Edited version of private advice

Authorisation Number: 1012651439706

Ruling

Subject: GST groups

Question

Did certain related entities satisfy the membership requirements of section 149-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for a proposed GST group of government related entities:

Answer

Yes, the related entities satisfied the membership requirements of section 149-25 of the GST Act for a proposed GST group of government related entities.

Relevant facts and circumstances

You are the representative member of a GST group.

All of the related entities were ultimately wholly-owned by Entity A.

The related entities operate certain assets.

The related entities are managed by Entity B.

Entity B is a corporation and was established by a State Act to serve the responsibilities of the State.

The State Act provides that Entity B represents the State.

Some of the related entities were established by the State.

Some of the related entities were established by Entity B.

Each related entity was established for the purpose of:

• asset management

• operation of an asset, or

• other functions ancillary to the operation of an asset (i.e. finance).

Entity A is a corporation sole.

You have advised that each related entity:

• is registered for GST

• is not a member of any other GST group

• has monthly tax periods, and.

• accounts for GST on a non-cash basis.

You have also advised the following in relation to holding entities and partner entities:

• entities that are holding companies are not merely passive holding companies but, rather, carry on enterprises in their own right

• holding entities that are not a company are not merely passive holding entities but, rather, carry on enterprises in their own right

• companies that are partners in a partnership are carrying on an enterprise that is separate to the enterprise of the partnership itself, and

• the enterprises carried on by the entities involve activities such as the provision of finance and guarantees and providing active management or other services to other related entities.

The entities of your GST group were not (and are not currently) all the same as the related entities.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 149-25

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

All legislative references are to the GST Act unless otherwise stated.

Section 149-25 provides for government entities to form GST groups.

Under section 149-25, a government related entity satisfies the membership requirements for a GST group, or a proposed GST group, of government related entities if:

(a) it is registered

(b) it is not a member of any other GST group

(c) it 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

(d) it accounts on the same basis as all those other members, and

(e) all those other members are government related entities.

On the basis of the information provided, the related entities satisfied requirements (a) to (d) of section 149-25.

Government related entity

Of particular relevance in your case is requirement (e) of section 149-25 that all proposed members are government related entities.

The term 'government related entity' is defined in section 195-1 and states at paragraph (b):

an entity that would be a government entity but for subparagraph (e)(i) of the definition of government entity in the A New Tax System (Australian Business Number) Act 1999.

Paragraph (e) of the definition of the term 'government entity' in section 41 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) states:

(e) an organisation that:

(i) is not an entity; and

(ii) is either established by the Commonwealth, a State or a Territory (whether

under a law or not) to carry on an enterprise or established for a public

purpose by an Australian law; and

(iii) can be separately identified by reference to the nature of the activities carried

on through the organisation or the location of the organisation;

whether or not the organisation is part of a Department or branch described in paragraph (a), (b), (c) or (d) or of another organisation of the kind described in this paragraph.

To determine if the related entities are government related entities, it is necessary to examine how paragraph (e) of the definition of government entity in section 41 of the ABN Act applies to the entities.

Entity

Subparagraph (e)(i) of the definition of government entity in section 41 of the ABN Act applies to an organisation that is not an entity.

The term 'entity' is defined for this purpose in section 41 of the ABN Act in the same terms as the definition of 'entity' in section 184-1 and includes companies, trusts and partnerships.

The related entities are companies, trusts and partnerships.

Therefore, each company, trust and partnership is an entity and did not satisfy subparagraph e(i) of the definition of government entity in section 41 of the ABN Act.

Established by a State to carry on an enterprise

The related entities were established by either

• the State to build, maintain and operate assets, or

• Entity B to complement the State's existing asset structure,

In relation to those entities established by Entity B, Goods and Services Tax Ruling GSTR 2006/5 provides relevant guidance about the meaning of 'Commonwealth, a State or a Territory' and explains at paragraph 8 that a State may include a corporation. Paragraph 11 discusses the fundamental principle drawn from several court cases that, if the corporation is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State.

Paragraph 12 of GSTR 2006/5 lists principles to be considered in determining if a corporation is to be characterised as being the State and discusses:

• ownership and management of the corporation

• the purposes the corporation is required to pursue, and

• provision that the corporation must pursue the interests of the State.

Entity B was established by a State Act to serve the responsibilities of the State and, under the State Act, represents the State. Therefore, on the basis of the information provided and the guidance in GSTR 2006/5, it is considered that Entity B is characterised as being the State.

In relation to all of the related entities, the entities were established for the purpose of achieving the State's policies or objectives by managing and operating assets and to serve the State's responsibilities. The related entities are ultimately wholly-owned by the State through Entity A and managed by Entity B.

In addition, each of the related entities was established for the purpose of:

• asset management

• operation of an asset, or

• other functions ancillary to the operation of an asset (i.e. finance).

Therefore, it is considered that each of the related entities has been established by the State to carry on an enterprise and satisfied subparagraph e(ii) of the definition of government entity in section 41 of the ABN Act.

Separately identified by activities or location

The related entities operate assets. The enterprises carried on by entities involve activities such as the provision of finance and guarantees, active management and other services to other related entities.

Therefore, it is considered that each of the related entities can be separately identified by reference to the nature of the activities carried on or location and satisfied subparagraph e(iii) of the definition of government entity in section 41 of the ABN Act.

Accordingly, as subparagraph e(i) of the definition of government entity in section 41 of the ABN Act did not apply to the related entities and the entities satisfied subparagraphs (e)(ii) and (iii) of that definition, all of the entities are government related entities as defined in section 195-1.

Conclusion

As all of the related entities are government related entities, the entities satisfied requirement (e) of section 149-25.

Therefore, the related entities satisfied all of the membership requirements of section 149-25 for a proposed GST group of government related entities.