Edited version of your written advice

Authorisation Number: 1012855876434

Date of advice: 24 August 2015

Ruling

Subject: GST and Attribution

Questions

1. Can the Commissioner of taxation (Commissioner) confirm that when a new member elects to pay an Entrance Fee (EF) in instalments, the EF instalment forms part of the 'consideration' for a supply of membership rights to the new member on a 'periodic or progressive' basis under Division 156 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. If the response to question 1 is no, can the Commissioner exercise his general power of administration (GPA) and allow Entity A to calculate and remit the GST payable based on each instalment of the EF?

Answers

1. The Commissioner is of the view that when a new member elects to pay an EF in instalments the payment does not form part of the consideration for a single supply of membership rights to the new member and Division 156 of the GST Act is not applicable. That is, the supply made by Entity A, in consideration for the EF, is a supply of a different right which is separate to the supply of 'membership rights'.

2. The Commissioner cannot exercise his GPA to allow Entity A to calculate and remit GST on an instalment basis.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Entity A, a GST registered entity, charges new members an Entrance Fee (EF) of $XX and an Annual Subscription Fee (ASF) of $YY in respect of entry into their club.

The EF is a one off payment. However, new members have the option of either paying the full fee of $XX or making equal instalments over a set period.

Entity A has recently replaced its invoicing system and implemented a new invoicing system.

Under the old invoicing system, Entity A was able to capture 1/11^th of the EF upon issuing an invoice or receiving consideration, whether or not it was paid as a lump sum or in equal instalments over a set period.

Under the new invoicing system, Entity A can only calculate and remit 1/11^th of what it receives. Accordingly, where a new member pays a lump sum of $XX, 1/11^th will be calculated and remitted correctly to the ATO. However, where a new member decided to pay the EF over a set period the new invoicing system will only calculate 1/11^th of what is received by Entity A.

Entity A is on a non-cash basis of accounting.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Division 156

Reasons for decision

Question 1

Section 9-5 of the GST states that:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(Terms denoted by asterisks are defined in section 195-1 of the GST Act).

It is acknowledged both by the Commissioner and Entity A that Entity A makes a taxable supply when an individual is accepted as a new member. Therefore when an individual member pays an Entrance Fee (EF) and Annual Subscription Fee (ASF) both fees are consideration for a taxable supply.

Entity A submits that it makes a single supply of membership rights to its members when it receives a new member's EF and ASF. That is, when a new member joins Entity A, the 'dominant part' of the supply is membership rights and any other 'rights' a new member obtains at the point in time of joining Entity A are considered 'integral, ancillary or incidental'. Entity A considers characterising the supply in such a manner is in accordance with the Commissioner's view in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9), particularly paragraph 21 and proposition 3 and proposition 16. These propositions provide respectively that:

• a supply may be mixed, composite or neither; and

• the total fact situation will determine the nature of a transaction, the entity that makes the supply and the recipient of the supply.

In this case the Commissioner does not agree that the characterisation of the arrangement is such that there is a single supply of membership rights for both these fees. Relevantly paragraph 65 of GSTR 2006/9 states:

65. A supply that contains a dominant part, but also includes something that is integral, ancillary or incidental to that part is a 'composite supply', being a supply of a single thing.

The Commissioner is of the view that 'membership rights' are only received when a new member pays its ASF. If they merely choose to pay an EF they receive no privileges or benefits whatsoever as they would receive and enjoy when they pay their ASF. At best, upon payment of the EF, a new member only receives a right to make an ASF on the due date. Therefore, the characterisation of the supply that eventuates from each type of payment is entirely different even though they are both 'rights'. In other words there is 2 entirely different 'types' of rights that are being provided with each serving a different purpose. Accordingly, it is difficult to view the right that is created, for which the consideration provided is the EF, as an incidental, integral or ancillary to the 'membership rights'.

The ASF and the EF arise from 2 independent or 'stand-alone' supplies. The real benefit to a new member in terms of taking advantage of the respective events/benefits at Entity A's club only arises subsequent to the payment of the ASF. The ASF must be paid after or concurrently with the one off EF. If one only chooses to pay the EF they do not get to take advantage of the club benefits.

Additionally and on the basis that the Commissioner accepts Entity A's submission above (that the EF and ASF provides membership rights) Entity A submits that the attribution of GST for the rights that stem from the EF and ASF should be attributed under Division 156 of the GST Act (periodic and progressive supplies).

Goods and Services Tax Ruling GSTR 2000/35 Goods and services tax: supplies and acquisitions made on a progressive or periodic basis (GSTR 2000/35) outlines the Commissioner's view on when a supply or acquisition is considered to be made for a period or progressive basis. In particular paragraphs 25-27 of GSTR 2000/35 state:

When is a supply or acquisition made for a period?

25. A supply or acquisition you make is for a period when it is made over a specified length of time or for a time with an identifiable end point. This may be stated in your contract, agreement or other similar document. However, a supply will not be for a period merely because there is a stipulated completion date.

26. If a contract for a supply of goods or services provides that they are to be delivered or completed by a specific date, that will not be a supply for a period. A supply for a period will be one which is made on a continuous basis until the stipulated end point occurs, or the period expires. An example of a supply or acquisition for a period is a contract for the supply of maintenance services for a period of 12 months.

When is a supply or acquisition made on a progressive basis?

27. A supply or acquisition you make is on a progressive basis when the contract or agreement provides for stages of the supply during the course of the supply. A supply may also be a progressive supply where, under a contract, goods or services are to be supplied on an ongoing basis. An example of a supply or acquisition on a progressive basis is a contract for supply of property management services by a real estate agent.

As outlined above the ASF is for annual membership rights and the EF is for a right other than for a membership right. The movement (supply) of these rights do not span over or are not staggered over a period of time. The supply from Entity A to the member recipient occurs at the time Entity A raises an invoice or receives any consideration. The respective rights enable a member to exercise those rights the moment the payment is made. That is, in respect of the EF the member can exercise the right to pay its full membership at any time after it receives it. Likewise with the membership right it can exercise that right upon payment of the ASF.

The EF is a one off payment which can be split over a set period. The supply that eventuates from the EF does not eventuate over the set period. It is a one off supply. Due to the fact that the payment can be spread over the set period it does not mean the supply is made over this period. Likewise, the supply that eventuates from the ASF also takes place when a new member either pays for or is invoiced for the new membership. Accordingly, none of these supplies fall under Division 156 of the GST Act.

Question 2

Where the Commissioners response to question 1 is 'no', Entity A requests the exercise of the Commissioners general powers of administration (GPA) under section 356-5 of Schedule 1 of the Tax Administration Act 1953 to allow Entity A to calculate and remit an amount on account of GST based on each instalment of the EF.

On this occasion the Commissioner is unable to exercise the GPA.

Practice Statement Law Administration PS LA 2009/4: Escalating a proposal requiring the exercise of the Commissioner's powers of general administration (PS LA 2009/4) outlines the process and limits on when and how the Commissioner can exercise its GPA. Paragraph 3 of PS LA 2009/4 states:

3. The powers of general administration assist the Commissioner to administer the taxation laws in accordance with Parliament's legislative intent.³ The Commissioner's powers of general administration are narrow in scope in that they can only be exercised in relation to management and administrative decisions. They do not authorise the Commissioner to administer the taxation laws inconsistently with their purpose or object, whether express or implied, or their plain meaning. They support the principle that the Commissioner must interpret and administer each Act to give effect to its intention as discerned from it as a whole, not, for example, by interpreting a particular section in isolation from the rest of the Act. The provisions must be interpreted having regard to the context in which they appear. The Commissioner's powers of general administration also cannot remedy defects or omissions in the law. In addition, where the law is open to more than one interpretation the alternative interpretations of the law should be explored before considering reliance on the powers of general administration

The exercise of the GPA in this instance is not appropriate. The Commissioner's GPA is not intended to act as a remedy where a taxpayer's operating systems are inadequate. The Commissioner is of the view that allowing Entity A to defer GST attribution on a supply due to a system issue is outside of the law's policy and Parliament's legislative intent.

In this case the GST law applies as intended in relation to the supply by Entity A. That is, it is not the application of the law that has created issues with the attribution of GST where fees are paid by instalments, but rather Entity A's move from an old working system to a new system. In addition, the request by Entity A relates to an ongoing administrational issue. The GPA is generally intended to overcome one off issues rather than providing an ongoing administrative solution for taxpayers.