Edited version of your written advice

Authorisation Number: 1051503573894

Date of advice: 08 April 2019

Ruling

Subject: GST and fundraising events

Question

Can the Club treat its fundraising event as a non-profit sub-entity pursuant to Division 63 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the Club may choose to treat its fundraising event as a non-profit sub-entity. The choice will be effective from the date that the Club makes a record of its choice.

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.

The Club is an incorporated association under the Associations Incorporation Act 1981. The Club is registered for GST and is a non-profit entity that must apply its funds and assets solely in pursuance of its objects, and must not conduct its affairs so as to provide a pecuniary gain for any of its members.

The Club’s objects are to encourage and further a particular sport and to provide facilities for players, members and spectators.

The Club is not registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC). However, the Club is an income tax exempt non-profit body under item 9.1 of section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997). That is, the Club is established for the encouragement of a game or sport and satisfies the special conditions under section 50-70 of the ITAA 1997.

The main activities of the Club include organising sporting games for various age groups, making its facilities available to local schools for training and competitions free of charge, conducting fundraising events and helping with community events.

The Club will be holding a fundraising event and it intends for this to become an annual event.

The fundraising event involves various activities and funds are raised through entry fee, canteen, raffles, auctions, games and donations. Donors do not receive anything of material benefit in return for its donation. The Club envisage raising less than $150,000 on the day. Proceeds and donations will go to a charity.

The Club uses an accounting program and proceeds, costs and disbursements from the fundraising event can be clearly and easily distinguished from the Club’s other transactions using this software.

The Club will make a record in its minutes, of its choice to treat the fundraising event as a separate non-profit sub-entity for the purposes of the GST Act in its minutes.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 63

Income Tax Assessment Act 1997 section 50-45 item 9.1

Reasons for decision

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise specified.

Eligible entities can choose to treat some (or all) of their separately identifiable branches or units of as if they were separate entities for GST purposes under Division 63. When this occurs, the entity ceases to be responsible for these branches, for GST purposes.

The Club may choose to apply Division 63 for its fundraising event if it satisfies the requirements of sections 63-5 and 63-15.

The Club meets the requirements in section 63-5 because it is exempt from income tax under item 9.1 of section 50-45 of the ITAA 1997 and is currently registered for GST.

The issue remaining is whether the requirements in section 63-15 are met.

Subsection 63-15(1) requires that a branch/unit:

(a) maintain an independent system of accounting; and

(b) can be separately identified by reference to:

i) the nature of the activities carried on through the branch/unit; or

ii) the location of the branch/unit; and

(c) is referred to in the entity’s records to the effect that it is treated as a separate entity for the purposes of the GST law.

If all of these requirements are not met, the choice to treat a branch/unit as a separate non-profit sub-entity for GST purposes ceases to have effect and the branch/unit will remain as part of the entity.

Independent system of accounting

An independent system of accounting does not necessarily require that a separate bank account be kept or that a separate set of books be kept. It is essential however that the records of the non-profit sub-entity can be clearly and easily distinguished from the records of the parent entity. They should be easy to access and extract. It is recommended that the best means of maintaining clearly identifiable records is to establish separate cash receipts and cash payments books and possibly a separate bank account (but a separate bank account is not essential).

In this case, the Club uses an accounting program that enables it to record all proceeds, costs and disbursement from the fundraising event. The program allows the records to be clearly and easily distinguished from the Club’s transactions. On this basis, the Club maintains an independent system of accounting for the fundraising event, for the purposes of meeting the requirement in paragraph 63-15(1)(a).

Separately identifiable by reference to the nature of the activities carried on through the branch or by location

The phrase ‘separately identifiable by reference to the nature of the activities’ and the individual words in that phrase are not defined in the GST Act. Therefore, it is necessary for us to consider the ordinary meaning of these words and their surrounding context.

The Australian Oxford Dictionary, 2004, 2^nd edn, Oxford University Press defines ‘nature’ to be ‘things of a kind, sort or class’. So ‘nature of the activities’ as a phrase indicates activities of a kind, sort or class.

Paragraph 3.12 of the Supplementary Explanatory Memorandum to the A New Tax System (Indirect Tax and Consequential Amendments) Bill (No.2) 1999 states:

for a branch to be considered a non-profit sub-entity it must be…separately identifiable either because the activities carried on by the branch differ from other activities carried on by the entity, or because the branch is in a different location…(bold added for emphasis).

In this case, the nature of the activities carried on by the Club is of a kind, sort or class that promote and foster a sport and also have a distinctive competitive nature. The fundraising event involves activities of a kind that differ to the Club’s main activities of promoting and fostering a particular sport and its associated competitive activities.

The fundraising event is therefore separately identifiable by reference to the nature of the activities usually carried on by the Club. Therefore it satisfies the requirement in paragraph 63-15(1)(b).

Recording of choice or decision

The Club is intending to make a record in its meeting minutes, of its choice to treat the fundraising event as a separate non-profit sub-entity for the purposes of the GST law. As such, the last requirement in paragraph (c) of section 63-15 will be met once the Club has made a record of their choice.

Overall, the fundraising event may be treated as a non-profit sub-entity for the purposes of the GST law provided the Club makes an election to apply the non-profit sub-entity concession to the fundraising event and such election is reflected in its record. The Club may then operate the fundraising event as a non-profit sub-entity from the point in time when it records its election in its records.

Additional information

If the Club makes a choice under Division 63 to treat the fundraising event as a non-profit sub-entity for GST purpose and makes a record of its choice, the fundraising event is then treated as a separate non-profit sub-entity for GST purpose only. A non-profit sub-entity is still required to be registered for GST if its GST turnover (gross income) is $150,000 per year or more.

The Club cannot revoke its choice within 12 months after the day on which the Club made the choice. The choice to treat the fundraising event as a separate entity ceases if the Club revokes its choice or the non-profit sub-entity ceases to meet the requirements under sections 63-5 and 63-15.