ATO ID 2016/1: GST and registration turnover threshold for a body corporate
Date of decision: 13 May 2016
Year of income: 2009 onwards
Business line: Indirect Tax

Issue
Is a body corporate entity that will not make distributions to its members considered a non-profit body for the purposes of the registration turnover threshold under section 23-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Decision
Yes, a body corporate entity is considered to be a non-profit body under section 23-15 of the GST Act, if it is clear from the objects, policy statements, history, intention, activities and proposed future directions of the body corporate that there will be no distributions to its members.

Facts
The entity is registered for GST and is a body corporate that administers, manages and controls the common property and assets of a residential unit complex in Australia (in the indirect tax zone as defined in section 195-1 of the GST Act) for the benefit of its members. The entity is obliged to make a variety of supplies in the course of administering the common property and assets (that is, maintenance and servicing) of the residential unit complex. Its members also contribute to an administration and/or sinking fund in order for the entity to perform its obligations and to carry out its activities. These supplies by the entity to its members satisfy the requirements of a taxable supply under section 9-5 of the GST Act (see also the decision of BJ McCabe SM in Re Body Corporate, Villa Edgewater CTS 23092 and Federal Commissioner of Taxation 2004 ATC 2056; (2004) 55 ATR 1162; [2004] AATA 425). Either:

Reasons for decision
Summary: By virtue of section 23-15 of the GST Act and related GST Regulations, the registration turnover threshold applicable to the body corporate will be higher if it is a non-profit body. The GST registration turnover threshold for non-profit bodies was increased from $100,000 to $150,000, effective from 1 July 2007. Refer to section 23-15 of the GST Act and sub-regulation 23-15.02 of the A New Tax System (Goods and Services Tax) Regulations 1999. The Commissioner's view of when a society, association or club is not carried on for the purpose of profit or gain is explained in Taxation Ruling TR 97/22: Income tax: exempt sporting clubs (TR 97/22). Paragraph 22 of TR 97/22 relevantly provides: 22. We accept a club as being non-profit where, by operation of law (for example, a statute governing a club's activities) or by its constituent documents, the club is prevented from distributing its profits or assets among members while the club is functional and on its winding-up. The club's actions must, of course, be consistent with the prohibition. Further guidance for GST purposes is provided under paragraph 109 of Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance (GSTR 2012/2) which states that: 109. Where the law or the constituent documents do not prohibit distributions, whether the body is not carried on for purposes of profit or gain to the individual members is to be determined by reference to the surrounding circumstances. Factors that are considered relevant include whether distributions have been made, whether there is a stated or demonstrated policy to make or not to make such distributions and whether winding-up is contemplated. Where it is clear from the objects, policy statements, history, activities and proposed future directions of the body that there will be no distributions to members, we accept that the non-profit test has been satisfied. A body corporate entity is permitted by their governing state or territory legislation to make distributions to proprietors in certain circumstances. Generally, such legislative provisions cannot be excluded by a by-law of the body corporate. We consider that the circumstances in which profits will be available for distribution by a body corporate to its proprietors will be limited. A return of the members' own funds will not amount to a distribution of profits but a return of capital. The sinking fund and administration fund may include interest income or other income such as income from the rental of common property. The existence of interest income or income from rental or other activities in the various funds held by the body corporate will not of itself preclude the body corporate from being a non-profit body for the purposes of the GST Act. However, (contrary to the facts here) an intention to distribute the interest income or profits from rental or other activities, either while the body corporate is functional or upon its winding up, would disqualify the body corporate from being a non-profit body for the purposes of the GST Act. Here, the body corporate entity is considered to be a non-profit body that is carrying on an enterprise, and is required to be registered when it meets the registration turnover threshold of $150,000 for the purposes of section 23-15 of the GST Act. However, the body corporate may choose to be registered if its turnover is under the threshold of $150,000.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 23-15 subsection 23-15(2)
Case references: Re Body Corporate, Villa Edgewater CTS 23092 and Federal Commissioner of Taxation 2004 ATC 2056 (2004) 55 ATR 1162 [2004] AATA 425
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2012/2 | Taxation Ruling TR 97/22
Other references: Section 1.1.5 of the ATO's Property and Construction Industry Partnership - issues register.