and so it is unnecessary to consider this question.

However, the registration or otherwise of a recipient of a supply is not relevant to whether a supply is taxable. This is determined by whether the supplier is registered or required to be registered, and whether the other elements of a taxable supply are satisfied (see section 9-5 GST Act).

Question 5

Summary

Bodies corporate need to register for GST where their turnover meets the registration threshold in the GST Act.

Detailed reasoning

Bodies corporate are entities for GST purposes and need to register for GST where their turnover meets or exceeds the registration turnover threshold (section 23-5 GST Act). Currently the threshold is a GST turnover of $75,000.

Division 188 GST Act requires that both current GST turnover and projected GST turnover be considered in determining the registration threshold but supplies that are input taxed, not for consideration or not carried on in connection with an enterprise, are not included in the calculation. Turnover includes GST-free supplies and levies on unit owners.

The Construction Industry Partnership document attached provides further information.