Private ruling: GST and membership requirements of a GST group
Date of advice: 12 June 2017
Published: October 2017

Ruling: Q1: Do the entities satisfy the membership requirements in section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to form a GST group? | A1: Yes, once the current GST groups have been cancelled, the entities will satisfy the membership requirements in section 48-10 of the GST Act to form a new GST group.

Relevant facts and circumstances: The entities carry on an enterprise and consist of the head entities and their various wholly-owned subsidiaries. The securities of each of the head entities are stapled so that all security holders hold units in the unit trust and shares in the company. The securities cannot be traded separately and they are listed on the Australian Securities Exchange. There are a large number of security holders. Entity A is an Australian unit trust which directly owns 100% of the units in its wholly owned subsidiary trusts. Entity A is currently the representative member of a GST group with its wholly owned subsidiary trusts. The GST group accounts for GST on a non-cash (accruals) basis with monthly tax periods. Entity B is an Australian resident company which directly owns 100% of the shares in its wholly owned subsidiary companies: Entity B is currently the representative member of a GST group which consists of its wholly owned subsidiary companies. The GST group accounts for GST on a non-cash (accruals) basis with monthly tax periods. None of the entities have any branches under Division 54 of the GST Act. In order to lower its administrative and compliance costs, the entities intends to form a single GST group. Prior to notifying the Commissioner in the approved form of the proposed GST group, entity A and entity B will cancel their respective GST groups with effect on and from the day before the expected start day of the newly formed GST group.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 48 | A New Tax System (Goods and Services Tax) Act 1999 section 48-10 | A New Tax System (Goods and Services Tax) Act 1999 subsection 48-10(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 48-10(3) | A New Tax System (Goods and Services Tax) Act 1999 subparagraph 48-15(1)(e)(iia) | A New Tax System (Goods and Services Tax) Regulations 1999 paragraph 48-10.03(2)(b) | A New Tax System (Goods and Services Tax) Regulations 1999 paragraph 48-10.03(3)(e) | A New Tax System (Goods and Services Tax) Regulations 1999 paragraph 48-10.03(4)(b)

Reasons for decision: Summary: At this stage, the entities do not satisfy all of the membership requirements in section 48-10 of the GST Act to form a new GST group as they are currently members of a GST group. However, we have been advised that entity A and entity B will be cancelling their GST groups. Therefore, once they have cancelled their respective GST groups, all of the entities will satisfy the membership requirements in section 48-10 of the GST Act. As such, they will be eligible to form a new GST group once the cancellations take effect. | Detailed Reasoning - Detailed reasoning: Under Division 48 of the GST Act, entities with common ownership that meet certain conditions are eligible to form a GST group. In particular, paragraph 48-7(1)(b) of the GST Act requires that each of the entities applying to be part of a GST group must satisfy the membership requirements of that GST group. The membership requirements are set out in section 48-10 of the GST Act and specifically in subsection 48-10(1) of the GST Act which states: (1) An entity satisfies the membership requirements of a *GST group, or a proposed GST group, if the entity: (a) is: (i) a *company; or (ii) a *partnership, trust or individual that satisfies the requirements specified in the regulations; and (b) is, if the entity is a company, a company of the same *90% owned group as all the other members of the GST group or proposed GST group that are also companies; and (c) is *registered; and (d) has the same tax periods applying to it as the tax periods applying to all the other members of the GST group or proposed GST group; and (e) accounts on the same basis as all the other members of the GST group or proposed GST group; and (f) is not a member of any other GST group; and (g) does not have any branch that is registered under Division 54. (* An asterisk denotes a defined term in section 195-1 of the GST Act). In this case, the proposed GST group will consist of both companies and unit trusts and, as can be seen from the above provision, there are different membership requirements for different types of entities. In relation to companies, paragraph 48-10(1)(b) of the GST Act requires that all companies in the GST group must be part of the same 90% owned group of companies. The term '90% owned group’ is defined in Division 190 of the GST Act. Under section 190-1 of the GST Act, 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 or a third company has at least a 90% stake in each of the two companies. The facts show that the only companies that will be members of the proposed GST group will be entity B and its wholly owned subsidiary companies. Therefore, the companies are members of the same 90% owned group as defined in Division 190 of the GST Act. As such, the companies satisfy paragraph 48-10(1)(b) of the GST Act. However, notwithstanding the above, subsection 48-10(3) of the GST Act states: A *company does not satisfy the membership requirements of a *GST group, or a proposed GST group, if: (a) one or more other members of the GST group or proposed GST group are not companies; and (b) none of the members of the GST group or proposed GST group that are companies satisfy section 48-15. Section 48-15 of the GST Act deals with the relationship between companies and non-companies in a GST group and provides, among other things, that a company that is a member of a proposed GST group satisfies this section if, for a trust that is a member of the proposed GST group, one of the requirements in paragraph 48-15(1)(e) of the GST Act is satisfied. The facts show that as a result of the stapling, any unitholder of entity A will also be a shareholder of entity B as the stapled securities cannot be sold separately. This means that all distributions of income or capital by the unit trust will only be made to a shareholder of entity B. In addition, as there are a large number of security holders, it is clear that at least two of entity B’s shareholders would also be beneficiaries of entity A. Therefore, entity B satisfies subparagraph 48-15(1)(e)(iia) of the GST Act (including subparagraph 48-15(1A)(b)(i) of the GST Act). As such, entity B and its wholly owned subsidiary companies satisfy the relationship test in section 48-15 of the GST Act with respect to the unit trust. In relation to the unit trusts, subparagraph 48-10(1)(a)(ii) of the GST Act provides that they all need to satisfy the requirements in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). The membership requirements for trusts are set out in regulation 48-10.03 of the GST Regulations. Based on the information provided, entity A satisfies paragraph 48-10.03(2)(b) of the GST Regulations because distributions of income or capital are only made to beneficiaries that are permitted beneficiaries pursuant to paragraph 48-10.03(4)(b) of the GST Regulations. That is, paragraph 48-10.03(4)(b) of the GST Regulations provides that for a company that is a member of the GST group, each representative of a shareholder of the company is also a permitted beneficiary if, for a company with more than one shareholder, the beneficiaries of the trust include at least two beneficiaries who are representatives of different shareholders. In this case, as a consequence of the stapling, every beneficiary of entity A will also be one of the shareholders of entity B and therefore, the requirements of paragraph 48-10.03(4)(b) of the GST Regulations are satisfied. In relation to the wholly owned trusts of entity A, they will also satisfy paragraph 48-10.03(2)(b) of the GST Regulations. This is because, as they are wholly owned by entity A any distributions of income or capital will only be made to entity A and, as a member of the proposed GST group, entity A will be a permitted beneficiary under paragraph 48-10.03(3)(e) of the GST Regulations. Therefore, entity A and its wholly owned trusts satisfy the requirements in subparagraph 48-10(1)(a)(ii) of the GST Act. In relation to the other membership requirements in paragraphs 48-10(1)(c) to (g) of the GST Act, all of the entities are registered for GST on a non-cash (accruals) basis with monthly tax periods and do not have any branches under Division 54 of the GST Act. However, paragraph 48-10(1)(f) of the GST Act requires that a proposed member not be a member of any other GST group. At this stage, entity A and entity B are each the representative member of a GST group with their wholly owned subsidiaries but we have been advised that they intend to cancel these GST groups prior to notifying the Commissioner in the approved form of the new GST group. Therefore, once entity A and entity B have cancelled their respective GST groups, all of the entities will satisfy the membership requirements in paragraphs 48-10(1)(c) to (g) of the GST Act. Consequently, as all of the membership requirements in section 48-10 of the GST Act will be satisfied once entity A and entity B have cancelled their respective GST groups, the entities will be eligible to form a new GST group once the cancellations take effect.