ATO ID 2004/291: GST and supply to an associate for no consideration
Date of decision: 9 October 2003
Business line: Indirect Tax

Issue
Is the entity, a company, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies, for no consideration, machinery to a director who is neither registered nor required to be registered for GST?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies, for no consideration, machinery to a director who is neither registered nor required to be registered for GST.

Facts
The entity is a company. The entity owns a piece of machinery that it supplies to a director. The entity supplies the machinery for no consideration. The supply of the machinery is neither input taxed under Division 40 of the GST Act nor GST-free under Division 38 of the GST Act. The director holds a majority voting interest in the entity. The director is neither registered nor required to be registered for goods and services tax (GST). The entity is registered for GST. The supply is made in the course of the entity's enterprise and is connected with Australia.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The entity makes the supply of the machinery in the course of its enterprise and the supply is connected with Australia. In addition, the entity is registered for GST, whereby satisfying three of the requirements of section 9-5 of the GST Act. The remaining requirement of section 9-5 of the GST Act is that an entity makes the supply for consideration. The entity makes the supply of the machinery to a director for no consideration. Normally, the fact that a supply has been made for no consideration would preclude the supply from being a taxable supply under section 9-5 of the GST Act. However, while the entity makes the supply to a director for no consideration, the fact that a supply to an associate is without consideration, does not, under section 72-5 of the GST Act, stop the supply being a taxable supply if: The term associate is defined in section 318 of the Income Tax Assessment Act 1936 to include an entity that holds a majority voting interest in a company, as an associate of that company. The director holds a majority voting interest in the entity and as such, is an associate of the entity. The director is neither registered nor required to be registered for GST. Therefore, as the director is an associate of the entity and the director is neither registered nor required to be registered for GST, the fact that the entity supplies the machinery for no consideration, does not stop the supply from being a taxable supply. The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies, for no consideration, machinery to a director who is neither registered nor required to be registered for GST.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 72-5 Division 38 Division 40
Subject references: Goods and services tax GST supplies without consideration GST supplies & acquisitions Taxable supply