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EXPOSURE DRAFT
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
(i) Abbreviation
(ii) Definition
Commissioner
Commissioner of Taxation
GST Act
A New Tax System (Goods and Services Tax)
Act 1999
GST Regulations
A New Tax System (Goods and Services Tax)
Regulations 1999
ITAA 1936
Income Tax Assessment Act 1936
ITAA 1997
Income Tax Assessment Act 1997
ITSA
Indirect Tax Sharing Agreement
TAA 1953
Taxation Administration Act 1953
TIES
Tax Issues Entry System
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Chapter #
GST groups
Outline of chapter
1.1
Schedule # to this exposure draft amends the A New Tax System
(Goods and Services Tax) Act 1999 (GST Act) and Taxation
Administration Act 1953 (TAA 1953) to:
• replace the detailed GST grouping membership rules with
principle-based rules;
• allow certain holding entities to register and group for GST
purposes despite not carrying on an enterprise;
• clarify the policy intent that specific contribution amounts
calculated under an indirect tax sharing agreement (ITSA) by
participants of a GST joint venture and members of a GST
group must, if requested, be provided to the Commissioner of
Taxation (Commissioner); and
• make minor technical amendments.
1.2
These provisions apply to tax periods starting on or after
1 July 2011.
Context of amendments
Membership rules and certain holding entities
1.3
These measures are implemented in response to
recommendation 32 of the Board of Taxation’s Review of the Legal
Framework for the Administration of the Goods and Services Tax.
1.4
The GST Act allows entities that choose to form a GST group to
apply special rules for reporting their GST liabilities and entitlements, and
to ignore most intra-group transactions. In general terms, the special
rules effectively result in treating a GST group as if it was a single entity
for GST purposes, with one member of the group (the representative
member) dealing with all GST liabilities and entitlements of all members
of the GST group (Division 48).
1.5
To group for GST purposes, entities must satisfy membership
requirements, agree in writing to form a group, nominate a representative
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member and notify the Commissioner about the formation of the group
(subsections 48-5(1) to (3)). A retrospective formation of the group
requires the Commissioner’s approval (subsection 48-5(4)).
1.6
The membership requirements consist of general membership
requirements and specific membership requirements that relate to the
relationships with other members or proposed members of the GST group.
1.7
The general membership requirements are that entities have to
be registered for GST purposes, have the same GST tax periods as all
other group members, account for GST on the same basis as all other
group members, not be a member of any other GST group and not have
any branch registered for GST purposes (paragraphs 48-10(c) to (g)).
1.8
The specific membership requirements vary with the type of
entity and in the case of companies these requirements are specified in the
GST Act (paragraph 48-10(1)(b) and section 48-15) and in the case of
partnerships, trusts, individuals and non-profit bodies these requirements
are specified in the A New Tax System (Goods and Services Tax)
Regulations 1999 (subdivision 48-A) (GST Regulations). Broadly, the
basis for allowing entities to group is: a degree of common ownership and
control between entities; a degree of commonality of beneficiaries,
shareholders and partners of entities seeking to group (or their family
members); and if the entities are non-profit bodies that they are members
of the same non-profit association.
1.9
The specific membership requirements are overly complex,
difficult to apply, and in some instances do not allow membership of all
the entities with commonality of ownership and control to form a GST
group. Further, the requirement that an entity has to be registered for GST
purposes does not reflect the reality that certain holding entities such as a
holding company or a holding trust are a part of one economic entity.
Holding entities that are not carrying on an enterprise are currently not
able to register for GST and therefore cannot form a group with their
subsidiaries.
Indirect tax sharing agreements
1.10
The TAA 1953 allows participants of a GST joint venture and
members of a GST group to enter into an ITSA with a joint venture
operator and a representative member respectively in relation to their
indirect tax law liabilities (subsections 444-80(1A) to 444-80(1E) and
subsections 444-90(1A) to 444-90(1E) in Schedule 1 to the TAA 1953).
1.11
The effect of the ITSA provisions is to limit the liability of a
participant of a GST joint venture (or a member of a GST group) to its
contribution amounts in the event that a joint venture operator (or
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representative member) defaults on the payment of a GST joint venture’s
(or GST group’s) indirect tax law liability for a tax period.
1.12
One of the requirements of a valid ITSA is that a contribution
amount could be determined under the ITSA for each ITSA contributing
participant (or contributing member) in relation to the GST joint venture’s
(or GST group’s) liability. Further, the contributing amounts of each
contributing participant (or contributing member) under the ITSA must
represent a reasonable allocation of the total indirect tax law amounts for
which the participants (or members) would be jointly and severally liable
in a tax period (paragraphs 444-80(1A )(b) and (c), and
paragraphs 444-90(1A)(b) and (c)).
1.13
An ITSA does not apply to an indirect tax law liability for a tax
period if a joint venture operator (or a representative member) fails to
comply with a written notice given by the Commissioner requiring the
joint venture operator (or the representative member) to give the
Commissioner a copy of an ITSA for that tax period in the approved form
within 14 days (subsections 444-80(1D) and 444-90 (1D)).
1.14
Currently there is no requirement in the legislation itself that
contribution amounts be in fact specified under the ITSA in respect of
each ITSA contributing participant (or member); the requirement is
merely that such amount could be determined under the agreement for
each participant or member. That is, there is no a specific legislative basis
for the Commissioner to request a statement of specific contribution
amounts. This is inconsistent with the initial policy intention of the ITSA
measure which was that specific contribution amounts calculated by
members of a GST group or participants of a GST joint venture under an
ITSA must, if requested, be provided to the Commissioner.
1.15
The ITSA measure was implemented in response to
recommendation 32 of the Board of Taxation’s Review of the Legal
Framework for the Administration of the Goods and Services Tax to
reduce compliance costs by increasing certainty. The ITSA measure was
implemented by the Tax Laws Amendment (2010 GST Administration
Measures No.2) Act 2010 and became effective from 1 July 2010.
Technical amendment
1.16
There is an inconsistency between the definitions of ‘cease to be
a member of a GST group’ and ‘cease to be a participant of a GST joint
venture’ in section 195-1 and the grouping provisions in Division 48 and
Division 51 respectively of the GST Act.
1.17
Schedule 1 of the Tax Laws Amendment (2010 GST
Administration Measures No.2) Act 2010 changed the GST grouping
(Division 48) and GST joint venture rules (Division 51) in the GST Act
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by replacing the system of requiring the Commissioner’s approval to
form, change and dissolve a GST group and GST joint venture with a
system of self-assessment. However, the definitions of ‘ceased to be a
member of a GST group’ and ‘ceased to be a participant of a GST joint
venture’ in section 195-1 of the GST Act were not amended to reflect the
new system of self-assessment and they still refer to the concept of
approval by the Commissioner.
1.18
This issue was raised through the Tax Issues Entry System
(TIES) (TIES 0013-2010). The TIES website (www.ties.gov.au), which
the Australian Taxation Office (ATO) and Treasury jointly operate,
provides a way for tax professionals and the general public to raise issues
relating to the care and maintenance of the tax system.
Summary of new law
GST group membership rules
1.19
Schedule # amends Division 48 of the GST Act to replace the
detailed GST grouping membership rules contained both in the GST Act
and the GST Regulations with principle-based rules. Under the
amendments, entities will be able to form a GST group if they are closely
connected. Entities are closely connected if they:
• are members of the same income tax law consolidated group;
• are in the same closely held group;
• are in the same extended family group;
• have shared ownership;
• are in the same charitable group; or
• are non-profit bodies and members of the same non-profit
association.
1.20
To form a GST group entities will also need to meet the general
membership requirements contained in Division 48.
Holding entities
1.21
Schedule # amends Division 48 of the GST Act to allow a
company or a trust that is not carrying on an enterprise to register for GST
for the purposes of forming or joining a GST group if it is the holding
company or the holding trust of a closely held group or an income tax law
consolidated group. Such a holding entity will also need to meet the
general membership requirements.
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Indirect tax sharing agreements
1.22
Schedule # makes technical amendments to sections 444-80 and
444-90 in Schedule 1 to the TAA 1953 to clarify the policy intent that
specific contribution amounts calculated under an indirect tax sharing
agreement by participants of a GST joint venture and members of a GST
group must be provided to the Commissioner on request.
Technical amendments
1.23
Schedule # removes the definitions of ‘cease to be a member of
a GST group’ and ‘cease to be a participant of a GST joint venture’ from
section 195-1 of the GST Act.
Section 1.02
current law
Comparison of key features of new law and
(i) New law
GST group membership rules
Entities can form a GST group if in
addition to the general membership
requirements they are closely
connected. Entities are closely
connected if they:
•
are members of an income tax
law consolidated group;
•
are in the same closely held
group;
•
are in the same extended
family group;
•
have shared ownership;
•
are in the same charitable
group; or
•
are non-profit bodies and
members of the same
non-profit association.
Holding entities
A holding company or a holding trust
can register for GST and group for
GST purposes with its subsidiary
entities despite not carrying on an
enterprise.
(ii) Current law
GST group membership rules
Entities can form a GST group if in
addition to the general membership
requirements they meet the detailed
requirements as specified in
paragraph 48-10(1)(b) and
section 48-15 of the GST Act, and the
GST Regulations.
Holding entities
A holding entity that is not carrying
on an enterprise cannot register for
GST and therefore cannot form a
GST group with its subsidiary
entities.
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New law
Current law
Indirect tax sharing agreements
A contribution amount could be
determined under the ITSA for each
contributing participant (or
contributing member) of a GST joint
venture (or a GST group).
An ITSA does not apply if the joint
venture operator of the GST joint
venture (or the representative member
of the GST group) fails to comply
with a written notice given by the
Commissioner to provide a copy of
the agreement and a statement, in the
approved form, of the contribution
amounts for each contributing
participant (or contributing member)
within 14 days.
Indirect tax sharing agreements
A contribution amount could be
determined under the ITSA for each
contributing participant (or
contributing member) of a GST joint
venture (or GST group).
An ITSA does not apply if the joint
venture operator of the GST joint
venture (or the representative member
of the GST group) fails to comply
with a written notice given by the
Commissioner to provide a copy of
the ITSA in the approved form within
14 days.
Technical amendments
Definitions of ‘cease to be a member
of a GST group’ and ‘cease to be a
participant of a GST joint venture’ in
section 195-1 of the GST Act are
removed.
This issue was raised through the
TIES as issue 0013-2010.
Technical amendments
Section 195-1 of the GST Act defines
the terms ‘cease to be a member of a
GST group’ and ‘cease to be a
participant of a GST joint venture’.
These terms were relevant in the
context of the Commissioner’s
approvals of revocation of a member
of a GST group or a participant of a
GST joint venture.
Detailed explanation of new law
GST group membership rules
1.24
These amendments replace the detailed GST grouping
membership rules with principle-based rules, and are aimed at simplifying
and broadening the GST existing grouping membership rules.
1.25
Entities can form a GST group if they meet membership
requirements. In particular, entities in a GST group or proposed GST
group need to be closely connected. Entities are closely connected if they:
• are members of the same income tax law consolidated group;
• are in the same closely held group;
• are in the same extended family group;
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• have shared ownership;
• are in the same charitable group; or
• are non-profit bodies and members of the same non-profit
association. [Schedule #, item 2 and item 6, section 48-15]
1.26
In addition, entities need to meet other membership
requirements (general membership requirements) that are currently
specified in subsections 48-10(c) to 48-10(g). These requirements are that
all entities in a GST group or proposed GST group are registered for GST,
have the same tax periods, account on the same basis, are not a member of
another GST group and do not have a GST registered branch.
Income tax consolidated group
1.27
Entities are closely connected if each of the entities included in a
GST group or proposed GST group are members of the same consolidated
group under section 703-5 of the Income Tax Assessment Act 1997
(ITAA 1997). If such entities also meet the general membership
requirements, they are eligible to form a GST group. Not all entities of a
consolidated group need to be in a GST group and any entity of the
consolidated group that is an Australian resident can be the representative
member of the GST group. [Schedule #, item 6, section 48-15(a)]
1.28
Multiple entry consolidated groups, formed under
section 719-50 of the ITAA 1997, are not closely connected entities for
the purposes of the GST group membership rules.
Example 1.1: Income tax consolidated group forming a GST group
Company A (head company) wholly owns entities B and C (subsidiary
entities). They are eligible to form an income tax consolidated group.
All entities are GST registered and apply both monthly tax periods and
accrual accounting. None of the entities are members of a GST group
or have a GST registered branch. Company A is an Australian resident
entity.
Company A makes a choice in writing to form a consolidated group,
under section 703-50 of the ITAA 1997, with a date of effect from
20 May 2012.
At the same time, Company A also notifies the Commissioner under
section 48-5 of the GST Act that it elects to form a GST group with
itself as a representative member and entities B and C as members of
the group, effective from the May 2012 tax period. Entities A, B and
C may form the GST group as they meet the membership requirements
under section 48-10 of the GST Act, including a requirement that they
are closely related due to the fact they form an income tax law
consolidated group with the same date of application.
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The same closely held group
1.29
Entities are closely connected if each of the entities included in a
GST group or proposed GST group are in the same closely held group. If
such entities also meet the general membership requirements then they are
eligible to form a GST group. [Schedule #, item 6, section 48-15(b)]
1.30
To determine whether entities are in the same closely held
group, entities have to decide which of them is the top entity of the group
and then establish their connection to the top entity. Entities with the
following connection to the top entity are in the same closely held group:
• a company or a fixed trust if the top entity holds at least a
90 per cent stake in them;
• a partnership if:
– the top entity holds at least a 90 per cent stake in the
partnership; or
– each partner of the partnership is either the top entity, or
another entity that is included in the GST group or
proposed GST group; and
• a non-fixed trust if each beneficiary of the trust is:
– the top entity, or another entity that is included in the GST
group or proposed GST group, or
– a charitable institution, a trustee of a charitable fund or a
gift-deductible entity. [Schedule #, item 6, subsections 48-20(1)
and 48-20(2)]
1.31
The top entity can be any type of entity, including an individual.
However, an individual can only be a member of a GST group as part of
the same closely held group if the individual is the top entity. The top
entity does not have to be in the GST group. [Schedule #, item 6,
subsection 48-20(3)]
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Diagram 1.1: Grouping of entities in same closely held group
The top entity
Entity A
(company, trust, partnership
or an individual)
GST group
100% stake
Entity B
40% stake
Entity D
(company, fixed trust
or partnership)
80% stake
Beneficiary
60% stake
Beneficiary
Partner
Entity C
Non-fixed trust Y
Partnership X
(company, fixed trust
or partnership)
Partner
In Diagram 1.1, the top entity (Entity A) holds 100 per cent stake
(directly or indirectly) in Entity B and Entity C, and 80 per cent stake
(indirectly) in Entity D. The top entity can be a company, a fixed trust,
a partnership or an individual. Entities B and D can be a company, a
partnership or a fixed trust.
Entity B and Entity C are in the same closely held group as the top
entity has a 100 per cent stake in them (that is, more than the required
90 per cent stake). Entities B and C are closely connected entities and,
provided that they also meet the general membership requirements,
they can form a GST group. The top entity can also be part of the GST
group even if it is an individual. Entity D cannot be a member of such
a GST group as the top entity has only an 80 per cent stake in it.
Partnership X can join the GST group as its partners (Entity C and
Entity B) are all members of the GST group.
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Non-Fixed Trust Y cannot join the GST group as its beneficiaries are
not all in the GST group.
The same extended family group
1.32
Entities are also closely connected if each of the entities
included in a GST group or proposed GST group is in the same extended
family group. If such entities also meet the general membership
requirements then they are eligible to form a GST group. [Schedule #, item 6,
section 48-15(c)]
1.33
To determine whether entities are in the same extended family
group, entities have to indentify an individual that is the test individual,
and then determine the connections of the entities to the test individual
and his or her extended family. Entities with the following connection to
the test individual and his or her extended family are in the same extended
family group:
• a company or a fixed trust if the test individual or his or her
extended family members have at least a 90 per cent stake in
them;
• a partnership if:
– the test individual or his or her extended family members
have at least a 90 per cent stake in the partnership; or
– each partner of the partnership is either the test individual,
or members of the extended family of the test individual,
or another entity that is included in the GST group or
proposed GST group and
• a non-fixed trust if each beneficiary of the trust is:
– the top individual or his or her extended family members;
or another entity that is included in the GST group or
proposed GST group, or
– a charitable institution, a trustee of a charitable fund or a
gift-deductible entity. [Schedule #, items 6, subsection 48-25(1)
and 48-25(3)]
1.34
The stake held in a company, trust or partnership by the test
individual’s extended family member is treated as if it was held by the test
individual.
1.35
The extended family consists of individuals who fall within the
definition of ‘family’ in section 272-95 of Schedule 2F to the ITAA 1936
as well as aunts or uncles of the test individual and the test individual’s
spouse. The extended family also includes certain former family
members that are covered by the definition of ‘family group’ in
section 272-90(2A) of Schedule 2F to the ITAA 1936, for example in the
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situation of marriage breakdown. For these purposes, the test individual is
treated as if the test individual is primary individual under
subsection 272-90(2A) of Schedule 2F to the ITAA 1936. [Schedule #,
item 6, subsection 48-25(2)]
1.36
The test individual and his or her extended family members may
also group, provided that they meet the general membership requirements.
However, it is not a requirement that the test individual be part of the GST
group. [Schedule #, item 6, subsection 48-25(4)]
Diagram 1.2 Grouping of entities of the same extended family group
Test individual - John
and
members of his extended family
GST group
90% stake
90% stake
Fixed Trust B
Company A
Beneficiary
Beneficiaries:
- the test individual's
aunt
Non-fixed trust Y
90% stake
Partnership C
Partner
Partnership Z
Partner
- the test individual's
former spouse
In Diagram 1.2, John (the test individual) and members of his extended
family have substantial holdings in a number of entities. In particular:
•
John holds a 90 per cent stake in Company A, a 60 per cent stake in
Fixed Trust B;
•
John’s brother, Phil, holds a 30 per cent stake in both Fixed Trust B
and Partnerships C;
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•
John’s former spouse, Kate, holds a 60 per cent stake in
Partnership C. Kate is also a partner in a Partnership Z; and
•
John’s aunt, Megan, is a beneficiary of the Non-Fixed Trust Y.
Company A, Fixed Trust B and Partnership C, Non-Fixed Trust Y and
Partnership Z are in the same extended family group, as:
•
All individuals listed above are members of John’s (the test
individual) extended family;
•
John and his extended family members (with family members’
holdings counting as the holding of John) have 90 per stake in
Company A, Fixed Trust B and Partnership C;
•
all beneficiaries of the Non-Fixed Trust Y are members of the
John’s extended family, or members of the proposed GST group;
and
•
all partners of the Partnership Z are members of the John’s
extended family, or members of the proposed GST group.
Accordingly, if Company A, Fixed Trust B, Partnership C, Non-Fixed
Trust Y and Partnership Z also satisfy the general membership
requirements, they can form a GST group.
John and his extended family members can also be part of the GST
group if they meet general membership requirements, including a
requirement that they are registered for GST purposes.
Shared ownership
1.37
Entities are also closely connected if each of the entities
included in a GST group or proposed GST group have shared ownership.
If such entities also meet the general membership requirements then they
are eligible to form a GST group. [Schedule #, item 6, section 48-15(d)]
1.38
To determine whether entities have shared ownership, the
companies, partnerships or trusts (group entities) wishing to group need to
identify two or more key individuals. Group entities with the following
connection to each key individual and their respective extended family
members have common ownership. If a group entity is:
• a company or a fixed trust:
– a stake is held in the company or fixed trust by each key
individual or members of the extended family of each of
the key individual; and
– all of the stakes held in them by each of the key
individuals or members of the extended family of the key
individuals, would, if held by a single individual,
constitute at least a 90 per cent stake in the company or
fixed trust;
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• a partnership:
– a stake is held in the partnership by each key individual or
members of the extended family of each of the key
individuals; and either:
–
each of the partners is a key individual or a member
of the extended family of a key individual, or
–
all of the stakes held in them by each of the key
individuals or members of the extended family of
the key individuals, would, if held by a single
individual, constitute at least a 90 per cent stake in
the partnership.
• a non-fixed trust:
– each key individual or members of the extended family of
each of the key individuals is a beneficiary of the trust;
and
– each of the beneficiaries of the trust is a key individual, a
member of the extended family of the key individual, a
charitable institution, a trustee of a charitable fund, or a
gift-deductible entity. [Schedule #, item 6, subsection 48-30(1)]
1.39
The stake held in a company, fixed trust or partnership by the
key individuals’ respective family members is treated as if it was held by
the respective key individuals.
1.40
Also an entity (an additional entity) can have shared ownership
with entities (other entities) that meet the above shared common
ownership connection, if there is a shared ownership between the
additional entity and at least of one of the other entities. [Schedule #, item 6,
subsection 48-30(2)]
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Diagram 1.3 Grouping of entities with shared ownership
GST group
Non-Fixed Trust Y
beneficiaries
Key individual - Andrew
and
members of his extended family
Entity A
90% stake
(company, fixed trust,
or partnership)
Key individual - Wendy
and
members of her extended family
Key individual - Steven
and
members of his extended family
Partners
Partnership Z
In Diagram 1.3, group entities are Non-Fixed Trust Y, Entity A (which
can be a company, a fixed trust or a partnership) and Partnership Z.
The key individuals Andrew, Wendy and Steven and members of their
respective extended families have the following relations to the group
entities:
•
Andrew and his nephew hold a 30 per cent stake in Entity A;
•
Wendy and her spouse hold a 30 per cent stake in Entity A;
•
Steven and his sister hold a 30 per cent stake in Entity A;
•
Andrew, Wendy and Steven’s sister are the only beneficiaries of
the Non-Fixed Trust Y; and
•
Andrew, Wendy, and Steven are the only partners of the
Partnership Z.
Non-Fixed Trust Y, Entity A (which can be a company, a fixed trust or
a partnership) and Partnership Z are commonly owned as:
•
the interests held by all three families, if they were held by a single
entity, constitute a 90 per cent stake in Entity A;
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•
all beneficiaries of the Non-Fixed Trust Y are from the three
respective families (the test individuals or members of their
extended families); and
•
all partners of the Partnership Z are also from the three respective
families (the test individuals, or members of their extended
families).
Accordingly, if the Non-Fixed Trust Y, Entity A and Partnership Z
also satisfy the general membership requirements, then they can form a
GST group. The test individuals (Andrew, Wendy and Steve) and their
extended family members cannot be a part of the GST group, as
individuals cannot group under the shared ownership model.
1.41
Companies and fixed trusts that are stapled entities can also have
shared ownership. If such entities also meet the general membership
requirements then they are eligible to group for GST purposes.
1.42
To determine whether stapled entities have shared ownership,
companies or fixed trusts that are stapled entities (group entities) wanting
to group need to identify two or more key entities and then establish their
respective connection to each key entity. A company or a fixed trust that
is a stapled entity needs to have the following connection to the key
entities:
• a stake is held in such a company or fixed trust by each key
entity or, if the key entity is an individual, by a member of
his or her extended family; and
• all of the stakes in the group entity held, by way of stapled
securities, by key entities (or if the key entity is an individual
by members of his or her extended family) would, if held by
a single individual, constitute at least a 90 per cent stake in
the company or the fixed trust. [Schedule #, item 6,
subsection 48-30(3) and (4)]
1.43
A stapled entity has the meaning given by section 124-1045 of
the ITAA 1997. [Schedule #, item 23]
Same charitable group
1.44
Entities are also closely connected if they are in the same
charitable group. If such entities also meet the general membership
requirements then they are eligible to form a GST group. [Schedule #,
item 6, section 48-15(e)]
1.45
Entities are in the same charitable group if one entity is a trust
and each of the other entities is a charitable institution, a trustee of a
charitable fund or a gift-deductible entity. [Schedule #, item 6, section 48-33]
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Same non-profit association
1.46
Entities are also closely connected if they are in the same
non-profit association. If such entities also meet the general membership
requirements then they are eligible to form a GST group.
1.47
Entities are in the same non-profit association if each of the
other entities are both non-profit bodies that are members of the same
non-profit association. [Schedule #, item 6, section 48-15(f)]
90 per cent stake
1.48
An entity has at least a 90 per cent stake in a company if the
entity (directly or indirectly)
• controls at least 90 per cent of the voting power in the
company;
• has the right to receive at least 90 per cent of any dividends
that a company may pay; and
• has the right to receive at least 90 per cent of any distribution
of capital of the company. [Schedule #, item 6, subsection 48-35(1)]
1.49
An entity has at least a 90 per cent stake in a partnership if the
entity has the right to receive (directly or indirectly) at least 90 per cent of
any distributions of the capital or income of the partnership. [Schedule #,
item 6, subsection 48-35(2)]
1.50
An entity has at least a 90 per cent stake in a fixed trust if the
entity has the right to receive (directly or indirectly) at least 90 per cent of
any distributions of the capital or income of the trust. Any distributions of
the capital or income of the trust to either a charitable institution, a trustee
of a charitable fund, or a gift-deductible entity are excluded from the
calculation of an entity’s stake in a fixed trust. [Schedule #, item 6,
subsections 48-35(3) and 48-35(4)]
Stake
1.51
An entity has a stake in:
• a company if it (directly or indirectly) has a right to exercise
voting powers in the company, receive dividends that the
company may pay and receive distributions of capital of the
company; and
• a partnership or fixed trust if it has a right to receive (directly
or indirectly) distributions of income or capital from the
partnership or trust.
1.52
Debt interests are excluded from the calculation of a stake in a
company, partnership or fixed trust. [Schedule #, item 22, section 195-1]
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1.53
Debt interest has the meaning given by the income tax law
(Subdivision 974-B of the ITAA 1997). [Schedule #, item 11]
Distribution
1.54
The distribution of capital or income of a trust or a partnership
has the meaning given by the income tax law (section 272-45 and
section 272-55 of Schedule 2F respectively of the ITAA 1936).
[Schedule #, item 12]
Holding entities
1.55
These amendments will allow a holding company or a holding
trust to register for GST and group for GST purposes with its subsidiary
entities despite not carrying on an enterprise. The aim of these
amendments is to bring the GST membership rules in line with the reality
that a holding entity is a part of one economic entity.
1.56
A company or trust may apply to be registered for GST for the
purposes of becoming a member of a GST group or proposed GST group
even if it is not carrying, or intending to carry, on an enterprise, if:
• it either, has at least a 90 per cent stake in each other entity
included in the GST group or proposed GST group, or it is
the head company of an income tax consolidated group and
each entity included in the GST group or proposed GST
group is a member of the consolidated group; and
• it nominates, upon the registration, the same accounting basis
and lodgement cycle as the GST group or proposed GST
group; and
• each of other entity in s GST group or proposed GST group
is a company, partnership or fixed trust. [Schedule #, item 29,
subsections 48-65(1)]
1.57
The Commissioner has to register and cannot cancel the
registration of an entity that meets the above requirements. When
registered, such an entity becomes a registered holding entity for the GST
group or proposed GST group. These rules apply despite general
provisions in the GST Act about who may be registered, when the
Commissioner must register an entity and when the Commissioner must
cancel an entity’s registration. [Schedule #, item 29, subsections 48-65(2) to (5)]
1.58
It follows that the Commissioner can cancel the registered
holding entity’s registration if it ceases to meet the membership
requirements of the GST after it joins a GST group.
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1.59
A supply made by a registered holding entity will be a taxable
supply if the requirements of section 9-5 of the GST Act, other than the
requirement that the supply be made in the course or furtherance of an
enterprise, are met. Any entitlement to an input tax credit in relation to an
acquisition or importation made by a registered holding entity will be
determined as if the registered holding entity were carrying on an
enterprise. Any input tax credit entitlement will be claimed in accordance
with section 48-45 of the GST Act. [Schedule #, item 29, sections 48-66 and
48-67]
1.60
The effect of the above provisions is that:
• supplies and acquisitions made by a registered holding entity
within a GST group are taken out of the GST system;
• taxable supplies and acquisitions by the registered holding
entity to or from entities outside the GST group are subject to
normal GST rules as if the registered holding entity were
carrying on an enterprise;
• a representative member of the GST group is responsible for
paying all the GST and is entitled to all input tax credits that
the registered holding entity has in respect of supplies and
acquisitions made outside the GST group; and
• a registered holding entity is treated in the same way as any
other member of a GST group, including in respect of any
adjustments that may arise upon cessation of registration and
the imposition of joint and several liability against the
registered holding entity (which may be limited if the holding
entity is a participant in an indirect tax sharing agreement
with the representative member).
Indirect tax sharing agreements
1.61
The amendments provide a specific legislative basis for the
Commissioner to request a statement of specific contribution amounts
calculated by members of a GST group or participants of a GST joint
venture under an ITSA.
1.62
These amendments clarify the policy intent of the ITSA measure
that was implemented by the Tax Laws Amendment (2010 GST
Administration Measures No.2) Act 2010 and became effective from
1 July 2010.
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1.63
An ITSA will not apply if the joint venture operator of the GST
joint venture fails to comply with a written notice given by the
Commissioner to provide a copy of the ITSA and a statement, in the
approved form, of the contribution amounts for a tax period in respect of
each contributing participant within 14 days. [Schedule #, item 32]
1.64
Similarly, an ITSA will not apply if the representative member
of the GST group fails to comply with a written notice given by the
Commissioner to provide a copy of the ITSA and a statement, in the
approved form, of the contribution amounts for a tax period in respect of
each contributing participant within 14 days. [Schedule #, item 33]
Technical amendments
1.65
These amendments remove the definitions of ‘cease to be a
member of a GST group’ and ‘cease to be a participant of a GST joint
venture’ in section 195-1 of the GST Act. [Schedule #, item 41 and item 42 ]
1.66
These terms referred to the concept of approvals by the
Commissioner of any revocation of a GST group and GST joint venture.
With the introduction of the self-assessment system for entities to assess
their eligibility to form, change and revoke a GST group or GST joint
venture on 1 July 2010 by the Tax Laws Amendment (2010 GST
Administration Measures No.2) Act 2010, defining these terms is no
longer needed.
1.67
This issue was raised through the TIES as issue 0013-2010.
Application and transitional provisions
1.68
The amendments made by Schedule # apply to tax periods
starting on or after 1 July 2011. [Schedule #, item 24, subitem (1), and items 31,
34 and 43]
1.69
Entities that immediately before 1 July 2011 satisfied the GST
grouping membership specified in paragraph 48-10(1)(b) or section 48-15
of the GST Act, or in the GST Regulations, and were a GST group will be
taken to satisfy the membership requirements of being closely connected
until 1 July 2012 or until such time as they change the group’s
membership or dissolve a GST group, whichever is the earlier. [Schedule #,
item 24, subitems (2) to (4)]
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Consequential amendments
1.70
A number of consequential amendments are made to the
GST Act resulting from replacing the detailed GST grouping membership
rules with principled based rules, allowing the registration of holding
entities and technical amendments.
GST group membership rules
1.71
Section 48-1 describing the content of Division 48 is amended to
indicate that entities need to be closely connected to be able to group.
[Schedule #, item 1]
1.72
Subsections 48-10(2) and 48-10(3) qualifying the eligibility of
companies of the same 90 per cent owned group to form a GST group
have been removed. [Schedule #, item 3 and item 4]
1.73
Division 190 defining the meaning of a 90 per cent owned group
of entities has been removed. [Schedule #, item 7]
1.74
Rules specifying when entities are closely connected are
provided as a new subdivision entitled ‘closely connected entities’.
[Schedule #, item 5]
1.75
A number of definitions in section 195-1 are removed, amended
or introduced to reflect changes in the GST grouping membership
requirements. [Schedule #, items 8 to 21]
Holding entities
1.76
Tables in sections 23-99, 25-49 and 25-99 listing special rules
for GST registration and its cancelation have been amended by adding
special rules relating to GST groups. [Schedule #, items 25 to 28]
1.77
A definition of registered holding entity was inserted into
section 195-1. [Schedule #, item 30]
Technical amendments
1.78
A number of sections in Division 48 have been amended by
deleting the asterix in front of the words ‘cease to be a member of a GST
group’. [Schedule #, items 35 to 37]
1.79
A number of sections in Division 58 have been amended by
deleting the asterix in front of the words ‘cease to be a participant of a
GST joint venture’. [Schedule X, items 38 to 40]
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