Private ruling: GST - the meaning of the term 'a State' for the purposes of the margin scheme
Date of advice: 11 May 2016
Published: June 2016

Ruling: Q1: Does Entity A (you) come within the meaning of the term 'a State' for the purpose of item 4 of the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, you come within the meaning of the term 'a State' for the purpose of item 4 of the table in subsection 75-10(3) of the GST Act.

Relevant facts and circumstances: You were established as a body corporate under State legislation. You are a government related entity for the purposes of the GST Act. You have no shareholders. The State legislation contains relevant provisions for: • your purpose • the Board to promote your purpose • the duties of the Board • the Board to act for and on behalf of you in the exercise of functions and have the control and management of your affairs, and • the Board to make by-laws that are not inconsistent with the legislation.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 Division 75 | A New Tax System (Goods and Services Tax) Act 1999 subsection 75-10(3)

Reasons for decision: Summary: All legislative references are to the GST Act unless otherwise stated. Section 7-1 provides that GST is payable on taxable supplies. However, special rules in Division 75 allow you to use the margin scheme for your taxable supply of real property. Subsection 75-10(3) specifies circumstances in which an approved valuation, made as at a specified date, is to be used in working out the margin for a supply of real property. In particular, the second column in item 4 of the table in subsection 75-10(3) (Item 4) specifies the following circumstances relating to supplies of real property made by way of selling a freehold interest in land, selling a stratum unit or granting or selling a long-term lease:: • the supplier is the Commonwealth, a State or a Territory, and • the supplier has held the interest, unit or lease since before 1 July 2000, and • there were no improvements on the land or premises as at 1 July 2000. In this case, the issue to be examined is whether you come within the meaning of the term 'a State' for purpose of Item 4, in relation to the requirement that the supplier is 'the Commonwealth, a State or a Territory'. Goods and Services Tax Ruling GSTR 2006/5 (GSTR 2006/5) provides relevant guidance about the meaning of 'Commonwealth, a State or a Territory'. Paragraph 11 of GSTR 2006/5 discusses the fundamental principle established by the High Court of Australia in cases concerning the meaning of 'a State' in section 114 of the Australian Constitution is that, if the corporation is discharging governmental functions as an instrument of the State, that is, the State is carrying on the relevant business or other function through the corporation, then the corporation is the State. However, if the intention is for the corporation to perform its functions independently of, and not as an instrument of, the State so that the concept of the State activity cannot be realistically applied to that which the corporation does, then the corporation is not the State. Paragraph 12 of GSTR 2006/5 discusses principles to be considered in determining if a corporation is to be characterised as being the State. The matters covered by the principles include: • whether a corporation is the State requires consideration of every feature relevant to its relationship with the State • ownership and management of the corporation and the purposes it is required to pursue • provision that the corporation must pursue the interests of the State or the public • a provision that positively permits the corporation to take account of other external interests is a contrary indicator • the absence of corporators (shareholders) • financial arrangements, and • regulatory role. Therefore, it is necessary to consider the principles in your circumstances. Purpose you are required to pursue The State legislation provides for your purpose and that the Board is to promote your purpose. The legislation specifies the duties of the Board, including that members of the Board must act in your best interests, carry out duties for a proper purpose and not cause detriment to you. Therefore, we consider that you have the purpose imposed on you by the legislation and are required to act in accordance promoting the purpose. Ownership You have no shareholders (subparagraph 12(i) of GSTR 2006/5) and there is no provision under the State legislation to take account of external interests (subparagraph 12(e) of GSTR 2006/5). This is an indicator that you are the State. Management The State legislation provides that the Board acts for and on behalf of you in the exercise of functions and has the control and management of your affairs. As highlighted above, under the purpose you are required to pursue, the Board is to act in a manner as best calculated to promote your purpose. Therefore, while the Board manages you, it does so within the bounds placed upon it by legislation. There is no provision that gives a general power to the Minister or Executive Council to override decisions of the Board. However, there are specific areas where the Board is required to obtain the approval of the Minister. In addition to the State legislation, you are subject to other legislation. The State legislation provides that nothing in the State legislation limits or affects the operation of these other Acts. Financial Arrangements You are subject to certain legislative requirements in relation to your financial arrangements under other Acts. Regulatory function The State legislation allows the Board to make by-laws that are not inconsistent with the legislation. Conclusion It is considered that an examination of the principles set out in paragraph 12 of GSTR 2006/5, identifying the features relevant to your relationship with the State, indicates that you are to be characterised as being the State. Accordingly, consistent with the guidance provided in GSTR 2006/5, it is considered that you come within the meaning of the term 'a State' for the purpose of Item 4. Note: There are other requirements which must be satisfied, in addition to those in Item 4, before you can apply the margin scheme. For example, under section 75-5, you and the recipient must agree in writing, on or before the making of the supply that the margin scheme is to apply.