ATO ID 2003/1015: GST and grouping of a fixed trust and a non-fixed trust from 1 April 2003
Date of decision: 24 June 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 where:

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

Facts
Entity A and entity B are Australian resident trusts that are registered for goods and services tax (GST). Both entity A and entity B have corporate trustees. Entity A is a fixed trust with unit holders Individual X and Individual Y. For the purposes of a GST group, Individual Y is a family member of Individual X. Entity B is a non-fixed trust of which the beneficiaries are Individual U, Individual V and Individual W who, for the purposes of a GST group, are family members of Individual X. Entity A and entity B make distributions of income and capital only to these family members and not to the trustee of either trust. None of the beneficiaries are a charitable institution, a trustee of a charitable fund or a gift-deductible entity. Entity A and entity B apply 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 Act.

Reasons for decision
Summary: The membership requirements of entities within a GST group are outlined in section 48-10 of the GST Act. In relation to trusts, each entity must: Entity A and entity B are registered for GST, have the same tax periods, account on the same basis, are not members of another GST group and do not have GST branches registered. Therefore, each trust will satisfy the membership requirements if they satisfy the requirements specified in the GST Regulations. Regulation 48-10.03 of the GST Regulations deals with the membership requirements that must be satisfied for a trust to be a member of a GST group. Subregulation 48-10.03(1) of the GST Regulations provides that if the GST group does not consist only of fixed trusts the requirements set out in subregulation 48-10.03(2) must be satisfied for the trust to meet the regulatory requirements. Subregulation 48-10.03(2) of the GST Regulations sets out four membership requirements. For the trust to be a member of a GST group, the trustee of a trust (the candidate trustee) must satisfy one of the requirements. The candidate trustee has, at least, a 90% stake in a company that is a member of the GST group, worked out in accordance with section 190-5 of the GST Act as if the trustee were a company. As there are no companies in the proposed GST group, the trustees do not satisfy this requirement. The candidate trustee distributes any income or capital of the trust only to beneficiaries that are permitted beneficiaries, whether or not other distributions could lawfully be made. 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. For a GST group that consists only of trusts, the relevant permitted beneficiaries are: Therefore, to meet this paragraph, the trustees of entity A and entity B can distribute income and capital only to these kinds of permitted beneficiaries. As the trustees of entity A and entity B distribute income and capital only to individuals, namely Individual X, Individual Y, Individual U, Individual V and Individual W, this paragraph is not met by either trustee. The candidate trustee is the sole beneficiary of any distribution of income or capital by the trustee of another trust that is a member of the GST group. The trustee of entity A is not a beneficiary of any distribution of income or capital made by the trustee of entity B, and the trustee of entity B is not a beneficiary of any distribution of income or capital made by the trustee of entity A. Therefore, the trustees do not satisfy this requirement. The candidate trustee distributes income or capital of the trust, and the trustee of another trust that is a member of the GST group distributes income or capital of the other trust, only to persons who are all family members of the same individual, whether or not other distributions could lawfully be made. 'Family member' is defined in subsection 48-15(2) of the GST Act and section 272-95 of Schedule 2F to the Income Tax Assessment Act 1936 . Generally, a 'family member' includes a parent, grandparent, brother, sister, nephew, niece, child or children of an individual or the individual's spouse. Family also includes the partner's spouse and the spouses of any person mentioned in the previous sentence. The trustees of entity A and entity B distribute their income or capital to Individuals X Y, U, V and W. Individuals Y, U, V and W are all family members of Individual X. Therefore, the trustees satisfy this requirement. As entity A and entity B satisfy the requirements of regulation 48-10.03 of the GST Regulations, both entities satisfy the membership requirements of a GST group under section 48-10 of the GST Act from 1 April 2003.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 48-10 subparagraph 48-10(1)(a)(ii) subsection 48-15(2) Division 54 section 190-5
Related ATO interpretative decisions: ATO ID 2003/920 | ATO ID 2003/921
Subject references: Goods and services tax GST special rules GST branches GST groups GST regulations GST tax periods