Edited version of private advice

Authorisation Number: 1051629114986

Date of advice: 6 March 2020

Ruling

Subject: GST registration turnover threshold for body corporates

Question

Is the strata company, known as Entity A, a non-profit body for the purposes of the registration turnover threshold under subsection 23-15(2) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

Yes, Entity A is considered to be a non-profit body for the purposes of the GST Act. As such, the higher registration turnover threshold of $150,000 under subsection 23-15(2) of the GST Act applies to Entity A. Where Entity A's turnover is below this threshold Entity A can, however, voluntarily register for GST if Entity A so chooses.

Relevant facts and circumstances

·   Entity A (you) were registered for GST effective from 1 July 2007.

·   You advised ATO Interpretative Decision 2016/1 (ATO ID 2016/1) reflects very similar circumstances to those you are facing to be considered a non-profit body.

·   You are an entity that administers and manages common property and an apartment complex.

·   You are not managed to make a profit.

·   You do not expect to make any meaningful profit the 2020 financial year (FY) or future years.

·   You currently do not have any sinking fund, maintenance fund or capital reserves.

·   You are able to operate only with the continued financial support of your shareholders by way of body corporate fees.

·   You provided a copy of your constitution. You advised, your constitution does not preclude distributions to its members.

Special resolution

·   A special resolution was passed in which it was determined that distributions will not be made to members.

Reasons for decision

Detailed reasoning

All legislative references are to the GST Act unless otherwise stated.

Turnover

Division 23 provides for when an entity is required to be registered, or may register, for GST. Section 23-15 states:

(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 (the GST Regulations) states:

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:

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.

Non-profit Body

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'.

First element

Income Tax Ruling 2634 defines a body corporate as:

22. The term "body corporate" is also not defined in the tax file number provisions and similarly bears its ordinary meaning. Its ordinary meaning, according to the Macquarie Dictionary, in its legal context, is

"a person, association or group of persons legally incorporated in a corporation".

You are an entity established under the Corporations Act as an incorporated, proprietary company limited by shares. Therefore, you are a body corporate.

Second element

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.

Where the law or the constituent documents do not prohibit distributions (as in your case), further guidance about how the non-profit test can be satisfied is provided at paragraph 109 of GSTR 2012/2.

Non-profit test

Paragraph 109 of GSTR 2012/2 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.

This 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.

In your case:

·   Distributions have not been made till date and will not be made in future as per your relevant documents;

·   Winding-up has not been contemplated; and

·   It is clear from your objects, policy statements, history, activities and proposed future directions of the body that there will be no distributions to members.

Therefore, we accept that the non-profit test has been satisfied 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.