Edited version of your private ruling

Authorisation Number: 1012594146504

Ruling

Subject: GST grouping

Question

Are you entitled to form a GST group with Company A in accordance with Division 48 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, you are not currently entitled to form a GST group with Company A in accordance with Division 48 of the GST Act.

Relevant facts and circumstances

You are a non-resident company that is not currently registered for GST nor do you have an Australian business number.

You are part of a corporate group that consists of a number of entities, all of which are ultimately at least 90% owned by Company D.

The corporate group has entered into contracts in Australia. Under the contracts, the primary contractor is Company A, an Australian resident company that is also part of the corporate group.

As part of this arrangement, you have contracted to undertake subcontracting work for Company A in Australia.

You are seeking to form a GST group with Company A.

While you are not currently registered for GST, you have advised that you are carrying on an enterprise and that, upon the commencement of your activities in Australia, your GST turnover met the registration turnover threshold thereby requiring you to be registered for GST.

When registered for GST, you intend to have the same tax periods and account on the same basis as Company A. You also will not be a member of any other GST group nor will have any branches that are registered under Division 54 of the GST Act.

In relation to Company A, you have advised that Company A is registered for GST. Also, Company A is not currently a member of any other GST group nor does it have any branches that are registered under Division 54 of the GST Act.

Company D, the ultimate holding company, indirectly owns at least 90% of yourself and Company A.

You and Company A have not yet agreed in writing to the formation of a GST Group as required by section 48-5 of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 48

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-5(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-5(2)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-5(4)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-10(1)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 48-10(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Paragraphs 48-10(1)(c) to (g)

A New Tax System (Goods and Services Tax) Act 1999 Section 190-1

A New Tax System (Goods and Services Tax) Act 1999 Section 190-5

Reasons for decision

Summary

You are not currently entitled to form a GST group with Company A because all of the membership requirements in subsection 48-10(1) of the GST Act are not yet satisfied.

However, you and Company A are members of the same 90% owned group and therefore, once the membership requirements in paragraphs 48-10(1)(c) to (g) of the GST Act are satisfied, you and Company A will be eligible to form a GST group.

Detailed reasoning

Section 48-5 of the GST Act outlines the conditions that must be satisfied for the Commissioner to approve two or more entities as a GST group.

These conditions include notifying the Commissioner in the approved form, agreeing in writing to form a GST group and nominating a representative member of the group (which has to be an Australian resident). In addition, paragraph 48-5(1)(a) of the GST Act requires that each of the entities applying to be part of a GST group must satisfy the membership requirements for that GST group.

In relation to the membership requirements of a GST group, subsection 48-10(1) of the GST Act states:

(1) An entity satisfies the membership requirements of a *GST group, or a proposed GST group, if the entity:

(a) is:

(i) a *company; or

(ii) a *partnership, trust or individual that satisfies the requirements specified in the regulations; and

(b) is, if the entity is a company, a company of the same *90% owned group as all the other members of the GST group or proposed GST group that are also companies; and

(c) is *registered; and

(d) has the same tax periods applying to it as the tax periods applying to all the other members of the GST group or proposed GST group; and

(e) accounts on the same basis as all the other members of the GST group or proposed GST group; and

(f) is not a member of any other GST group; and

(g) does not have any branch that is registered under Division 54.

(An asterisk denotes a defined term in the GST Act).

In this case, the two entities that are to be members of the proposed GST group are companies and therefore, to satisfy paragraph 48-10(1)(b) of the GST Act both you and Company A must be part of the same 90% owned group of companies. The term '90% owned group' is defined in Division 190 of the GST Act.

Under section 190-1 of the GST Act, 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.

Section 190-5 of the GST Act provides that 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 entities) at least 90% of any distribution of capital of the subsidiary company.

The facts show that neither you nor Company A has at least a 90% stake in each other. However, Company D, which is the ultimate holding company of the entities in the corporate group, indirectly owns at least 90% of both you and Company A. Therefore, as a third company, being Company D, has at least a 90% stake in you and Company A, you and Company A are members of the same 90% owned group as defined in Division 190 of the GST Act. As such, paragraph 48-10(1)(b) of the GST Act is satisfied.

In relation to the other membership requirements in subsection 48-10(1) of the GST Act you are not currently registered for GST and therefore, these requirements are not satisfied. Consequently, at this point in time, you and Company A are not eligible to form a GST group.

However, you have advised that your activities in Australia require you to be registered for GST and that when registered for GST you will elect to have the same tax periods and account for GST on the same basis as Company A. As well, you do not intend to be a member of any other GST group or to have any branches that are registered under Division 54 of the GST Act. Also, Company A is not currently a member of any other GST group and does not have any branches that are registered under Division 54 of the GST Act.

If this is the case, then when registered for GST, you and Company A will satisfy the membership requirements in paragraphs 48-10(1)(c) to (g) of the GST Act and as such, if the requirements in subsection 48-5(1) of the GST Act are also satisfied, you and Company A will be eligible to form a GST group.

It should be noted that there is no legislative requirement for you and Company A to form a GST group with other companies in the corporate group even if they satisfy all of the membership requirements in subsection 48-10(1) of the GST Act. This is because subsection 48-5(2) of the GST Act specifically provides that a GST group does not need to include all of the entities that satisfy the membership requirements for that GST group.