ATO ID 2001/344: GST and Grouping of partnership and trust
Date of decision: 10 April 2001
Business line: Indirect Tax

Issue
Do the entities, a partnership, Trust A and Trust B satisfy the membership requirements to form a goods and services tax (GST) group under section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Decision
No, the entities do not satisfy the membership requirements to form a GST group under section 48-10 of the GST Act.

Facts
The entities have jointly applied to the Commissioner, in the approved form, for approval to operate as a GST group. The partnership is registered for GST. The partners of the partnership are individual A and individual B. Trust A (family trust of individual A) and Trust B (family trust of individual B) are not registered for GST. The beneficiaries of Trust A are individual A, their spouse and children. The beneficiaries of Trust B are individual B, their spouse and children. Both Trust A and B are administered by corporate trustees that trade only as trustees for the entities and not in their own right.

Reasons for decision
Summary: Section 48-5 of the GST Act sets out the requirements that must be satisfied for the Commissioner to approve two or more entities as a GST group. In particular, paragraph 48-5(1)(b) of the GST Act requires that each of the entities applying to be part of the GST group must satisfy the membership requirements for that GST group. The general membership requirements of a GST group are set out in section 48-10 of the GST Act. Paragraph 48-10(1)(c) of the GST Act applies to all entities that wish to form a GST group and requires that they be registered for GST. As Trust A and Trust B are not registered for GST, they cannot be members of a GST group. Furthermore, in this case, there are other reasons why the entities cannot form a GST group. For a partnership or trust, subparagraph 48-10(1)(a)(ii) of the GST Act provides that to satisfy the membership requirements of a GST group, the specifications in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) must be met. | Detailed Reasoning - Partnerships and the regulatory requirements: Firstly, it must be determined whether the partnership, meets the requirements in the GST Regulations. Regulation 48-10.02 of the GST Regulations sets out the requirements that must be satisfied for a partnership to be a member of a GST group. Subregulation 48-10.02(4) of the GST Regulations is of particular relevance, in this case. It is satisfied if, for at least one trust that is a member of the GST group, the beneficiaries include partners in the partnership, or family members of the partners, in a way that ensures that at least two partners are represented: This means that individual B or a family member of individual B need to be a beneficiary of Trust A or, alternatively, individual A or a family member of individual A need to be a beneficiary of Trust B. In this case, neither Trust A nor Trust B has both partners represented (either personally or by a family member) as beneficiaries. Accordingly, the requirements set out in subregulation 48-10.02(4) of the GST Regulations are not met. Therefore, the partnership cannot form a GST group with either Trust A or Trust B as the requirements set out in subparagraph 48-10(1)(a)(ii) of the GST Act are not satisfied. | Detailed Reasoning - Trusts and the regulatory requirements: Next, it must be determined whether either trust can form a GST group with the partnership. This is because there is no regulatory ability for a trust to form a GST group solely with another trust. For the three entities to form a GST group, each trust must be able to form a GST group with the partnership. For Trust A to be part of a GST group, regulation 48-10.03 of the GST Regulations must be satisfied. In this case as there is no company in the proposed group, neither of the trustees has at least a 90% stake in a company group member (paragraph 48-10.03(2)(a) of the GST Regulations). Therefore, it must be determined whether the trustee of Trust A is distributing income or capital only to 'permitted beneficiaries' (paragraph 48-10.03(2)(b) of the GST Regulations). Subregulation 48-10.03(5) of the GST Regulations allows the partners in a partnership that is a member of a GST group and their family members to be 'permitted beneficiaries' if the beneficiaries of the trust include partners and their family members of the partner, in a way that ensures that at least two partners are represented: In this case, Trust A's only beneficiaries are individual A, their spouse and children. Neither individual B nor a family member of individual B is a beneficiary of Trust A. Therefore, both partners of the partnership are not represented in Trust A. Thus, anytime the trustee of Trust A distributes income or capital of the trust, it is distributing to beneficiaries that are not 'permitted beneficiaries'. Accordingly, regulation 48-10.03 of the GST Regulations is not satisfied. Therefore, Trust A cannot form a GST group with the partnership as the requirements set out in subparagraph 48-10(1)(a)(ii) of the GST Act are not satisfied. Similarly, Trust B also cannot form a GST group with the partnership. This is because the beneficiaries of Trust B are individual B, their spouse and children. Neither individual A nor a family member of individual A is a beneficiary of Trust B. Therefore, both partners of the partnership are not represented in Trust B. Thus, anytime the trustee of Trust B distributes income or capital of the trust, it is distributing to beneficiaries that are not 'permitted beneficiaries'. Therefore, Trust B cannot form a GST group with the partnership, as the requirements set out in subparagraph 48-10(1)(a)(ii) of the GST Act are not satisfied. Thus, the entities do not satisfy the membership requirements of a GST group under section 48-10 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 48-5 paragraph 48-5(1)(b) section 48-10 subparagraph 48-10(1)(a)(ii) paragraph 48-10(1)(c)
Subject references: Goods and services tax GST special rules GST groups