Edited version of private ruling

Authorisation Number: 1011807833531

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Ruling

Subject: GST and special levy for a legal settlement

Question

Did you make a taxable supply when you charged a special levy to your members?

Decision

Yes, you made a taxable supply when you charged a special levy to your members.

Relevant facts

You are an Owners Corporation that is registered for goods and services tax (GST)

You carry on an enterprise of managing and maintaining a property in Australia.

The lot proprietors (the members) passed a special resolution at a special general meeting of the Owners Corporation in 2010, authorising you to collect a special levy for the purpose of settling a legal claim.

With you ruling application, you provided a copy of the minutes of the special general meeting and also a copy of the separate Terms of Settlement.

The Terms of Settlement provide that:

· entering into the agreement does not constitute a taxable supply; and

· the settlement sum paid by you is not consideration for a taxable supply.

The payments made to settle the matter have been reflected in your accounts as being payments for a GST- free supply.

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a taxable supply if:

· it makes a supply for consideration; and

· the supply is made in the course or furtherance of an enterprise it carries on;

· and

· the supply is connected with Australia; and

· the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply if it is GST-free or input taxed.

In determining whether a transaction is a taxable supply, it is first necessary to determine if the transaction comes within the scope of the word 'supply' as defined in section 9-10 of the GST Act.

Paragraph 9-10(2)(b) of the GST Act provides that the expression 'supply' includes 'a supply of services' and paragraph 9-10(2)(g) of the GST Act provides that 'supply' includes 'an entry into... an obligation... to do anything'.

An owner's corporation is obliged to perform a variety of activities in the course of administering the common property and assets of a complex for the benefit of its members. These activities are 'services' within the meaning of 'supply'.

Although the term 'services' is undefined, it clearly comprehends the performance of obligations imposed on the entity to manage the affairs of the residential unit complex, including any legal matters arising from disputes.

The special levy was an additional amount of consideration paid by members for your services, even though the additional consideration was used to cover the settlement sum. The settlement sum was a payment made to fulfil your obligations under the Terms of the Settlement. As you were the entity that entered into the settlement agreements, the members did not provide consideration under the Terms of the Settlement. Rather, the members provided consideration for your supply of services that included attending to legal matters that led to the payment of the settlement sum.

The supply of your services to the members for which the special levy was collected 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, you made a taxable supply when you charge the special levy to your members.

Accordingly, you are liable to remit 1/11^th of the special levy collected.