ATO ID 2004/445: GST and grouping of a company and a non-fixed trust from 1 April 2003
Date of decision: 23 December 2003
Business line: Indirect Tax

Issue
Do entity A and entity B satisfy the membership requirements of a GST group under section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), from 1 April 2003 when:

Decision
Yes, entity A and entity B both satisfy the membership requirements of a GST group under section 48-10 of the GST Act from 1 April 2003.

Facts
Entity A, a company, and entity B, a non-fixed trust, are both registered for goods and services tax (GST). Entity A is a company in which Individual X is the sole shareholder and director. Entity B is a non-fixed trust of which the beneficiaries are Individual X, Individual Y and Individual Z. Individual Y and Individual Z are family members of Individual X. Entity B makes distributions of income and capital only to Individual X, Individual Y and Individual Z. The trustee of entity B is an unrelated company. Entity B does not have any ownership interest in entity A. Individual X, Individual Y and Individual Z are not registered for GST. Entity A and entity B have the same tax periods, account for GST on the same basis, are not members of any other GST group and do not have any branches which are registered under Division 54 of the GST Act.

Reasons for decision
Summary: The membership requirements for entities to form a GST group are set out in section 48-10 of the GST Act. Some of the requirements apply to all entities. All entities must: Entity A and entity B are registered for GST, have the same tax periods, account for GST on the same basis, are not members of another GST group and do not have GST branches registered. Therefore, these requirements are satisfied by both entities. However, there are additional requirements for both companies and non-fixed trusts that have to be satisfied before a GST group can be approved. | Detailed Reasoning - Additional membership requirements for a company: The additional membership requirements for companies are set out in section 48-10 of the GST Act. Subsection 48-10(3) of the GST Act requires a company in a GST group to satisfy the relationship requirements set out in section 48-15 of the GST Act, where one of the members of the proposed GST group is a non-company entity. Therefore, entity A, the company, must meet the relationship requirements with entity B, the non-fixed trust, set out in subsection 48-15(1) of the GST Act. The relevant relationship requirements of subsection 48-15(1) of the GST Act are set out in paragraph 48-15(1)(e) of the GST Act which provides that a company that is a member of a GST group or a proposed GST group satisfies the relationship requirements if a trust is a member of the GST group or proposed GST group, and distributions of income or capital of the trust are not made except to an entity that is: Entity B, the non-fixed trust, makes distributions of income and capital only to Individual X, Individual Y and Individual Z. Individual X is the only member of entity A, the company, and Individual Y and Individual Z are family members of Individual X. Therefore, as the income and capital distributions of entity B are only made to the member of, or a family member of the member of entity A, entity A will satisfy the relationship requirement in paragraph 48-15(1)(e) of the GST Act if it is a company to which subsection 48-15(1A) of the GST Act applies. Paragraph 48-15(1A)(a) of the GST Act provides that subsection 48-15(1A) of the GST Act applies to a company if the company has only one member. Entity A is a company in which Individual X is the sole shareholder and director. As entity A only has one member, it is a company to which subsection 48-15(1A) of the GST Act applies. Entity A satisfies paragraph 48-15(1)(e) of the GST Act. Consequently, entity A satisfies the relationship requirements with entity B under subsection 48-15(1) of the GST Act. Entity A satisfies the additional membership requirements of a GST group under section 48-10 of the GST Act. | Detailed Reasoning - Additional membership requirements for a non-fixed trust: The additional membership requirements for trusts are set out in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). Regulation 48-10.03 of the GST Regulations sets out the additional requirements that must be satisfied for a trust to be a member of a GST group. This regulation was amended with effect from 1 April 2003. Subregulation 48-10.03(1) of the GST Regulations provides that if the GST group does not consist only of fixed trusts, one of the four requirements listed in subregulation 48-10.03(2) of the GST Regulations must be satisfied by the trustee of the trust (candidate trustee) for the trust to be a member of a GST group. Paragraph 48-10.03(2)(b) of the GST Regulations provides that the requirements are satisfied if the candidate trustee distributes any income or capital of the trust only to a beneficiary that is a 'permitted beneficiary'. Entity B makes distributions of income and capital only to Individual X, Individual Y and Individual Z. Accordingly, if Individual X, Individual Y and Individual Z are permitted beneficiaries, then entity B will satisfy the membership requirements. The meaning of 'permitted beneficiary' is set out in subregulations 48-10.03(3), 48-10.03(4) and 48-10.03(5) of the GST Regulations. Subregulation 48-10.03(4) of the GST Regulations provides that for a company that is a member of the GST group, each representative of a shareholder of the company is also a permitted beneficiary if, for a company with 1 shareholder - the beneficiaries of the trust include a representative of the shareholder. Regulation 48-10.01 of the GST Regulations defines 'representative' in relation to an individual shareholder in a company, as the shareholder or a family member of the shareholder. Individual X is the sole shareholder of entity A. Both Individual Y and Individual Z are family members of Individual X. Therefore, Individual X, Individual Y and Individual Z all satisfy the definition of a 'representative' of entity A, for the purposes of regulation 48-10.01 of the GST Regulations. Accordingly, as Individual X, Individual Y and Individual Z are all beneficiaries of entity B, and are also representatives of entity A, they are all a 'permitted beneficiary' for the purposes of subregulation 48-10.03(4) of the GST Regulations. As entity B is distributing income or capital only to beneficiaries that are permitted beneficiaries, subregulation 48-10.03(2) of the GST Regulations is satisfied. Therefore, entity B meets the additional membership requirements to be a member of a GST group under regulation 48-10.03 of the GST Regulations. Entity A and the entity B both satisfy the membership requirements to form a GST group under section 48-10 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 48-10 subsection 48-10(3) section 48-15 subsection 48-15(1) paragraph 48-15(1)(e) subsection 48-15(1A) paragraph 48-15(1A)(a) Division 54
Subject references: Goods and services tax GST special rules GST groups GST regulations GST tax periods