ATO ID 2010/23: GST and annual maintenance fees paid under a time-sharing scheme
Date of decision: 19 January 2009
Business line: Indirect Tax

Issue
Is the annual maintenance fee payable by a participant in a time-sharing scheme for levy periods commencing on or after 20 December 2000, consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Decision
No. The annual maintenance fee payable by a participant in a time-sharing scheme for levy periods commencing on or after 20 December 2000, is not consideration for a taxable supply. It is consideration for an input taxed financial supply of an interest in the time-sharing scheme.

Facts
The time-sharing scheme is a registered managed investment scheme under the Corporations Act 2001 . The responsible entity, in its capacity as the responsible entity for the time-sharing scheme, is registered for GST. This entity will be referred to as 'the scheme'. Before 1 July 2000, the scheme supplied timeshare interests to entities that became participants in the time-sharing scheme. Under the Constitution of the scheme, the timeshare interest provides a participant a number of rights including an accommodation entitlement to use and occupy apartments for specified periods of time, extending beyond 20 December 2000. The supply of each of these timeshare interests is a supply for a continuous period. The scheme's supply of a timeshare interest to a participant from 1 July 2000 until 20 December 2000 was a taxable supply under section 9-5 of the GST Act. To the extent that the supply of a timeshare interest is made to the participant on or after 20 December 2000, it is a financial supply that is input taxed under subsection 40-5(1) of the GST Act. The scheme levies an annual maintenance fee on participants. The Constitution imposes the obligation upon a participant to pay the annual maintenance fee when it is due. The annual maintenance fee is based on the scheme's annual costs divided by the number of timeshare interests issued. The Constitution of the scheme provides the scheme with the power to suspend the rights of a participant to access accommodation if they do not pay the annual maintenance fee levied by the scheme. The timeshare interests held by a participant may also be forfeited and sold by the scheme for non-payment of annual maintenance fees.

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. Under subsection 40-5(1) of the GST Act, the supply of a timeshare interest on or after 20 December 2000 is an input taxed financial supply. Consideration for GST purposes is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by sections 9-15 and 9-17 of the GST Act, in connection with the supply or acquisition. Section 9-15 of the GST Act expands on the meaning of 'consideration for a supply'. Under subsection 9-15(1) of the GST Act, a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply of anything. The test of whether a payment is consideration under subsection 9-15(1) of the GST Act is whether there is sufficient nexus between the supply and the payment made. In Berry v. Federal Commissioner of Taxation (1953) 89 CLR 653; (1953) 10 ATD 262; (1953) 5 AITR 591, the High Court considered the meaning of consideration 'for or in connection with' in the context of former section 84 of the Income Tax Assessment Act 1936 , a provision which included consideration for or in connection with goodwill in a lease premium. In this case, Kitto J. held that 'in connection with' was a broader test than 'for'. At CLR 659, his Honour commented that consideration will be in connection with property where: the receipt of the payment has a substantial relation, in a practical business sense, to that property. To determine whether there is sufficient nexus between a supply and consideration, the true character of the transaction must be considered. The payment of the annual maintenance fee confers no rights, goods or services to participants other than the ability to exercise the accommodation entitlement associated with the timeshare interest. Payment of the annual maintenance fee is essential for a participant to maintain its continuing interest in the time-sharing scheme. There is sufficient nexus between the supply of the timeshare interest and the annual maintenance fee paid by a participant for the fee to be characterised as consideration for the supply of the interest. The annual maintenance fee payable by a participant for levy periods commencing on or after 20 December 2000 is, therefore, not consideration for a taxable supply as it is consideration for an input taxed financial supply of an interest in a time-sharing scheme under subsection 40-5(1) of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-15 subsection 9-15(1) section 9-17 subsection 40-5(1) section 195-1
Case references: Berry v Federal Commissioner of Taxation (1953) 89 CLR 653 (1953) 10 ATD 262 (1953) 5 AITR 591
Subject references: GST financial supplies Taxable supply Input taxed supplies GST time share Securities