ATO ID 2003/1019: GST and grouping a partnership with a company from 1 April 2003
Date of decision: 4 July 2003
Business line: Indirect Tax

Issue
Do entity A, a partnership, and entity B, a company, satisfy the membership requirements of a GST group under section 48-10 of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act) where:

Decision
No, although entity A satisfies the membership requirements of a GST group, entity B does not meet the GST group membership requirements under section 48-10 of the GST Act as Individual Z is not a partner, or family member of a partner, in entity A.

Facts
Entity A is a partnership and entity B is a company. Both entities are registered for goods and services tax (GST). Entity A consists of two partners, Individual X and Individual Y (a family member of Individual X). Entity A does not have a stake in entity B, for the purposes of the GST Act. Individuals X, Y and Z are the shareholders of entity B. Individual Z is not a family member of Individual X or Individual Y. 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 for entities in a GST group are set out in section 48-10 of the GST Act. Some of the requirements apply to all entities. All entities must: Entity A and entity B are registered for GST, have the same tax periods, account for GST on the same basis, are not members of another GST group and do not have GST branches registered. Therefore, these requirements are satisfied by both entities. However, there are additional requirements for both partnerships and companies that have to be met before a GST group can be approved. The additional membership requirements for partnerships are set out in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). Regulation 48-10.02 of the GST Regulations sets out the additional requirements that must be satisfied for a partnership to form a GST group with a company. This regulation was amended with effect from 1 April 2003. Subregulation 48-10.02(3) of the GST Regulations provides that a partnership satisfies the requirements if, for at least 1 company that is a member of the GST group: As entity A does not hold a stake in entity B and entity B has more than one shareholder, entity A will only satisfy the regulatory requirements if entity B has at least two shareholders that are representatives of different partners in entity A. Regulation 48-10.01 of the GST Regulations, provides, in part that the representative of a partner, for a partner that is an individual, is either the partner or a family member of the partner. Two of the shareholders of entity B, Individuals X and Y, are representatives of different partners in entity A. Therefore, although Individual Z is not a partner, or a family member of a partner, in entity A, the requirement in subparagraph 48-10.02(3)(b)(ii) of the GST Regulations is satisfied. That is, entity A satisfies the membership requirements to form a GST group with entity B. The additional membership requirements for companies are set out in section 48-10 of the GST Act. Subsection 48-10(3) of the GST Act requires one company in a GST group to satisfy the relationship requirements set out in section 48-15 of the GST Act, where one of the members of the GST group is a non-company entity. Entity B must meet the relationship requirements with entity A set out in subsection 48-15(1) of the GST Act. The relevant requirements are set out in paragraphs 48-15(1)(a) and 48-15(1)(c) of the GST Act and are: Entity A does not have a stake in entity B and does not satisfy paragraph 48-15(1)(a) of the GST Act. Therefore, to satisfy the requirements in paragraph 48-15(1)(c) of the GST Act, each member of entity B must be either a partner, or a family member of a partner, of the partnership that is a proposed member of the GST group. Individual Z is not a partner or a family member of a partner in entity A. Therefore, entity B does not satisfy the membership requirements of a GST group under section 48-10 of the GST Act. Note 1 'Family' of a partner, beneficiary or shareholder will be any parent, grandparent, brother, sister, nephew, niece, child or child of a child of either the individual or the individual's spouse. Family also includes the partner's spouse and the spouses of any person mentioned in the previous sentence. Note 2. Refer to regulation 48-10.01 of the GST Regulations for the definition of 'shareholder'. Note 3. Refer to regulation 48-10.01 of the GST Regulations for the definition of 'representative'. Note 4. Refer to section 190-5 of the GST Act for the definition of 'at least a 90% stake'.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 48-10 subsection 48-10(3) section 48-15 subsection 48-15(1) paragraph 48-15(1)(b) paragraph 48-15(1)(c) subsection 48-15(2) section 190-5 Division 54
Related ATO interpretative decisions: ATO ID 2003/1016 | ATO ID 2003/1017 | ATO ID 2003/1018 | ATO ID 2003/919
Subject references: Goods and services tax GST special rules GST branches GST groups GST regulations GST tax periods