ATO ID 2004/201: GST and grouping of two companies
Date of decision: 29 April 2003
Business line: Indirect Tax

Issue
Do the entities, company A and company B, 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
Yes, company A and company B satisfy the membership requirements of a GST group under section 48-10 of the GST Act as they belong to the same 90% owned group.

Facts
Company A and company B are registered for goods and services tax (GST), have the same tax periods and account for GST on the same basis. Company A and company B are not members of any other GST group and have no branches that are registered for GST. The shares in Company B carry with them the right to vote, the right to receive dividends and the right to a distribution of capital. Company A owns 50% of the total shares in Company B and controls the rights attached to those shares. An individual owns the other 50% of the shares in company B as a nominee shareholder for company A. The declaration of trust by the individual stipulates that the individual must vote in respect of its shares as directed by company A and must account to company A for any distribution of dividends or capital. Company A notified the Commissioner, in the approved form, of the formation of a GST group and is nominated in that notice as representative member of the GST group.

Reasons for decision
Summary: Section 48-10 of the GST Act sets out the membership requirements of a GST group that an entity must satisfy in order to form a GST group. If the entity is a company, it must: Company A and company B are registered for goods and services tax (GST), have the same tax periods and account for GST on the same basis. Company A and company B are not members of any other GST group and have no branches that are registered GST. Therefore, company A and company B will satisfy the membership requirements of a GST group if they are in the same 90% owned group. Paragraph 190-1(a) the GST Act provides that two companies are members of the same 90% owned group if one of the companies has at least a 90% stake in the other company. Section 190-5 of the GST Act provides that a company (the holding company) has at least a 90% stake in another company (the subsidiary company) if the holding company: The words 'whether directly, or indirectly through one or more interposed companies' do not extend or restrict the opening words. Rather these words are illustrative as to how the control of the voting rights, the right to receive the dividends and a distribution of capital might be achieved. The words do not imply that the requisite controls and rights must be satisfied in the manner mentioned. As such, it is accepted that the controls and rights can be achieved through an interposed entity other than a company. Company A holds 50% of the shares in company B and controls the rights attached to these shares. The remaining 50% of the shares in company B are owned by an individual as a nominee shareholder for company A. The declaration of trust by the individual stipulates that the individual must vote in respect of the shares as directed by company A and must account to company A for any distribution of dividends or capital. Therefore, company A indirectly controls the voting rights and has the right to receive the dividends and any distribution of capital attached to the shares. Company A controls 50% of the rights directly, and 50% indirectly through the interposed entity that is the individual shareholder. As such, company A controls 100% of the voting rights in company B and has the right to receive 100% of the dividends and the distribution of the capital of company B. Therefore, company A and company B are members of the same 90% owned group and satisfy the membership requirements of a GST group under section 48-10 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 48-5 paragraph 48-5(1)(a) section 48-10 Division 54 section 190-5 paragraph 190-1(a)
Subject references: Goods and services tax GST special rules GST groups GST tax periods