Edited version of your written advice

Authorisation Number: 1013076899583

Date of advice: 23 August 2016

Ruling

Subject: GST and carrying on an enterprise

Question 1

Are you carrying on an 'enterprise' as defined under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, you are carrying on an 'enterprise' as defined under section 9-20 of the GST Act because your activities are done in the form of a business.

Question 2

Are you making creditable acquisitions under section 11-5 of the GST Act and are you entitled to input tax credits on these acquisitions?

Answer

Yes, you are making creditable acquisitions under section 11-5 of the GST Act and you will be entitled to an input tax credit for the GST component of the payment for your creditable acquisitions.

Relevant facts and circumstances

You are a public company limited by guarantee. You are registered for GST.

You operate an organisation which was established to further the interests of your members. Your income is derived from levies and fees from your members.

Your objects are set out under your Constitution.

Your activities and supported by your Constitution, do not intend for you to make profits.

You carry out activities in a business-like manner to fulfil your objects as stated in your Constitution. You keep your records and you have engaged legal and accounting services so your activities are carried out in a highly organised, systematic and business-like manner.

You provided copies of documents of further details of your activities.

You made a number of acquisitions for the purposes of undertaking your activities and furthering your goals. You provided us copies of documents for these acquisitions.

Reasons for decision

Question 1

Under section 9-20, an 'enterprise' is defined, in part, as an activity, or series of activities, done:

• in the form of a *business, or

• in the form of an adventure or concern in the nature of trade, or

• on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

Under subsection 9-20(3), the fact that the activities of an entity are limited to making supplies to members of the entity does not prevent those activities being in the form of a *business or in the form of an adventure or concern in the nature of trade.

(*Asterisked terms are defined terms under section 195-1 of the GST Act.)

Section 195-1 of the GST Act defines the term 'business' to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

Goods and Services Tax Determination GSTD 2006/6 confirms that the ATO view on the meaning of enterprise for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) as outlined in Miscellaneous Tax Ruling MT 2006/1 also applies to the GST Act.

The relevant principles of the definition of an 'enterprise' under section 9-20 are discussed as follows:

Activity or series of activities

Paragraph 153 of MT 2006/1 states that the ABN Act does not define an 'activity, or series of activities' and in the absence of a statutory definition, these terms take their ordinary meaning. It states further:

Entities can undertake a wide range of activities with varying degrees of interrelationship. The meaning of the term 'activity, or series of activities' for an entity can range from a single undertaking including a single act to groups of related activities or the entire operations of the entity.

In the form of a business

Paragraph 170 of MT 2006/1 states:

170. An enterprise includes an activity, or series of activities, done in the form of a business. The phrase 'in the form of a business' is broad and has its foundation the longstanding concept of a business. The meaning of this phrase has not been considered in significant detail by Australian courts.

Paragraph 170B states that the definition of 'enterprise' clearly includes a business and the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own. It further mentions that the Commissioner considers that in the case of non-profit entities, not all of the main features of a business such as a capacity to earn and distribute profits need be present before an activity has the form of a business.

Indicators of a business

The definition of 'business' in section 195-1 is the same as that used in subsection 6(1) of the Income Tax Assessment Act 1936 and in section 995-1 of the Income Tax Assessment Act 1997. It follows that the meaning of 'business' should be interpreted in a similar way. Paragraph 177 of MT 2006/1 states that to determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

The indicators of a business are discussed under Taxation Ruling 97/11, which considers the meaning of 'business' and these indicators include:

• a significant commercial activity,

• a purpose and intention of the taxpayer to engage in commercial activity,

• an intention to make a profit from the activity,

• the activity is or will be profitable,

• the recurrent or regular nature of the activity,

• the activity is carried on in a similar manner to that of other businesses in the same or similar trade,

• activity is systematic, organised and carried on in a businesslike manner and records are kept,

• the activities are of a reasonable size and scale,

• a business plan exists,

• commercial sales of product, and

• the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on and that it is a process of weighing all the relevant indicators.

Paragraphs 220 to 221 discuss subsection 9-20(3) and mutual organisations as follows:

220. Organisations or associations whose receipts consist entirely of mutual receipts (that is receipts only from members) may not be carrying on a business but rather carrying on activities that are similar to business activities. In this context, there is an inability to profit because the objective or outcome is not profits for the entity, but rather a desire to cover expenditure and to return any surplus directly or indirectly, sooner or later to the members. The trading activities of these organisations may amount to activities in the form of a business.

221. Subsection 9-20(3) of the GST Act makes it clear that an entity may carry on an enterprise even though it can only make supplies to members of the entity. Subsection 9-20(3) is also relevant to non-profit clubs and associations.

In your case, you are an organisation whose income is derived from levies and fees from your members. Your activities and supported by your Constitution, do not intend for you to make profits. These non-profit indicators may not amount to carrying on a business, however, you carry on activities that are similar to business activities.

From the facts provided, it is considered that your activities are in the form of a business. Although you may not have the indicator of a profit-making business, your activities, which are undertaken for the benefit and on behalf of your members, are done in a business manner, the scale are of a reasonable size, you have your objects well set out as per your Constitution, the activities are recurrent and regular, they are done in a systematic, organised and carried on in a businesslike manner, you keep your records and you have engaged legal and accounting services so your activities are carried out in a highly organised, systematic and business-like manner.

Given the above, it is considered that your activities are carried out in the form of a business.

Accordingly, you are carrying on an 'enterprise' as per the definition in section 9-20 of the GST Act because your activities are done in the form of a business.

Question 2

Section 11-5 provides that you make a creditable acquisition if:

• you acquire anything solely or partly for a *creditable purpose; and

• the supply of the thing to you is a *taxable supply; and

• you provide, or are liable to provide, *consideration for the supply; and

• you are registered, or required to be registered.

Subsections 11-15(1) and 11-15(2) provide that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise and it is not acquired for making input taxed supplies or for a private or domestic purpose.

In your case, you are carrying on an enterprise to operate an organisation which was established to further the interests of your members. You make a number of acquisitions in relation to operating this enterprise. You are registered for GST and you provide the consideration for these acquisitions.

For your acquisitions to be creditable acquisitions made by you, the remaining requirement to be determined is whether the supplies to you are taxable supplies. A supply to you will be a taxable supply where the requirements in section 9-5 are satisfied.

To the extent that your acquisitions are not related to making input taxed supplies or for a private or domestic purpose, you will be entitled to an input tax credit for the GST component of the payment for your creditable acquisitions.

You must hold a valid tax invoice to be able to claim input tax credits.