Edited version of private advice

Authorisation Number: 1051518423612

Date of advice: 28 May 2019

Ruling

Subject: GST registration and non-profit body

Question

Is the strata scheme (you) a non-profit body for the purpose of the registration turnover threshold under subsection 23-15(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, you are a non-profit body for the purpose of the registration turnover threshold under the GST Act.

The scheme commences on:

1 October 2018

Relevant facts and circumstances

You were established in late 2018 as a strata scheme for a new multi-storey building which consist of both residential and commercial lots.

You have appointed a strata managing agent to undertake some functions of the owners corporation.

You are currently not registered for GST.

The operation of the strata schemes is governed by the relevant State laws which provide that owners of the lots in a strata scheme constitute a body corporate and the owners corporate may distribute profits or asset to the owners whilst functional and upon winding-up.

In accordance with the State laws, the owners corporation resolved at a General meeting that the following amounts are to be levied for actual and expected expenditure:

·         Administrative fund - the sum of $x

·         Capital works fund - the sum of $y

Apart from the levy, you do not receive other income.

You do not have a constituent document or any other governing documents or policies that prevent you from making distributions to individual members.

You have not distributed profit or asset to individual members and the owners corporation do not intend to distribute profit or assets to members whilst functional or upon winding-up. You are also not contemplating winding-up.

Relevant legislative provisions

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

A New Tax System (Goods and Services) Act 1999 section 23-15

Reasons for decision

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

By virtue of section 23-15 of the GST Act and related GST Regulations, the registration turnover threshold applicable to a non-profit body is $150,000.

The term 'non-profit body' is not defined in the GST Act and therefore it takes on its ordinary meaning having regard to the context in which it appears. Goods and Services Tax ruling GSTR 2012/2 Goods and services tax: financial assistance payment (GSTR 2012/2) provides guidance:

Meaning of non-profit body

105. 'Non-profit body' is not defined in the GST Act. Therefore it takes its ordinary meaning having regard to the context in which it appears. There are two elements to the definition:

·         the entity must be a body; and

·         the body must have the characteristic of being a 'non-profit body'.

106. The term 'body' has a broad meaning. It is defined in the Macquarie Dictionary as including '17. A collective group; or an artificial person: body politic, body corporate.'44

In your case, pursuant to the State laws, the owners of the lots in a strata scheme constitute a body corporate. Accordingly, you are a 'body' and satisfy the first element of the definition of a 'non-profit body'.

The second element of the definition that must be satisfied is that the body must have the characteristic of being a 'non-profit body'.

In your case, there is nothing in the law or your constituent document that prevents you from distributing your profits or assets among members while you are functional and upon winding-up.

Further, your by-law does not have any clause in relation to make or not to make distribution of profits or assets while functional or upon winding-up. As such, where the law or the constituent documents do not prohibit distributions, GSTR 2012/2 states it is a question of fact in each case to determine whether the body corporate is not carried on for the purpose of profit or gain to the individual members:

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 (bold added for emphasis).

Consistent with the provisions of the State laws, ATO Interpretative DecisionATO ID 2016/1: Goods and Services Tax GST and registration turnover threshold for a body corporate confirms that a body corporate entity is permitted by their governing state or territory legislation to make distribution to proprietors in certain circumstances. Generally, such legislative provisions cannot be excluded by a by-law of the body corporate. Despite this, the ATO ID provides that a body corporate entity is considered to be a non-profit body under section 23-15 if it is clear from its objects, policy statements, history, intention, activities and proposed future directions of the body corporate that there will be no distributions to members.

ATO ID 2016/1 further states:

We consider that the circumstances in which profits will be available for distribution by a body corporate to its proprietors will be limited. A return of the members' own funds will not amount to a distribution of profits but a return of capital.

The sinking fund and administration fund may include interest income or other income such as income from the rental of common property. The existence of interest income or income from rental or other activities in the various funds held by the body corporate will not of itself preclude the body corporate from being a non-profit body for the purposes of the GST Act.

However, (contrary to the facts here) an intention to distribute the interest income or profits from rental or other activities, either while the body corporate is functional or upon its winding up, would disqualify the body corporate from being a non-profit body for the purposes of the GST Act.

Accordingly, when determining whether a body corporate is a 'non-profit body' for GST purposes, it depends on the circumstances of each case.

In your case, your specific circumstances are such that:

·         you do not have any stated or demonstrated constituent document or policies to make, or not to make, distributions profits or assets

·         you have not made distributions of profit or asset to individual members

·         there is no history or activities that demonstrate the existence or intention of distribution of income or profits to individual members since establishment

·         the body corporation confirmed that you do not intend to make distribution to members while you are functional or upon winding up, and

·         there is no contemplation of winding-up the body corporate.

In accordance with the guidance at paragraph 109 of GSTR 2012/2, based on your history, intention and proposed future directions, you have neither made or intend to make any distributions, nor is it intended that you be wound up. You satisfy the non-profit test and have the characteristic of being a 'non-profit body' as required by the second element of the definition of 'non-profit body' for GST purposes.

Consequently, you are considered to be a non-profit body for the purposes of the GST Act. The higher GST registration turnover threshold of $150,000 applies to you. If you are below the GST registration turnover of $150,000, you are not required to be registered but may voluntarily register. The decision to voluntarily register for GST however should be made based on your administrative and business needs. If your GST turnover exceeds the $150,000 GST registration threshold, you are required to be registered for GST.

In addition, where there is change of circumstances on the intention to make or not to make distribution either while the body corporate is functional or upon winding-up or there are activities contrary to the intention, that would disqualify the body corporate from being a non-profit body from the date of such change in intention for GST purposes. The GST registration turnover threshold will then be $75,000.