Edited version of private advice

Authorisation Number: 1051578467392

Date of advice: 25 September 2019

Ruling

Subject: GST and registration

Question

Are you a non-profit body for the purposes of subparagraph 23-15(2)(b) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

This ruling applies on and from the date of issue

Relevant facts and circumstances

You are a body corporate incorporated as a strata companyunder the relevant state legislation.

You registered for GST from ddmmyyyy.

You administer, manage and control the common property and assets of a residential unit complex in Australia for the benefit of its members. The complex comprises of xx residential units and common areas which include car parking, gardens and walkways.

Members contribute levies to an administration fund and a reserve (sinking) fund. The levies have exceeded $150,000 in prior years.

You:

·        Have never made any distributions to members.

·        Do not intend to make any distributions to members.

·        Do not contemplate winding up.

You have provided information to show that your projected GST turnover will be less than $150,000 in the next financial year. You have stated that there will be no additional levies raised in the next financial year.

Relevant legislative provisions

All references below are to theA New Tax System (Goods and Services Tax) Act 1999 unless otherwise specified.

Section 23-5

Subsection 23-15(1)

Paragraph 23-15(2)(b)

Section 188-10

Section 188-20

Subsection 188-20(1)

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 23-15.01 and regulation 23-15.02

Reasons for decision

Section 23-15 states as follows:

(1)   Your registration turnover threshold (unless you are a non-profit body) is:

(a)   $50,000; or

(b)   such higher amount as the regulations specify.

(2)   Your registration turnover threshold if you are a non-profit body is:

(a)   $100,000; or

(b)   such higher amount as the regulations specify.

Regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) states as follows:

For paragraph 23-15(1)(b) of the Act, the amount of $75,000 is specified.

Regulation 23-15.02 of the GST Regulations states as follows:

For paragraph 23-15(2)(b) of the Act, the amount of $150,000 is specified.

To determine if the registration turnover threshold under subsection 23-15(2) applies in your circumstances, it is necessary to establish if you are a 'non-profit body' for GST purposes.

The term 'non-profit body' is not defined in the GST Act, however, relevant guidance in relation to the meaning of the term is provided in Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance (GSTR 2012/2). Paragraphs 105 and 106 of GSTR 2012/2 discuss the ordinary meaning and state:

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.'

Therefore, in examining if you are a non-profit body, it is first necessary to consider if you are a 'body' and satisfy the first element of the definition of 'non-profit body'.

You were incorporated as a strata company under the relevant state legislation. The relevant state legislation states that a strata company created under subsection (1) is a body corporate. As a body corporate, you come within the broad meaning of the term 'body' as defined in the Macquarie Dictionary as detailed in paragraph 106 of GSTR 212/2, and therefore satisfy the first element of the definition.

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

Paragraphs 107 and 108 of GSTR 2012/2 discuss the principles applicable in describing whether a particular body is a 'non-profit body' for GST purposes and the prohibition of distributions to members. The paragraphs 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. The body's actions must, of course, be consistent with this prohibition.

In relation to distributions to members, in your circumstances, you are not prevented from making distributions. The relevant state legislation provides that the proprietors may resolve by unanimous resolution that the scheme be terminated, in which case the proprietors will be entitled to the proceeds from the sale of the common property in shares proportional to the unit entitlements of their respective lots.

However, where the law or the constituent documents do not prohibit distributions, further guidance about how the non-profit test can be satisfied is provided at paragraph 109 of GSTR 2012/2 which states:

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.

Further guidance in relation to circumstances where distributions to members are not prohibited is also discussed in ATO Interpretative Decision ATO ID 2016/1 (ATO ID 2016/1), which is about GST and the registration turnover threshold for a body corporate.

The ATO ID 2016/1 confirms that a body corporate entity is permitted by their governing state or territory legislation to make distributions to proprietors in certain circumstances, and that 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 the objects, policy statements, history, intention, activities and proposed future directions of the body corporate that there will be no distributions to members.

In considering if you satisfy the non-profit test for GST purposes, the guidance at paragraph 109 of GSTR 2012/2 provides that whether you are not carried on for purposes of profit or gain to the individual members is to be determined by reference to the surrounding circumstances. The 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.

These factors are discussed in ATO ID 2016/1, which explains the context in which a body corporate conducts its affairs as follows:

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, ... 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.

Your specific circumstances are such that you are a body corporate that administers, manages and controls the common property and assets of a residential unit complex in Australia.

You have stated that you do not distribute any profits or assets to your members while the body corporate is functional, and will not do so in the rare situation of winding up. You do not contemplate winding up the body corporate. No distributions of profits or assets have been made to members in the past.

Therefore, in accordance with the guidance at paragraph 109 of GSTR 2012/2, based on your objects, history, intentions, activities and proposed future directions, you have neither made or intend to make any distributions, nor is it intended that you be wound up. Accordingly, 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'.

Consequently, as you satisfy both elements of the definition, you are considered to be a non-profit body for the purposes of the GST Act.

As such, the higher registration turnover threshold of $150,000 applies to you.

GST turnover meets the registration turnover threshold:

To be required to be registered for GST, subsection 23-5(b) requires that your GST turnover meets the registration threshold turnover.

Subsection 188-10(1) provides that you have a GST turnover that meets a particular turnover threshold if your projected GST turnover is at or above that threshold, or your current GST turnover is at or above that turnover threshold and the Commissioner is not satisfied that your projected GST turnover is below that threshold. Paragraph 188-10(3)(b) provides that the registration turnover threshold is a 'turnover threshold' under subsection188-10(1).

Your current GST turnover is the sum of supplies made or likely to be made, in the current month and the previous eleven months less excluded supplies. Your projected GST turnover is the sum of supplies made or likely to be made, in the current month and the next eleven months less excluded supplies.

Supplies that are excluded in calculating your current and projected GST turnovers are supplies that are:

·   input taxed

·   for no consideration

·   not made in the course of your enterprise.

Subsection 188-20(3) and section 188-22 provide that certain supplies are not taken into account when calculating your projected GST turnover. We do not consider that these provisions apply in the present case.

Your GST turnover for previous financial years, exceeded the registration turnover threshold for a non-profit body as specified in paragraph 23-15(2)(b) and regulation 23.15.02. As such, under section 23-5 you were required to be registered for GST in the previous years.

However, you contend that you are not required to be registered for GST as you are a non-profit body and your projected GST turnover in the next financial year will be less than $150,000.

Based on the information you provided, as your projected GST turnover for the next financial year is less than the registration turnover threshold for a non-profit body under paragraph 23-15(2)(b), you are not required to be registered for GST in the next financial year.

Conclusion

Based on the fact that you do not intend to make any distributions to members, and you do not contemplate winding up the body corporate, the Commissioner accepts that you are a non-profit body for the purpose of subparagraph 23-15(2)(b).

Additional information

As set out in this ruling, you have advised that your projected GST turnover for the next financial year will be less than $150,000. As a non-profit body, you are not required to be registered until your projected GST turnover meets or exceeds $150,000.

For future years, your projected GST turnover will need to be calculated on a month by month basis in accordance with Division 188 of the GST Act.