Edited version of your written advice

Authorisation Number: 1012867581219

Date of advice: 23 September 2015

Ruling

Subject: GST and Registration

Question

Will the levies paid by body corporate members be consideration for taxable supplies?

Answer

Yes.

Relevant facts and circumstances

You, are a Body Corporate (BC) governed under the relevant State legislation (BC Act). You registered for GST from ddmmyyyy.

You administer, manage and control common property and assets of a residential unit complex in Australia. The complex contains X lots and the strata plan was registered in 198X. You have engaged a Body Corporate Manager (Agent) to manage your affairs.

Members contribute levies to an administration fund/sinking fund of an amount that exceeds $75,000 but less than $150,000.

Section XX of the BC Act provides for a distribution of assets to former members upon dissolution of the body corporate. You are prohibited from distributing profits or assets to members except in the case of dissolution. You have not made any distributions to members since you were formed and you do not intend to.

You do not intend to dissolve the body corporate.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 9-10

A New Tax System (Goods and Services Tax) Act 1999 9-15

A New Tax System (Goods and Services Tax) Act 1999 9-20, and

A New Tax System (Goods and Services Tax) Act 1999 23-5.

Reasons for decision

In this reasoning, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1

Detailed reasoning

Section 9-5 provides that you make a taxable supply if:

(a) you make the supply for consideration

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

(c) the supply is connected with the indirect Tax Zone (Australia), and

(d) you are registered or required to be registered for GST.

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

There are no provisions of the GST Act whereby the supplies that are made by you are input taxed or GST-free therefore we will consider the other requirements of section 9-5.

Supply

The word supply is defined in section 9-10 to mean any form of supply whatsoever and includes a supply of services. The supply a body corporate makes to its members is the entry into an obligation to maintain and manage the complex in a sound condition. This comes within the definition of supply contained in the GST Act.

You have contended that the principle of mutuality precludes the services and consideration from being taken into account as supplies and consideration for the purposes of the GST Act.

The principle of mutuality is only relevant to income tax law. Whilst relevant in determining what constitutes income, it is not relevant when determining if a taxable supply has been made for GST purposes.

Your contention was addressed in an Administrative Appeals Tribunal (AAT) case where a taxpayer, Villa Edgewater argued at the AAT (Case 2004 ATC 20156) that a body corporate was simply a legal artifice to assist its members to organise what were essentially private affairs, namely the maintenance of the common property in which they resided. Therefore, the taxpayer argued that the contributions by members were an internal transfer that did not attract GST. This case was a review of a decision by the Commissioner of Taxation.

The decision under review was affirmed and it was held that:

1. The body corporate was a separate legal entity with an existence that was independent of its membership. The contributions were not internal transfers, but were made pursuant to the relationship between the body corporate and its members provided for in a statute.

2. The body corporate was obliged to perform a variety of tasks in the course of administering the common property and assets. The activities that the body corporate arranged (cleaning, mowing, repairs, etc) were services within the meaning of the A New Tax System (Goods and Services Tax) Act 1999.

3. The definition of 'consideration' in the GST Act included any payment 'in connection with' a supply of anything. In this case the contributions of the lot-owners were clearly made in connection with the services (ie the cleaning, repairs, expenditure on capital items, etc) provided by the body corporate. The connection was made through the budgets for the administration and sinking funds issued each year.

4. The activities of the body corporate were carried out in the form of a business. The use of the words 'in the form of a business' in the definition of enterprise in section 9-20 of the GST Act suggested that Parliament intended decision-makers to concentrate on whether the activities of the entity were carried on in a business-like way, rather than on the ends of the activities.

5. The body corporate was an enterprise and the contributions were clearly made in the course or furtherance of the enterprise.

Consideration

The levies or payments members make to the body corporate meet the definition of consideration pursuant to section 9-15.

Enterprise

Paragraph 9-20(1)(a) relevantly provides that an enterprise is 'an activity, or series of activities, done in the form of a business.

The activities of a body corporate would be considered to fall within paragraph 9-20(1)(a).

The fact that activities of a body corporate are limited to making supplies to its members does not prevent those activities being in the form of a business.

Registration and GST registration threshold

You are registered for GST however you have contended that you are not required to be registered for GST. As set out in the reason above the ATO considers that your activities amount to an enterprise and that you are making supplies to your members. In addition you have advised that your turnover is less than $150,000.

Section 23-5 requires that an entity that is conducting an enterprise is required to be registered if its turnover meets or exceeds the registration turnover thresholds of $75,000, or $150,000 for non-profit bodies. As set out above you are considered to be conducting an enterprise therefore the question is whether you are a non-profit body.

The meaning of 'non-profit body' for GST purposes is discussed at paragraphs 105-109 of Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2).

Paragraphs 107 to 109 of GSTR 2012/2 state:

107. The Commissioner's view of when a society, association or club is not carried on for the purpose of profit or gain is explained in TR 97/22. Although this view is expressed in an income tax sense, the Commissioner considers the principles outlined there are equally applicable in describing whether a particular body is a 'non-profit body' for GST purposes.

108. A body is a non-profit body if, by operation of law (for example, a statute governing a body's activities) or by its constituent documents, the body is prevented from distributing its profits or assets amongst its members while the body is functional and on its winding-up.⁴⁵ The body's actions must, of course, be consistent with this prohibition.

109. Where the law or the constituent documents do not prohibit distributions, whether the body is not carried on for purposes of profit or gain to the individual members is to be determined by reference to the surrounding circumstances. Factors that are considered relevant include whether distributions have been made, whether there is a stated or demonstrated policy to make or not to make such distributions and whether winding-up is contemplated. Where it is clear from the objects, policy statements, history, activities and proposed future directions of the body that there will be no distributions to members, we accept that the non-profit test has been satisfied.

In your case you are governed by the BC Act which does not prohibit distributions on dissolution. However you have advised that you have not made distributions to members nor do you intend to and that you do not intend to dissolve the body corporate.

Therefore we consider that based on your actions and proposed future directions you meet the requirements for a non-profit body. A non-profit body is not required to register for GST until the GST turnover of taxable supplies and GST-free supplies meets or exceeds $150,000. As your GST turnover is approximately $X you are currently not required to be registered however you have registered for GST.

Conclusion

The supplies that you make to your members meet the requirements of section 9-5 in that:

• you make supplies for consideration

• those supplies are in the course of your enterprise

• they are connected with Australia

• you are registered for GST, and

• your supplies are not input taxed or GST-free

Therefore, the levies paid by your members are consideration for taxable supplies that you make.