Edited version of private advice

Authorisation Number: 1052332574891

Date of advice: 18 November 2024

Ruling

Subject: GST - groups

Question

Do the entitiessatisfy the membership requirement under paragraph 48-10(1)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to enable them to be members of the same GST group on the basis all entities belong to the same 90% owned group?

Answer

Yes, the entities listed satisfy the membership requirements set out in paragraph 48-10(1)(b) of the GST Act to be members of the same GST Group as they all belong to the same 90% owned group.

This ruling applies for the following period:

15 November 2024 to 15 November 2028

Relevant facts and circumstances

The entities are registered for GST

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 48-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 190-1

A New Tax System (Goods and Services Tax) Act 1999 section 190-5

Reasons for decision

Under Division 48, entities with common ownership that meet certain conditions are eligible to form a GST group.

In relation to the satisfying the ownership requirements to form a GST group paragraphs 48-10(1)(a) and (b) state;

An entity satisfies the membership requirements of a GST group, or a proposed GST group, if the entity:

a) is:

i. a company; or

ii. a partnership, trust or individual that satisfies the requirements specified in the regulations; and

b) is, if the entity is a company, a company of the same 90% owned group as all the other members of the GST group or proposed GST group that are also companies;...

Section 190-1 of the GST Act states that two companies are members of the same 90% owned group if:

(a) one of the companies has at least a 90% stake in the other company; or

(b) a third company has at least a 90% stake in each of the two companies.

Section 190-5 of the GST Act states a company (the holding company) has at least a 90% stake in another company (the subsidiary company) if the holding company:

(a) controls, or is able to control, at least 90% of the voting power in the subsidiary company (whether directly, or indirectly through one or more interposed companies); and

(b) has the right to receive (whether directly, or indirectly through one or more interposed companies) at least 90% of any dividends that the subsidiary company may pay; and

(c) has the right to receive (whether directly, or indirectly through one or more interposed companies) at least 90% of any distribution of capital of the subsidiary company.

The holding company, controls, or is able to control, at least 90% of the voting power, has the right to receive at least 90% of dividends and has the right to receive 90% of any distribution of capital, through one or more interposed companies for its subsidiary companies.

In this case, we need to ascertain whether a company (the holding company) can have 'at least a 90% stake' in another company (the subsidiary company) in accordance with section 190-5, where the required control or rights derive through an interposed entity that is not a company?

ATO Interpretative Decision ATO ID 2004/201 Goods and Services Tax: GST and grouping of two companies explains that:

The words 'whether directly, or indirectly through one or more interposed companies' do not extend or restrict the opening words. Rather these words are illustrative as to how the control of the voting rights, the right to receive the dividends and a distribution of capital might be achieved. The words do not imply that the requisite controls and rights must be satisfied in the manner mentioned. As such, it is accepted that the controls and rights can be achieved through an interposed entity other than a company.

Therefore, in circumstances where a 'holding company' has an interposed partnership between it and a 'subsidiary company', then if the 'holding company' has at least a 90% interest in the partnership, which in turn holds the shares in the 'subsidiary company' as partnership property, the requirements in section 190-5 would be satisfied. However, this would depend on the terms of partnership agreement to assess whether the required control and rights passes to the holding company.

After review of the partnership agreement, the holding company controls at least 90% of the voting power in the subsidiary companies and have a right to receive at least 90% of any dividends and distributions of capital (whether directly, or indirectly through one or more interposed companies or a partnership) of the entities.

Consequently, these entities satisfy the ownership requirements to form a GST group under paragraph 48-10(1)(b) of the GST Act to enable them to be members of the same GST group on the basis all entities belong to the same 90% owned group as defined in sections 190-1 and 190-5 of the GST Act.