Edited version of private advice

Authorisation Number: 1012627680180

Ruling

Subject: GST and membership fees

Question 1

Is your supply of membership services for the relevant year subject to goods and services tax (GST)?

Advice/Answers

No

Question 2

If the answer to question 1 is No, can the overpaid GST be refunded?

Advice/Answers

Yes.

Relevant facts and circumstances

• You are an endorsed charity and is registered for GST.

• You have a number branches and a large number of members who are volunteers. The branches are not registered for GST.

• You report GST on a quarterly basis and require your branch treasurers to submit GST credit (input tax credit) claims with associated tax invoices to you to include in your Business activity statement (BAS).

• Your current annual membership fee is $xx per member.

• Within the $xx fee the branch retains $yy to meet branch operating costs in relation to membership services. The remaining $zz per member is forwarded to you to cover administration costs of membership services and insurance levy per member. Currently, the insurance cost for each member exceeds $zz. The actual insurance cost that you paid is $pp per member. The deficit is covered by government grants and fund raising events.

• You have provided a sample receipt issued by your branches to the members.

• The receipt issued by a branch provides the following information:

- Date

- Received from: name of member

- The sum of: $xx dollars

- Being for: 1 membership for the relevant year

- The receipt was stamped:

The name of the Branch

The name of the organisation

The branch address

• You sent a tax invoice to each of your branch for the receipt of the membership fees collected by the branch. A sample copy of a "Tax Invoice" sent to a branch provides the following information

- Tax Invoice

- Date:

- Invoice No:

- Description:

Membership levy for aa members as at 30 June yyyy: $xxx (code GST)

Less membership fee retained by the branch $yyy (code N-T)

Insurance levy for aa members as at 30 June 2013 $zzz (code N-T)

- Freight: $0.00

- GST 1/11 of xxx

- Total inc. GST $ccc

-

Code	Rate	GST	Sale Amount
GST	10%	$yyy	$bbb
N-T	0%	$0	$ddd

• In the telephone conversation with the case of the Tax Office and in your email to the Tax Office dated dd/mm/yyyy you advised that due to the coding error in your accounting software, GST was calculated on the membership fee that you received from your branches. The members do not pay GST, only the branches paid GST due to the coding error. You remitted GST on the supply of the membership services based on the incorrect coding.

Relevant legislative provisions

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

Section 9-5

Section 40-160

Section 40-165

Section 38-250

Division 72

Taxation Administration Act 1953

Section 105-65 to Schedule 1

Divisions 3 and 3A of Part IIB

Section 8AAZLF

Reasons for decision

Issue 1

Question 1

Summary

The supply of your membership service is GST-free as the consideration for the supply is less than 75% of the consideration you provide for acquiring the things supplies.

Detailed reasoning

Note: Your branches are not separately registered for GST and are considered an internal part of your organisation. Their activities are treated as conducted by you for GST purposes. You are liable for GST on the supplies and are entitled to input tax credit on taxable supply/creditable acquisition made by your branches. All of the following advice /guidance are discussed on this basis.

The supply of membership services by an endorsed charity is generally taxable under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). However, the non-commercial activities by charities will be GST-free under Sub-division

38-G -'Activities of charities etc.' of the GST Act.

As your question relates to non- accommodation supply, sub-paragraph 38-250(2)(b)(ii) of the GST Act may be relevant. This subparagraph applies to make the supply of membership services GST-free where the cost of making the supply is less than 75% of the consideration received for the supply.

Paragraph 38-250(2)(b) of the GST Act states:

(2) A supply is GST-free if:

a. the supplier is an *endorsed charity, a *gift-deductible entity or a *government school; and

b. the supply is for *consideration that:

(i) …

(ii) if the supply is not a supply of accommodation - is less than 75% of the consideration the supplier provided or was liable to provide, for acquiring the things supplied.

*an asterisk denotes a defined term in the GST Act.

As an endorsed charity, your supply of membership services is GST-free if the consideration received for your supply (membership fee) is less than 75% of the cost of supply.

You have provided that for the relevant year membership including insurance levy was set at $xx/member. Life members are free. This amount was distributed as follows:

• The branch kept $yy for operating costs in relating to membership services.

• You received $zz for the administration costs relating to membership services and insurance levy

You have advised that the actual costs of providing membership services are substantially above the membership fees collected. The deficit is made up by government grants and fund raising activities.

Specifically, you have provided the following costs in relation to the membership services:

• The administration costs at branch level $yy/member.

• The administration costs at the national office $zz/member

• The actual insurance per member that you paid $pp.

The membership fee is $xx the cost of the supply of the membership services is $ss for the membership.

The membership fee for the relevant year that you have collected is only 60% of the cost of the supply. Subparagraph 38-325(2)(b)(ii) applies to make the supply of membership services for the relevant year GST-free.

GST-free supply means that no GST is payable on the supply and an entitlement to an input tax credit for anything acquired or imported to make the supply is not affected.

Question 2

Summary

Section 105-65 does not apply to prevent the refund of the overpaid GST. Please refer to Reasons for decision for details how to revise for BASs.

Detailed reasoning

Under the general rules the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the Taxation Administration Act 1953 (TAA).

However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA (section 105-65) which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied.

Subsection 105-65(1) states:

(1) The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if:

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply to any extent; and

(b) the supply is not a taxable supply, or the arrangement was treated as giving rise to a taxable supply, to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

(i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;

(ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or *required to be registered.

Note: * asterisk denotes a defined term in the Act

Miscellaneous Tax Ruling MT 2010/1 which was issued on 15 December 2010 and subsequent amendments provides the guidance on how section 105-65 applies.

Whether subsection 105-65(1) applies to your circumstances

Section 105-65 applies to restrict refunds of overpaid GST if all three of the following conditions are satisfied:

• there was an overpayment of GST

• a supply was treated as a taxable supply when it was not a taxable supply or was taxable to a lesser extent, and

• the recipient has not been reimbursed a corresponding amount of the overpaid GST and/or the recipient of the supply is registered or required to be registered for GST.

Meaning of overpaid

In the context of section 105-65, 'overpaid' means the amount that has been remitted must be in excess of what was legally payable on the particular supply in the relevant tax period prior to taking into account or applying section 105-65.

In your circumstances, it is considered that the supply of membership services is GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act. No GST is payable on the supply.

However, as a result of a reporting error (due to the incorrect coding) indicating GST was payable on membership services when you receive the fee collected by your branches. As the GST box is still ticked and 10% GST on membership services continues to be processed through your BAS, you have remitted GST in your relevant BAS. Had the error not been included in the calculation of GST, the GST payable for the relevant tax period would be lower.

Therefore, the amount of GST remitted was in excess of the GST amount legally payable had the error not been taken into the GST calculation. As the GST payable was overstated, the net amount for the tax period was also overstated.

For section 105-65 to apply, the relevant supply must be 'treated' as a taxable supply. Broadly, in the context of section 105-65 a supply would be treated as a taxable supply where the supplier believes the supply to be a taxable supply, has dealt with the recipient of the supply as if the supply was taxable and has remitted GST to the Commissioner on that supply or arrangement.

In your circumstances:

• The overpayment arose because of a coding error in preparing the BAS that GST is payable on the supply of the membership services.

• The miscalculation of the GST amount led you to pay a higher amount of GST on your supplies than was legally payable as well as a higher net amount of GST for the relevant tax periods that was correctly payable.

Section 105-65 applies to restrict refunds of overpaid GST if the conditions in subsection 105-65(1) are satisfied, including that the supply was treated as a taxable supply to any extent when it was not a taxable supply to that extent.

MT 2010/1 expresses the view that the phrase 'to any extent' should be interpreted widely and that section 105-65 covers overpaid amounts arising from miscalculations.

However, following the decision in the recent Federal Court case Sportsbet Pty Ltd v Commissioner of Taxation 2011 ATC 20-268 (Sportsbet), the ATO has amended MT 2010/1 providing its response to the case, including changes to the ATO view on how section 105-65 applies. The changes extend to any miscalculation of the GST payable under the GST Act.

Paragraph 25B was inserted into MT 2010/1 and states:

The Commissioner takes the view that section105-65 will not apply in cases where the supply is always correctly characterised and treated by the supplier, but an overpayment of GST arises from a mere miscalculation. Examples of such cases include where:

• a supplier correctly characterises a supply as taxable but merely miscalculates the GST for that supply in the calculation of their net amount;

1…

You have provided that:

• There is no mention of GST in your website or promotional material of in your statement (invoice). The membership fees are paid to you (through your branches) on the basis that the payments have no GST implications.

• You have not issued any tax invoice (which includes GST) to the members in relation to the membership services. You have incorrectly issued tax invoices to your branches which are the internal parts of the organisation.

• The error has been made in the BAS only because the incorrectly ticked GST box for the transaction.

You remitted the GST on a supply that you have not charged GST and the members have not paid any GST on the membership.

The overpayment of GST has not resulted from a mischaracterisation of the supply as a taxable supply. It is considered that that you have overpaid GST by miscalculating your GST liabilities in your relevant BAS.

It follows that section 105-65 will not apply in your circumstances and will not restrict the refund of GST to you.

You have overpaid GST and wish to seek a refund; a GST refund claim must be made within the four-year time limit for GST refunds (section 105-55 of Schedule 1 to the TAA). This section states:

105-55(1)

You are not entitled to a refund, other payment or credit to which this subsection applies in respect of a *tax period or importation unless:

(a) within 4 years after:

(i) the end of the tax period; or

(ii) the importation;

as the case requires, you notify the Commissioner (in a *GST return or otherwise) that you are entitled to the refund, other payment or credit;

As the overpaid GST was made less than 4 years ago, and you intend to revise the relevant BASs soon, section 105-55 of the TAA may not apply. You can revise your relevant BASs to correct the miscalculation.

GSTE 2013/1- Goods and Services Tax: Correcting GST Errors Determination allows you to correct GST errors, made in an earlier tax period, in a later tax period in specified circumstances. As you have made credit errors (mistake you made in working out your net amount for a tax period that it would, if it was the only mistakes made in the tax period, have resulted in the net amount or assessed net amount being overstated), in accordance with GSTE 2013/1 you can correct the errors made in your relevant BASs in your next BAS.