Private ruling: GST and subscription fees
Published: December 2014

Ruling: Q1: Are the subscription fees collected by you from your Members GST-free? | A1: No as subscriptions for memberships are a taxable supply, however as you are an endorsed charitable fund your supplies may be GST-free if the requirements of section 38-250 of the GST Act are met. | Q2: Are the subscription fees collected by you from your Members taxable supplies which attract GST? | A2: Yes. | Q3: Are your activities considered to be the provision of a financial supply? | A3: No. | Q4: Is the entitlement conferred on the Members when paying their subscription fee an issue of a policy of insurance on the life of the Member? | A4: No. | Q5: Are the subscription fees collected by the Fund from its Members input-taxed? | A5: No. | Q6: Does the mutuality principle apply to the GST collected from the subscription fees collected by the Fund from its Members? | A6: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. • The Fund is registered for goods and services tax (GST). • The Fund is registered as a charitable fund with the Australian and Not-for-profit Commission, being registered with the following subtypes: • advancing social or public welfare; and • advancing the security or safety of Australia or the Australian Public. • The Fund has been endorsed to access the following tax concessions from • Goods and Services Tax ("GST") Concession; and • Income Tax Exemption. • The object of the Fund is to raise money by contributions, levies and by interest on the capital of the Fund, to enable sums of money to be paid on the death of its members. • The money raised also provides for the necessary expenses of carrying on the Fund. • Members of the Fund authorise the Fund to deduct from each fortnightly pay the amount of $x as the subscription fee. • On enrolment as a Member of the Fund and on the continued fortnightly payment of the subscription fee, a Member is entitled to the payment of a death benefit to a beneficiary as elected by the Member. • The subscription fee collected is inclusive of GST. • The Fund currently remits GST to the Australian Taxation Office on the subscription fees it collects from its Members. • The death benefit is a "Nominated sum" in the amount payable in Australian dollars (A$) as prescribed by the most current Annual General Meeting on death to the nominated beneficiary(s) • The sum payable at the death of a member is paid, in one or more instalments, to the person nominated in the member's will form except where the member at the time of death was married or in a defacto relationship.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 9-5 | Section 9-15 | Section 9-20 | Section 9-25 | Section 38-250 | Section 40-5 | Section 195-1

Reasons for decision: Summary: The supply of the subscription would normally be a taxable supply under section 9-5 of the GST Act. However it may be GST-free if the provisions of section 38-250(1) or section 38-250(2) of the GST Act are met. | Detailed Reasoning - Detailed reasoning: Subdivision 38-G of the GST Act provides for activities of endorsed charities or deductible gift recipients to be GST-free in certain circumstances. Subsection 38-250(3) of the GST Act states that subsections 38-250(1) and 38-250(2) of the GST Act do not apply in relation to a charitable institution or a trustee of a charitable fund unless the institution or trustee is an endorsed charitable institution or an endorsed trustee of a charitable fund. You are an endorsed charitable fund, as such subsection 38-250(1) and 38-250(2) of the GST Act can be considered in relation to your circumstances. You make supplies of subscriptions to the Fund which provides death benefits to your members. As such, it needs to be considered whether the supplies you make are for consideration that meet the requirements of 38-250(1)(b) or 38-250(2)(b) of the GST Act. In general terms, charities are required to compare the consideration it receives for a particular supply against the market value, or cost of the supply. Section 38-250 of the GST Act does not provide a specific method to work out the consideration for the supply. Charities must be able to show that their method is reasonable and supportable in their particular circumstances. | Detailed Reasoning - GST inclusive market value: We have published the Market Value Guidelines in the Charities Consultative Committee Resolved Issues Document to assist endorsed charities or gift deductible entities in establishing the GST inclusive market values of their supplies under subsection 38-250(1) of the GST Act. These guidelines are available on our website at www.ato.gov.au. They provide that in determining the GST inclusive market value of a supply, a charity must apply the following successive tests. 1. The same supply exists in the open market (the same supply test). 2. Similar supplies that exist in the open market 3. 'Cost plus' method. Importantly, these tests are successive tests for determining GST inclusive market value, they are not alternative tests. If, therefore, the market value can be established under the same supply test, the charity cannot calculate the market value by reference to the similar supply test or cost plus test. It is expected that charities would maintain and retain records that adequately document the process and information collected in establishing the relevant GST inclusive market values of the supplies they make for the purposes of subsection 38-250(1) of the GST Act. | Detailed Reasoning - Cost of supply guidelines: When calculating the cost of providing something an endorsed charity or deductible gift recipient should include: • all direct costs incurred for example materials and direct labour, and • a reasonable apportionment of indirect costs incurred for example, marketing, administration, office expenses, electricity, telephone, insurance. For supplies of things other than accommodation only those amounts paid or payable may be included in the calculation. This is due to the wording in sub-paragraph 38-250(2)(b)(ii) of the GST Act which states that it is the consideration the supplier provided or was liable to provide for acquiring the thing supplied. The following things cannot be included because they do not involve an actual outlay by the charity: • depreciation of assets, • imputed costs for things like labour, donations, and rent etc where the organisation has not actually provided any consideration or incurred any real costs. | Detailed Reasoning - Conclusion: In your case, if the supply of the subscription is either less than 50% of the GST inclusive market value of the supply or the thing supplied, or is less than 75% of the consideration the you provided, or was liable to provide, for acquiring the thing supplied then the supply would be GST-free. | Summary: As the nature of the activities of the Fund satisfy all the requirements of section 9-5 of the GST Act, the supply is a taxable supply for GST purposes (unless input-taxed or GST-free), and therefore are subject to GST. | Detailed Reasoning - Detailed reasoning: GST is payable only on taxable supplies and taxable importations. However as discussed above a supply is not a taxable supply to the extent that it is GST-free or input taxed. Provided that your supply of the subscriptions does not meet the criteria of section 38-250 of the GST Act the supply may be a taxable supply. Section 9-5 of the GST Act sets out the four criteria required for a supply to be a taxable supply. They are: 1) the supply is made for consideration; and 2) the supply is made in the course of furtherance of an enterprise that you carry on; and 3) the supply is connected with Australia; and 4) you are registered or required to be registered for GST | Detailed Reasoning - Consideration: In your case the subscription fee collected from members confers membership rights and an entitlement for the estate of the member to receive a one off payment on the death of the member. The subscription fee is consideration for the rights and the payment of the death benefit. | Detailed Reasoning - Enterprise: On the facts provided, you are in the business of receiving subscription fees and paying a death benefit to your members. The collection of the subscription fees and the payment of the death benefit is a regular activity that you undertake. Your endorsement as a charitable fund also lists your purpose as: • advancing social or public welfare; and • advancing the security or safety of Australia or the Australian Public. The promise to make the payment of the death benefit is a supply in the course or furtherance of the enterprise that you carry on. The membership fees are paid in respect of both: • the supply of membership rights generally; and • the right to receive the death benefit payment. | Detailed Reasoning - Connected with Australia: Given the Fund has been established in Australia and that the supply is provided by the Fund to the members of the police force within Australia, is it necessary to conclude that the supply made by the Fund is in connection with Australia. | Detailed Reasoning - Registered for GST: (a) An entity will only be treated as having made a taxable supply if it is registered or required to be registered for GST (s9-5(d) GST Act). (b) The Fund is registered for GST. (c) The Fund is also required to be registered for GST, as it has GST turnover over $150,000. | Detailed Reasoning - Conclusion: As the nature of the activities of the Fund satisfy all the requirements of section 9-5 of the GST Act, the supply is a taxable supply for GST purposes (unless input-taxed or GST-free), and therefore are subject to GST. | Detailed Reasoning - Detailed reasoning: Section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that financial supplies, as specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) are input taxed. The supply of a financial interest that satisfies the requirements under subregulation 40-5.09(1) of the GST Regulations is input taxed under section 40-5 of the GST Act. Subregulation 40-5.09(1) of the GST Regulations states: 1) The provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if: (a) the provision, acquisition or disposal is: (i) for consideration; and (ii) in the course or furtherance of an enterprise; and (iii) connected with Australia; and (b) the supplier is: (i) registered or required to be registered; and (ii) a financial supply provider in relation to supply of the interest. The table in subregulation 40-5.09(3) of the GST Regulations lists a number of interests for the purpose of subregulation 40-5.09(1). Item 6 within the table is of relevance. It states: Life insurance business to which subsection 9(1) of the Life Insurance Act 1995 , or a declaration under subsection 12(2) or section 12A of that Act, applies, or related reinsurance business Accordingly, subject to the conditions in subregulation 40-5.09(1) of the GST Regulations being met, supplies made in relation to life insurance are financial supplies where they are made as part of a life insurance business. In your case the following is of relevance. Section 11 of the Insurance Contracts Act 1984 (ICA) states that a: "contract of life insurance" means a contract that constitutes a life policy within the meaning of the Life Insurance Act 1995 .(LIA) Contract of life insurance is defined in the LIA 1995 to mean: 'contract of life insurance' means a life policy or sinking fund policy, within the meaning of the Life Insurance Act 1995 ; Life policy is defined in section 9 of the LIA to mean: (1) Subject to subsection (2), each of the following constitutes a life policy for the purposes of this Act: (a) a contract of insurance that provides for the payment of money on the death of a person or on the happening of a contingency dependent on the termination or continuance of human life; (b) a contract of insurance that is subject to payment of premiums for a term dependent on the termination or continuance of human life; … … From the above it can be ascertained that the payment of a death benefit by the Fund may constitute a life insurance policy, however a life insurance policy can only be issued by a life insurance business or an agent for a life insurance business. The LIA states in reference to a life insurance business the following: 1) A reference in this Act to life insurance business is a reference to: (a) business that consists of any or all of the following: (i) the issuing of life policies; (ii) the issuing of sinking fund policies; (iii) the undertaking of liability under life policies; (iv) the undertaking of liability under sinking fund policies; and (b) any business that relates to business referred to in paragraph (a). 2) … 3) For the purposes of this Act, the following do not constitute life insurance business: (a) business in relation to benefits provided by a trade union for its members or their dependants; (b) business in relation to the benefits provided for its members or their dependants by an association of employees that is registered as an organisation, or recognised, under the Fair Work (Registered Organisations) Act 2009 ; (c) business in relation to any scheme or arrangement under which superannuation benefits, pensions or payments to employees or their dependants (and not to any other persons) on retirement, disability or death are provided by an employer or by employees, or by both, wholly through an organisation established by the employer or employees or by both; (d) in the case of a person who issues policies to his or her employees, and not to any other persons, in Australia, the business that consists of the issue of those policies or the undertaking of liability under those policies; (e) business in relation to a scheme or arrangement for the provision, by a person other than a life company, of benefits consisting of: (i) the provision of funeral, burial or cremation services, with or without the supply of goods connected with such services; or (ii) the payment of money, on the death of a person, for the purpose of meeting the whole or a part of the expenses of and incidental to the funeral, burial or cremation of the person; and no other benefits, except benefits incidental to the scheme or arrangement. In your case you do not satisfy the definition of life insurance business but more relevantly are covered under the provisions of section 3 of entities that are not life insurance businesses. Accordingly the supply of the death benefit is not a financial supply. | Detailed Reasoning - Detailed reasoning: From the reasoning in Question 3 above you do not satisfy the definition of life insurance business but more relevantly are covered under the provisions of section 3 of entities that are not life insurance businesses. Accordingly the supply of membership rights generally; and the right to receive the death benefit payment is not the issue of a policy of insurance on the life of the Member. | Detailed Reasoning - Detailed reasoning: From the reasoning in Question 3 above the supply of the membership rights generally; and the right to receive the death benefit payment are not an input taxed supply. | Detailed Reasoning - The principle of mutuality: The principle of mutuality recognises that a person's income consists only of monies derived from external sources, that is, from sources other than the person. As a general principle, where a number of people contribute to a common fund created and controlled by them for a common purpose, any surplus arising from the use of that fund for the common purpose is not income; nor, if that surplus is distributed to the contributors, does that surplus have the character of income in the member's hands ( Colonial Mutual Life Assurance Society Ltd v FC of T (1946) 73 CLR 604. | Detailed Reasoning - The effect of the principle of mutuality: As a result of the mutuality principle, clubs and unincorporated associations do not, apart from special statutory provisions, derive assessable income from their members. This was the basis of the decision in Bohemians Club v Acting FC of T (1918) 24 CLR 334, R & McG 12, where it was held that the surplus of subscriptions and contributions from club members over the expenditure of the club did not constitute assessable income. It is important to note that, the principle of mutuality is only relevant to income tax law, whilst relevant in determining what constitutes income, it is not relevant when determining if a taxable supply has been made for GST purposes. As noted in previous questions the supply of membership rights generally; and the right to receive the death benefit payment may be a GST-free supply or a taxable supply.