ATO ID 2003/1018: GST and a partnership joining an existing GST group of partnerships from 1 April 2003
Date of decision: 20 June 2003
Business line: Indirect Tax

Issue
Does entity C, a partnership containing a non-family company partner, satisfy the membership requirements under section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and so be able to join an existing GST group comprising entity A and entity B, both partnerships, from 1 April 2003?

Decision
No, entity C does not satisfy the membership requirements under section 48-10 of the GST Act and cannot join the existing GST group comprising entities A and B, from 1 April 2003.

Facts
Entity C is an Australian resident partnership that is registered for goods and services tax (GST). Entities A and B are partnerships that are members of an existing GST group. Entity A comprises two partners; Individual D and Individual E. Entity B comprises two partners; Family Trust D (Individual D's family trust (refer note 1)) and Family Company E (Individual E's family company). Entity C comprises three partners; Individual D, Individual E and Company X. Individuals D and E hold a large number of shares in Company X, but not all shareholders are family members of Individuals D or E. Entity C has the same tax periods that apply to entities A and B and these three entities also account for GST on the same basis. Entity C does not belong to any other GST group nor does it have any branches that are registered under Division 54 of the GST Act.

Reasons for decision
Summary: Section 48-10 of the GST Act sets out the membership requirements of a GST group. In relation to partnerships, each entity must: Entity C is registered for GST, has the same tax periods and accounts for GST on the same basis as the GST group members, is not a member of another GST group and has no branches registered for GST. Therefore, entity C will satisfy the membership requirements if it satisfies the requirements specified in the GST Regulations. Regulation 48-10.02 of the GST Regulations sets out the membership requirements that must be satisfied for a partnership to be a member of a GST group. Subregulation 48-10.02(2A) of the GST Regulations states: If the GST group consists only of partnerships: (a) there are no further requirements for one of the partnerships; and (b) each other partnership must satisfy the requirements of subregulation (5). Entities A and B meet the grouping requirements as they are already in a GST group. Entity C, as the 'candidate partnership', must satisfy the four requirements of subregulation 48-10.02(5) of the GST Regulations to become a member of the GST group. One of the requirements is that each partner in the candidate partnership is an individual, a family trust of an individual or a family company of an individual (paragraph 48-10.02(5)(b) of the GST Regulations). The partners in entity C are two individuals (Individuals D and E) and Company X. Therefore, it is necessary to determine whether Company X satisfies the definition of a family company. Paragraph 48-10.02(6)(b) of the GST Regulations defines a family company of an individual as being a company each shareholder of which is either the individual or a family member of an individual. Although Individuals D and E hold shares in Company X, other non-related entities also hold shares in the company. Therefore, Company X is not a family company within the above definition and fails to satisfy paragraph 48-10.02(5)(b) of the GST Regulations. As entity C does not satisfy this requirement, there is no need to address the other requirements of subregulation 48-10.02(5) of the GST Act. Entity C does not satisfy the regulatory membership requirements and therefore is unable to satisfy the membership requirements under section 48-10 of the GST Act. Entity C cannot join the existing GST group, comprising entities A and B, from 1 April 2003. Note 1. Refer to paragraph 48-10.02(6)(a) of the GST Regulations for the definition of the term 'family trust'.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 48-10 Division 54
Related ATO interpretative decisions: ATO ID 2003/1017 | ATO ID 2003/919 | ATO ID 2003/1019
Subject references: Goods and services tax GST special rules GST branches GST groups GST regulations GST tax periods