ATO ID 2003/921: GST and grouping of two fixed trusts owned by a third fixed trust from 1 April 2003
Date of decision: 24 June 2003
Business line: Indirect Tax

Issue
Do entity A and entity B, both fixed unit trusts, satisfy the regulatory membership requirements of a GST group for the purposes of section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) from 1 April 2003 where:

Decision
Yes, entity A and entity B satisfy the regulatory membership requirements of a GST group for the purposes of section 48-10 of the GST Act.

Facts
Entity A and entity B are fixed unit trusts and are registered for goods and services tax (GST). Entity C is also a fixed unit trust. The trustee of entity C owns 90% of the issued units in each of entity A and entity B. It also has the right to receive 90% of any distribution of capital or income by entity A and entity B. The ownership structure is shown in the following diagram: Neither entity satisfies the requirements of subregulation 48-10.03(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). Both entity A and entity B have the same tax periods and account for GST on the same basis. Neither entity belongs to any other GST group, nor do they have any branches that are registered under Division 54 of the GST Act.

Reasons for decision
Summary: The membership requirements of entities proposing to form a GST group are set out 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 any branches registered under Division 54 of the GST Act. Therefore, the entities will satisfy the membership requirements if they satisfy the requirements specified in the GST Regulations. Regulation 48-10.03 of the GST Regulations specifies the 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 to allow trusts that meet specified requirements to form a GST group with other trusts. Paragraph 48-10.03(1)(a) of the GST Regulations provides that if the GST group consists only of fixed trusts, the requirements set out in either subregulation 48-10.03(2) of the GST Regulations or regulation 48-10.03A of the GST Regulations must be satisfied. Neither of the entities satisfy the requirements in subregulation 48-10.03(2) of the GST Regulations. Therefore, the group of fixed trusts must meet the requirements set out in regulation 48-10.03A of the GST Regulations to satisfy regulation 48-10.03 of the GST Regulations. Under regulation 48-10.03A of the GST Regulations, for a trust to be a member of a GST group consisting only of fixed trusts, it must be a member of the same 90% owned group as all the other fixed trusts in that group. For two trusts to be members of the same 90% owned group, paragraph 48-10.03A(3)(a) of the GST Regulations requires: Neither the trustee of entity A nor the trustee of entity B own units in each other. However, the trustee of entity C owns units in both entity A and B. Therefore, entity A and entity B will be part of the same 90% owned group if the trustee of entity C has at least a '90% stake' in both entity A and entity B. For a trustee of a fixed trust (the head trust) to have a stake of at least 90% in another fixed trust (the sub-trust), paragraph 48-10.03A(3)(b) of the GST Regulations requires the trustee of the head trust to: The trustee of entity C (head trust) owns 90% of the issued units in both entity A and entity B (sub-trusts) and has the right to receive 90% of any distribution of income or capital from both sub-trusts. Therefore, the trustee of entity C has a 90% stake in both entity A and entity B. As such, entity A and entity B are both members of the same 90% owned group and satisfy the regulatory requirements. 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.

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