The GST legislation allows
organisations to either group or branch but not to do both. Organisations would
need to look at their structural arrangements to determine what arrangements
would best suit their operation with respect to the costs of compliance,
particularly the costs of actioning internal transactions. Certain non-profit
organisations may also form non-profit sub entities.
The requirements for non-profit
bodies to apply to be treated as a group are that all members of the
- are non-profit bodies and all
members are of the same non-profit association;
- have the same tax periods and
the same accounts basis.
- Are all registered for
The Commissioner may register a
branch of a registered entity if:
(a) the entity applies, in the
*approved form, for registration of the branch and
(b) the entity has an *ABN or has
applied for one; and
(c) the Commissioner is satisfied
that the branch maintains an independent system of accounting, and can be
separately identified by reference to:
(i) the nature of the activities
carried on through the branch or
(ii) the location of the branch
(d) the Commissioner is satisfied
that the entity is *carrying on an enterprise through the branch or intends to
carry on an enterprise through the branch, from a particular date specified in
A branch that is so registered is a
"PAYG withholding branch".
Note: A branch may be both a
PAYG withholding branch under this Subdivision and a GST branch under the GST
An entity choosing to apply
Division 63 must be registered and must be:
- A charitable institution,
trustee of a charitable fund or a gift deductible entity or, a government
- A non-profit body that is exempt
from income tax under any of these provisions of the ITAA 1997:
- s50-5 (charity, education,
science and religion);
- s50-10 (community
- s50-15 (employees and
- s50-40 (primary and secondary
resources, and tourism);
- item 9.1 or 9.2 of s50-45
(sports, culture and recreation).
These non-profit organisations with
small independent branches (units) have the option of treating their units as if
they were separate entities for GST purposes and not part of the main
A unit will be considered to be
independent if it;
- maintains an independent system
of accounting; and
- can be separately identified by
the nature of its activities or by its location.
If an entity chooses this option it
must record each unit that is being treated as a separate entity for the
purposes of GST.
It means that where the sub-entity
turnover is less than a $ 100 000 it can choose whether it registers or not.
Where the sub-entity has a turnover of $ 100 000 or more it will be required to
register separately for GST and will have the same rights and obligations as
other GST registered entities, except for the ability to form other non-profit
The liability for all GST
obligations of the unit will be imposed on the persons responsible for the
management of the sub-entity.
Other important points:
- Non-profit sub-entities are
separate entities for GST purposes.
- Non-profit sub-entities are for
GST purposes only not PAYG, FBT, IT.
- An organisation cannot create a
sub-entity for its core activities such as membership of the main
- Where an organisation creates
multiple sub-entities and the turnover of the main organisation is reduced to
below $ 100,000 the main organisation cannot elect to cancel their
registration. In order to enjoy the flexible options under Div 63 the main
organisation must remain registered for GST.
S63-50 will allow a nonprofit
sub-entity to be a member of a GST group provided:
- it is registered;
- it accounts on the same basis
and has the same tax periods as all other members of the group;
- it is not a member of another
GST group; and
- the other members of the group
are the main nonprofit entity or another brnach that is a nonprofit
The second option is to allow
charities to treat certain fundraising activities as input taxed. These
fundraising events may include a fete, ball, gala show, dinner performance or
similar event. The event must be separate from and not forming any part of a
series, or regular run, of like, or similar events. It may also include an event
that involves the sale of small fundraising items such as flowers, confectionery
and chocolates (not alcoholic beverages or tobacco products), provided the
charitable entity is not in the business of making such supplies. It will also
include events such as 'Red Nose Day' and 'Daffodil Day'.
Where the fundraising event does
not meet this description, a charitable entity may make a request to the
Commissioner to apply his discretion to allow the charitable entity to treat the
activity as input taxed. In applying his discretion the Commissioner would need
to have broad regard to whether the charitable entity is in the business of
making such supplies. Given the difficulty of establishing whether a particular
activity or series of activities constitutes a business, it is appropriate to
leave this matter for the Commissioner to decide on a case by case basis. In
addition, the Commissioner must be satisfied that the proceeds of the
fundraising are for the direct benefit of the charity.
Questions and Answers
- If a number of non-profit
organisations apply to be treated as a group can they use the ABN of the
nominated representative member of the group on all the tax invoices they
The Tax invoice regulations state
that the ABN of the supplier must be provided on a tax invoice. The entity
providing the supply therefore must use their own ABN on their tax invoices. The
GST grouping provisions do not mean that the grouped entities lose their own
status as an entity and form one larger entity. For this reason the ABN of the
nominated group representative cannot be used by the other entities in the
- Will parishes (or their
equivalent) be able to register as branches (section 54-5) while behaving as a
group such as a diocese (or their equivalent) in order to minimise the number
of internal transactions attracting GST? Could this approach be applied more
broadly across the charitable sector?
s54-5(3) precludes registering a
branch separately if you are a member of a GST group. Members of a group are
required to charge GST and the representative member completes the Business
Activity Statement on behalf of the group. Branches are required to charge and
complete individual Business Activity Statements.
- There are numerous
transactions occurring between bodies of a charity that are separately
incorporated and registrable for GST purposes. Often sales between entities
within a charity constitute a taxable supply between the bodies, with the
purchaser entitled to an input tax credit. Given there is no risk to the
revenue in these cases and higher compliance costs there should be provision
to allow entities to be grouped.
Entities can group subject to
s48-10, charities will need to examine their own structural arrangements in
order to ascertain what level best suits the organisation to register as
An entity means any of the
- an individual
- a body corporate
- a corporation sole
- a body politic
- a partnership
- any other unincorporated
association or body of persons
- a trust
- a superannuation fund.
- Can overseas organisations,
which give grants for conservation in Australia, form a GST group with the
A non-profit body can apply to the
Commissioner to form a GST group with other non-profit bodies that belong to the
same non-profit association. If the bodies do not belong to the same non-profit
association, they cannot form a GST group.
The Commissioner must approve the
application provided that:
- the entities apply in the
- each of the entities satisfy the
membership requirements for the group and
- the application nominates one of
the entities, which must be an Australian resident, to be the representative
member for the group
To satisfy the membership
requirements, a non-profit body must:
- be registered for GST;
- have the same tax periods
applying to it as the tax periods applying to all those other members;
- account for GST on the same
basis as all those other members; and
- not be part of another GST
A non-profit body must be
registered if it carries on an enterprise and its annual turnover meets the
registration turnover threshold, currently $100 000. A non profit body which
carries on an enterprise but does not meet the registration threshold can still
choose to register if desired.
Therefore, if the overseas
organisations belong to the same non-profit association as the Australian
organisation, all the organisations are registered for GST, have the same tax
periods and method of accounting for GST, and are not part of another GST group
they will be able to form a GST group. If any of the requirements discussed
above are not met, they cannot form a GST group. The Representative member of
the group must be an Australian resident.
- What is required for an
independent system of accounting for Div 63?
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 sub entity can be clearly and easily distinguished from the
records of the main 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. Please note that a separate bank account is not
- Does a sub-entity have the
same income tax status as its parent entity? (Is it a charitable institution
or gift deductible entity if the main organisation has this
Sub-entities only exist for GST
purposes. As such for income tax purposes the sub-entity remains part of the
main organisation. For this reason the sub-entity enjoys the same status for
income tax purposes as the main organisation and does not need to apply for
endorsement in its own right.
Section 38-250 provides that
supplies will be GST-free where the supplier is a charitable institution,
trustee of a charitable fund or gift deductible entity. Where the supplier is
a sub-entity which is part of a charitable institution etc the sub-entity has
the same status for income tax purposes and the section will apply assuming
all the provisions within the section are satisfied.
- What is the impact of PAYG as
a result of creating a sub-entity?
Where a sub-entity is created it
only exists for GST purposes. As such all PAYG withholding will be conducted
by the parent organisation not by the sub-entity.
The exception to this would be
where a sub-entity has been created and it has all the attributes required for
a PAYG branch. In this case it is possible for the sub-entity to be a GST
sub-entity and to choose to be treated as a PAYG branch at the same time. If
this is the case the sub-entity will account for PAYG withholding under the
requirements for a PAYG branch.
The requirements to create a PAYG
branch are contained in section 16-142 of Schedule 1 to the Taxation
Administration Act (1of 1953).
- What is the position with
regard to joint ventures and the charitable sector?
The basic features of a joint
- the participants hold their
interest in the assets of the venture in common and their liability is
- an operator or manager is
interposed between the participants and the operation (or may be one of the
- the participants receive the
fruits of the venture separately and in kind.
There are now regulations
(51-5.01(m)) which allow charities to form joint ventures if they should wish to
do so. To take advantage of the joint venture provisions an organisation
undertaking charitable activities would need to satisfy the following
- participate or intend to
participate in a joint venture;
- be party to a joint venture
agreement with the other participants or intended participants of the joint
- be registered; and
- use the same accounting basis as
all other participants.
One participant (the joint venture
operator) of the joint venture would be responsible for paying the GST and would
be entitled to the input tax credits that relate to supplies, acquisitions and
importations it makes for the purposes of the joint venture on behalf of the
other participants of the GST joint venture. Supplies made by the joint venture
operator to another participant of the GST joint venture would not be treated as
being subject to GST. The joint venture operator would make the GST return of
the GST joint venture on behalf of the participants of the joint
- Community Rents and Tenancy
Schemes - Do private individuals leasing residential premises to providers of
community housing need to have an Australian Business Number (ABN)? Will
organisations leasing premises from private individuals have to withhold 48.5%
of rental payments if these landlords do not have an ABN?
Residential landlords do not
require an ABN when they are making supplies that are predominantly
residential accommodation. In a press release dated 29 May 2000 the
out a commercial property falls within the ABN quotation requirements, but
some confusion has arisen where a rental agreement is predominantly for
residential purposes and there is some business use of those premises - for
example, a freelance journalist working from home."
"I want to make
it clear that where the basis of the arrangement is a residential rental
agreement, owners will not have to quote an ABN to their tenant even if there
is some minor business use of the property by the
There will also
be no requirement for residential rental property owners to quote an ABN to an
organisation that is providing residential accommodation for its own employees
-for example, through the Defence Force Housing
This treatment will extend to
situations where the landlord is leasing residential premises to organisations
that will use the premises to provide low cost housing. The organisation
providing the housing is providing low cost residential accommodation and as
such is using the premises predominantly for residential purposes.
- Will the definition of
turnover include donations received by a charitable institution?
Turnover is the sum of the values
of all the supplies that a charitable institution has made within a 12 month
period. It does not include input taxed supplies or supplies for no
consideration. If a payment of money or goods is truly a gift the charitable
institution is not providing a supply in return for the payment. The gift is
not included in annual turnover.
- What is the definition of an
The GST legislation applies the
definition of an associate contained in section 318 of the Income Tax Assessment
An associate of a taxpayer is
broadly defined to mean:
- A relative or partner of the
- A trustee of a trust estate
where the taxpayer or a relative is capable of benefiting under the trust,
- A company that is effectively
under the direction or control of the taxpayer or a relative or that is
capable of being controlled by the taxpayer and/or associates.
The definition of an associate does
not extend to a non-profit sub-entity as they are treated as entities for the
purposes of the GST law only.
- Where one entity purchases
items on behalf of a group of legally separate entities with whom they are
co-located what is the situation with regards to claiming input tax credits
and holding a valid tax invoice?
The entity that
purchases on behalf of the groups is acting as an agent for the other members of
the group. Each member of the group makes a creditable acquisition and is
entitled to claim input tax credits but only to the extent that the supply
relates to them.
In order to claim an input tax
credit you must hold a valid tax invoice. In this case this requirement is
satisfied if either the entity claiming the input tax credit or their agent
holds a valid tax invoice for a supply.
- GST grouping - how exactly
will it work?
The effect of forming a GST group
is that transactions between entities within the group are not treated as
taxable supplies, that is, no GST is payable and no input tax credit can be
One entity, known as the
'representative member' manages the GST affairs of the group and is responsible
for lodging the Business Activity Statement on behalf of all members.
The representative member is also
responsible for all the GST payable and is entitled to all input tax credits
that the members of the group are entitled to for supplies and acquisitions made
outside the GST group.
While the representative member is
responsible for paying GST, the members of a GST group are jointly and severally
liable to pay any amount payable under the GST law by the representative
Companies can form a GST group if
- Is a member of the same 90 per
cent owned group as all other members of the GST group or proposed GST
- Is registered for GST
- Has the same tax periods
- Accounts for GST on the same
basis (that is, cash or non-cash), and
- Does not belong to any other GST
A GST group can also
be formed by some or all of the non-profit bodies that are members of the same
non-profit association. The 90 per cent beneficial ownership requirement does
not apply to GST groups formed by non-profit