Private ruling: Goods and services tax (GST) and registration
Published: December 2013

Ruling: Q1: Are you required to be registered for goods and services tax? | A1: Yes, if your GST turnover meets or exceeds $75,000. | Q2: Is GST payable on the security services? | A2: Yes, if you are required to be registered for GST.

Relevant facts and circumstances: You are not registered for GST. You are the Director of a Company (Company). The company is registered for GST on cash basis. The company intends to enter into a contract (contract 1) with the village management (Management) to provide general maintenance of the property at the village. The company will receive an amount per month under the contract for these services. The company will continue to provide services to other customers. You, in your individual capacity, intend to enter into a separate contract (contract 2) with the Management to provide security and will receive an amount per month under the contract for these services. Contract 1 and contract 2 are separate and distinct contracts for two separate business arrangements. You intend to purchase a residence at the village. You have a verbal agreement with the Management whereby they will withhold the payment for security services up until the point in time that you purchase the residence. At this time, the amount of the deferred payment will be calculated and subtracted from the purchase price of the residence. There is currently no separate contract for this proposed arrangement. You have advised that the commercial reason for this arrangement is to allow the company to continue running its existing business through the company structure while keeping the ownership of the residence outside of the company. Under both roles, you are required to live on the site permanently and be available at all times. You have provided a copy of the draft contract between the company and Management. You have advised that at this point in time only the first contract has been prepared as neither party are prepared to incur the legal costs for the second contract until they understand the implications of this private ruling.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5, | A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(1), | A New Tax System (Goods and Services Tax) Act 1999 Section 23-5, | A New Tax System (Goods and Services Tax) Act 1999 Section 23-15, | A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-5(1), | A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-5(2), | A New Tax System (Goods and Services Tax) Act 1999 Section 184-1, | A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-10(1), | A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-15(1), | A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-20(1), | A New Tax System (Goods and Services Tax) Act 1999 Section 195- 1 and | A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 23-15.01.

Reasons for decision: Summary: In this ruling, please note: · All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless stated otherwise. · All terms marked by *asterisk are a defined term in the GST Act unless stated otherwise. Section 23-5 states: You are required to be registered under this Act if: (a) you are *carrying on an *enterprise; and (b) your *GST turnover meets the *registration turnover threshold. Before we can establish if 'you' are required to be registered we must establish what entity 'you' applies to. Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) considers the meaning of 'entity' and 'enterprise'. 'Entity' is defined in subsection 184-1 to mean, amongst others, the following: · an individual, and · a body corporate. 'Individual' is defined in section 195-1 to be a natural person. 'Body corporate' is not defined and takes its meaning from the general law. 'Body corporate' is a general term to describe an artificial entity having a separate legal existence, for example a company. Paragraph 28 of MT 2006/1 states: 28. A legal person including a company is an entity in itself and can also be a part of another entity. For example an individual is an entity and can be a partner in a partnership. Further, a legal person is taken to be a separate entity in a different role or capacity from itself when that person is a trustee of a trust or a superannuation fund. For further information about multiple roles, see paragraphs 81 to 86 of this Ruling. Paragraph 86 of MT 2006/1 states: Other roles 86. Every legal person is an entity in their own right and may also be part of another entity. For example, an individual is an entity and the individual may also be a partner in a partnership or a member of an unincorporated association. In your case, you intend to be involved in two separate entities. The first as an individual and the second, a body corporate, as Director of Company. You, as an individual, intend to enter into a contract with Management to provide security services. The company, of which you are Director, intends to enter into a separate contract with Management to provide maintenance services. In your case, you are a separate legal entity in your individual capacity, separate from your role as Director of Company. Therefore, we are only concerned with whether you, in your individual capacity, are required to be registered for GST. Section 195-1 provides that carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Subsection 9-20(1) provides that an enterprise includes an activity, or series of activities, done in the form of a business. In your case, you will be carrying on an enterprise of providing security at the village in your individual capacity and you will be receiving an amount per month for the provision of the security services. Under the proposed arrangement between you and Management, Management will withhold the payment to you for the security services up until the point in time that you proceed with your purchase of a residence at the village. At this time, the amount of payment you will have accrued from the services will be calculated by Management and deducted from the purchase price of your residence. There is currently no separate contract for this proposed arrangement. The contract that you have provided, between the company and Management, provides that the company will submit an invoice to Management on the last day of each month and Management will pay the amount invoiced into the company bank account. Subsection 188-10(1), which deals with whether your GST turnover meets a turnover threshold, states: (1) You have a GST turnover that meets a particular *turnover threshold if: (a) your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or (b) your projected GST turnover is at or above the turnover threshold. Subsection 188-15(1), which deals with current GST turnover, states: (1) Your current GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than: (a) supplies that are *input taxed; or (b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or (c) supplies that are not made in connection with an *enterprise that you *carry on. Subsection 188-20(1), which deals with projected GST turnover, states: (1) Your projected GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than: (a) supplies that are *input taxed; or (b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or (c) supplies that are not made in connection with an *enterprise that you *carry on. The registration turnover threshold is currently $75,000. In summary, you must check each month, in your individual capacity, to see whether you have reached the GST turnover threshold. If you reach the threshold, you must register for GST within 21 days. You reach the GST turnover threshold if either: · your turnover for the current month and the previous 11 months is $75,000 or more - current GST turnover · your turnover for the current month and the next 11 months is likely to be $75,000 or more - projected GST turnover. However, if your current GST turnover reaches or exceeds the GST turnover threshold, but we are satisfied that your projected turnover will be below the threshold, you do not have to register for GST. You will need to check each month, in your individual capacity, to see whether your turnover for the current month and the next 11 months is likely to be $75,000 or more. Your calculation of your GST turnover will depend on whether you account on a non-cash (accruals) basis or a cash basis. Subsection 29-5(1) states: (1) The GST payable by you on a *taxable supply is attributable to: (a) the tax period in which any of the *consideration is received for the supply; or (b) if, before any of the consideration is received, an *invoice is issued relating to the supply - the tax period in which the invoice is issued. If you, in your individual capacity, account on a non-cash (accruals) basis and issue an invoice to Management (as is outlined in the contract between the company and Management) you will need to include the invoice amount in calculating your GST turnover. Subsection 29-5(2) states: (2) However, if you *account on a cash basis, then: (a) if, in a tax period, all of the *consideration is received for a *taxable supply - GST on the supply is attributable to that tax period; or (b) if, in a tax period, part of the consideration is received - GST on the supply is attributable to that tax period, but only to the extent that the consideration is received in that tax period; or (c) if, in a tax period, none of the consideration is received - none of the GST on the supply is attributable to that tax period. If you, in your individual capacity, account on a cash basis and receive payment from Management within days of issuing an invoice to Management on the last day of the month (as outlined in the contract between the company and Management) you will need to include the amount in the month the payment is received in calculating your GST turnover. This is regardless of how Management accounts for and withholds the consideration for the security services on your behalf, under the verbal agreement. Under the proposed contract, you will receive a monthly payment for the security services provided and you must attribute that payment either when the invoice is issued (accruals basis) or when the amount is received (cash basis). We emphasise that this will occur monthly under the proposed arrangement with Management. The fact that Management retains the monthly fee due to you, for the purpose of purchasing a house at some future date, does not change the period in which the payment should be attributed, ie on a monthly basis. If your GST turnover reaches $75,000 you will be required to register for GST. You must pay the GST payable on any taxable supply that you make. Section 9-5 states: You make a taxable supply if: (a) you make a supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. In your case, you will be making a supply, in your individual capacity, of security services in Australia for consideration in the course of your security enterprise. Therefore, you will satisfy the requirements of paragraphs 9-5(a), (b), and (c). If you are required to be registered you will also satisfy paragraph 9-5(d). Further, the GST-free and input taxed provisions do not apply. Therefore, you, in your individual capacity, will be required to pay GST on the security services if you are required to be registered for GST.