Edited version of your private ruling

Authorisation Number: 1012107397039

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Ruling

Subject: GST and time-sharing levies

Question 1

Are the annual levies imposed on members of a time-sharing scheme, by you, consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answers

The income received from annual maintenance fees and any other special levy imposed by you on your members, as it relates to the operation of your time-share resort, is not consideration for a taxable supply. It is consideration for an input taxed financial supply of an interest in a time-sharing scheme under section 40-5(1) of the GST Act.

Question 2

If any income in question 1 is to be treated as input taxed then to what extent will any GST on acquisitions relating to that income be refundable?

Advice/Answers

Any acquisition made by you in relation to the operation of the time-share resort that relates to making supplies that would be input taxed will not be for a creditable purpose under paragraph 11-15(2)(a) of the GST Act. As such you will not be entitled to any input taxed credits in relation to those acquisitions as you will not be making a creditable acquisition under section 11-5 of the GST Act. Therefore, the GST paid on acquisitions relating to that income will not be refundable.

Question 3

If amendments of previously lodged Business activity statements (Bas) are required, how far back can amendments be made?

Advice/Answers

Amendments of previously lodged Bas are subject to the 4 year restrictions under sections 105-50 and 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953).

Relevant facts and circumstances

You are registered for GST from 1 July 2000. You are a body corporate

You have operated for many years maintaining a time share resort for your shareholder members.

Around the time GST was introduced in July 2000 you received advice from the Australian Taxation Office (ATO) that you were required to be registered for GST and that GST was payable on any levy income received. You state that you have duly complied with those requirements since 1 July 2000.

Preparatory to undertaking a major refurbishment of your resort buildings you wrote to the ATO in a specified year asking whether you were required to be registered for GST and if so was GST payable on property maintenance and special levies imposed by you to cover the cost of the refurbishment. The ATO issued a private binding ruling on a specified date advising in the affirmative to both your questions.

You have recently become aware of a change in the ATO view (ATO ID 2010/23 - GST and annual maintenance fees paid under a time- sharing scheme) in relation to the GST treatment of levy income for a participant in a time-sharing scheme which is contrary to the advice provided in the private ruling referred to above.

You are not a member of the Australian Timeshare and Holiday Ownership Council (ATHOC)

You now seek further advice as to the effect the change in the ATO view has on your operations.

Relevant legislative provisions

11-5, 11-15(2)(a), 23-5, 23-10, 40-5(1), 188-15, 188-20 of the GST Act,

105-50, 105-55,105-55(2)(aa) of schedule 1 to the TAA 1953.

Reasons for decision

This private ruling replaces the private ruling issued to you on a specified date with a particular authorisation number. The earlier ruling no longer applies to you.

As stated in ATO Interpretative Decision (ATO ID) 2010/23 (released on 5 February 2010) the payment of the annual maintenance fees paid under a time-sharing scheme confers no rights, goods or services to participants other than the ability to exercise the accommodation entitlement associated with the timeshare interest. Payment of the annual maintenance fee is essential for a participant to maintain its continuing interest in the time-sharing scheme. There is sufficient nexus between the supply of the timeshare interest and the annual maintenance fee paid by a participant for the fee to be characterised as consideration for the supply of the interest.

Consequently, the income received from annual maintenance fees and any other special levy imposed by you on your members, as they relate to the operation of your time-share resort, is not consideration for a taxable supply. It is consideration for an input taxed financial supply of an interest in a time-sharing scheme under section 40-5(1) of the GST Act.

Therefore, any income received that relates directly to the operation of the time-sharing resort should be treated as input taxed. Accordingly, any acquisition made by you in relation to the operation of the time-share resort will not be for a creditable purpose under paragraph 11-15(2)(a) of the GST Act. As such you will not be entitled to any input taxed credits because those acquisitions will not be creditable acquisitions under section 11-5 of the GST Act.

Purpose

This letter is to provide guidance and assurance in relation to the GST treatment of annual maintenance fees (for example, annual membership fees) for timeshare operators.

Background

The ATO ID 2010/23 - GST and annual maintenance fees paid under a time-sharing scheme was published on 5 February 2010. This confirms that the annual maintenance fees paid to timeshare operators is consideration for an input taxed financial supply of an interest in a time-sharing scheme.

However, the industry body Australian Timeshare and Holiday Ownership Council (ATHOC) has advised the ATO that until the release of ATO ID 2010/23, the industry practice had been to treat the annual maintenance fees as taxable supplies. This treatment was consistent with ATO ID 2001/385 which was withdrawn on 16 December 2005. As a result of this withdrawal ATHOC and other industry representatives worked with the ATO to clarify the GST treatment culminating with the release of ATO ID 2010/23.

Therefore, prior to ATO ID 2010/23, timeshare operators have treated the annual maintenance fees as taxable supplies resulting in over-remitted GST and over-claimed input tax credits. The ATO has worked with ATHOC regarding an administrative approach for the tax periods commencing prior to 5 February 2010, the release date of ATO ID 2010/23.

Explanation

In consultation with ATHOC there have been two options developed, moving forward (Option A) and refund (Option B), which timeshare operators have the choice of applying. These options are based around the two sides of the change in GST treatment with the timeshare operators having over-paid GST but also having over-claimed input tax credits.

Moving forward (Option A)

The timeshare operator will not seek a refund of the over-remitted GST and the ATO will not seek the over-claimed input tax credits.

For a timeshare operator to claim a refund under section 105-65 of Schedule 1 to the Tax Administration Act 1953 (TAA 1953) they must firstly have reimbursed the corresponding amount to the member, which means a calculation based on the members circumstances such as period of membership.

To reimburse the member the ATO has been advised that generally the timeshare operator would have to raise the funds through a special levy from the members. This creates a scenario where a special levy would be raised on the member for a similar amount to be reimbursed to the member.

For the timeshare operator they would then be entitled to a refund from the ATO, however, the timeshare operator would also be required to make a debit adjustment for the over-claimed input tax credits.

The difference between the over-claimed input tax credits and refund claimed would depend on the circumstances of each case. This would be due to variables such as the difficulty in reimbursing members that have since ceased their membership.

It has been advised by ATHOC that this creates a significant administrative burden and a number of timeshare operators prefer not to have this administrative burden.

Refund (Option B)

Timeshare operators can seek a refund in accordance with the requirements of section 105-65 of Schedule 1 to the TAA 1953.

As outlined in the 'moving forward' option there is a requirement for the relevant GST to be reimbursed to the member before there is an entitlement to the refund of GST from the ATO.

The ATO has worked closely with ATHOC to reduce the potential administrative and compliance burden and advise that timeshare operators will be entitled to a refund of GST if the following conditions are met:

· credit each member's account, issue a credit note or make a cash payment with the corresponding amount of GST over-remitted for that member

· the member is not registered or required to be registered for GST when they paid the annual maintenance fees, and

· the operator keeps accurate records to demonstrate the total amount of refunds claimed.

Timeshare operators can seek the refund by self amending the relevant Business Activity Statements (BAS) to reduce the amount of GST payable by the amount of over-remitted GST for that tax period. At the same time, the timeshare operator must amend the appropriate BAS to reduce the over-claimed input tax credits. The over-remitted GST and over-claimed input tax credits will not necessarily be in the same tax period.

Please note any amendments to BAS are subject to the 4 year restrictions under sections 105-50 and 105-55 of Schedule 1 to the TAA 1953. The ATO also confirms that general interest charge will not be imposed on relevant BAS amended under this option. ...

As outlined in the Assistant Commissioner's letter above there have been two options developed in consultation with ATHOC to assist members of the time-share industry effect the necessary change to their GST obligations in relation to the supplies and acquisitions they make or have made in the past. You have been operating and maintaining a time share resort for your shareholder members for many years. As such, the changes will apply equally to you.

Therefore, you will need to decide whether the Moving forward (Option A) or the Refund (Option B) best suits your circumstances.

Please note that any amendments to your BAS under Option B are subject to the 4 year restrictions under sections 105-50 and 105-55 of Schedule 1 to the TAA 1953.

In general terms section 105-55 of the TAA 1953 prevents an entity from claiming GST refunds, other payments and credits more than four years after the end of the tax period to which the entitlement relates, unless within that four year period the taxpayer has notified the ATO of their entitlement to the refund.

The reference in section 105-55 to 'other payments' is to refunds resulting from a reduction in a positive net amount (a net amount greater than zero) - see paragraph 105-55(2)(aa) of the TAA 1953.

(Miscellaneous Taxation Ruling MT 2009/1: notification requirements for an entity under section 105-55 of Schedule 1 to the TAA 1953 and MT 2010/1: restrictions on GST refunds under section 105-65 of Schedule 1 to the TAA1953 and a fact sheet Time limits on GST refunds provide further information in relation to refunds and changes to the relevant legislation and are available from our website www.ato.gov.au).

Further information:

Under section 23-5 of the GST Act you are required to be registered if you are carrying on an enterprise and your GST turnover meets the GST registration turnover threshold. Currently, the registration turnover threshold is $75,000 (unless you are a non-profit body when it is $150,000). However, Section 23-10 provides that you may be registered whether or not your GST turnover is at, above or below the registration turnover threshold.

In working out your current and projected GST turnover under sections 188-15 and 188-20 of the GST Act you disregard supplies that are input taxed.