Private ruling: GST and non-profit sub-entities
Published: December 2013

Ruling: Q1: Can the "Facility Committee", be treated as a non-profit sub-entity by you, pursuant to Division 63 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Are the playing fees paid by users of the Facility exempt from goods and services tax (GST)? | A2: No.

Relevant facts and circumstances: · You are registered for GST. You are also known as the Association. · You are a non-profit body that is an exempt entity for income tax purposes as per section 50-45 of the Income Tax Assessment Act 1997 (Cth). · You are a sporting association and your objects are as specified in your constitution: · You put forward a proposal to the local council, ("Council") for the construction of a sport field ("Facility"). · A Memorandum of Understanding ("MOU") was drawn up to confirm in principle the proposed arrangement between the Council and you for the construction and subsequent occupation under licence of the Facility. · As per the MOU: It is proposed that once the facility is built that you will take a Non-Exclusive Licence of the facility from Council. · The MOU provided that the project was to be funded via Council providing a grant and a "loan". In addition, a payment of an amount of money was made by you. Construction of the Facility was completed. · The MOU stated that you would enter into a Loan Agreement with Council, to be signed prior to the occupation of the site to repay the principal and interest on the "loan". · The construction of the Facility was managed by Council's Design Section subject to prior approval by Council of a Development Application. · Once construction of the Facility was completed, you took a non- exclusive Licence of the Facility from Council under a deed of licence ("Deed of Licence"). Under this Deed of Licence, you are the Licensee of the Facility and the Council the licensor of such land. · The granting of a non-exclusive licence to you means that the Facility may be used by third parties. In this respect, the use of the facility is not limited to use by you or affiliated clubs, i.e. it is not for the exclusive use of your members. · The MOU providing details of the on-going management of the site by you under the terms of the Deed of Licence during the currency of the licence. The MOU, specifically required that you appoint a committee (also containing a Council representative) to manage the Facility initially for five years. As such, the "Facility Committee" was appointed. · Further, as specified in the MOU, the role of the "Facility Committee" is to manage the financial aspects of the Facility, including the implementation and on-going review of a business plan, to monitor actively Government grants for further upgrading of the site and ensure the on-going financial viability of the facility. · Under the MOU you are to provide to council a copy of your annual financial statements, including a balance sheet. · Under the MOU the "Facility Committee" together with the Council should inspect the site and in particular the surface of the field annually (and more frequently if necessary) for the purpose of determining whether any repairs or renovations are required to any of the facilities. § Since its inception, "Facility Committee" has: o Maintained an MYOB accounting system separate to your accounts; o Generates its own invoices for the payment of usage fees and other income; o Maintained its own bookkeeper for the preparation of its accounts; o Prepared separate and independent financial reports; o Has managed all bookings for the Facility. § The "Facility Committee" derives income through levying a number of fees, including playing fees and training fees, which relate to the use and provision of the playing surface at the Facility. These fees are collected from your members, other affiliated clubs and third parties such as local schools. § In addition, income was previously derived from leasing out a section of the building. However, the operation of that section of the building has been transferred over to you and all income derived from this flows directly to you. § The "Facility Committee" also derives income from signage sponsorship although the typical amount of income received throughout a year is insignificant. § The majority of income received by "Facility Committee" has been used to repay the "loan" provided by Council. The remainder of the income is used for the maintenance of the Facility, as well as accumulate funds for the future maintenance costs. § Presently, the "loan" provided by Council has been completely repaid. As such, income received by "Facility Committee" going forward will be retained and used for the maintenance of the Facility. § None of the income received by "Facility Committee", whether during the period of the "loan" or post-repayment, is passed on to you, i.e. all income received by "Facility Committee" is retained by the "Facility Committee". § You have elected and recorded in your records the decision to treat the "Facility Committee" as a separate sub-entity for GST purposes. · Your members and members of affiliated clubs pay you membership and other fees.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 7-1 | Section 9-5 | Section 9-10 | Section 63-5 | Subsection 63-15(1) | Income Tax Assessment Act 1997 Section 50-45

Reasons for decision: Summary: There are no other legislative provisions in the GST Act or any other Act that would allow the playing fees to be exempt from GST. Consequently, the playing fees are subject to GST given they are payment for your taxable supply of sporting facilities, as all the requirements of section 9-5 of the GST Act are satisfied. The supply of the sporting facilities is for consideration, in the course of your enterprise, in Australia and you are registered for GST.

Reasons for decision: Division 63 of the GST Act introduces special rules that enable certain non-profit entities to have greater structural flexibility with regard to their GST registration by allowing them to create non-profit sub-entities for GST purposes. | Subsection 63-5(1) of the GST Act stipulates that for an entity to be able to create non-profit sub-entities it must satisfy the criteria in subsections 63-5(2) and 63-15(1) of the GST Act. | Entities which would satisfy the criteria in subsection 63-5(2) of the GST Act must be registered for GST and are either: | · endorsed charities, gift-deductible entities that are non-profit bodies or government schools; or | · non-profit bodies that are exempt from income tax under any of the following specified provisions of the Income Tax Assessment Act 1997 (ITAA): | (i) section 50-5 (charity, education, science and religion); | (ii) section 50-10 (community service); | (iii) section 50-15 (employees and employers); | (iv) section 50-40 (primary and secondary resources, and tourism); | ( v) item 9.1 or 9.2 of section 50-45 (sports, culture and recreation). | These non-profit organisations with small independent units or branches have the option of treating the units or branches as if they are separate entities for GST purposes and not part of the main organisation. | Subsection 63-15(1) of the GST Act provides that the unit or branch: | · must maintain an independent system of accounting; and | · must be able to be separately identified from the main entity by its activities or by its location; and | · must be referred to in the main entity's records to the effect that it is to be treated as a separate entity for the purpose of the GST law. | You are a non-profit body registered for GST and you are exempt from income tax in accordance with section 50-45 of the ITAA. To be able to treat the "Facility Committee" as a non-profit sub-entity, the requirements of subsection 63-15(1) of the GST Act must be satisfied. | You have advised that the "Facility Committee" maintains an independent system of accounting. | In determining whether the activities of the "Facility Committee" are separately identifiable by their nature from those of the main entity, it is necessary to identify the main purpose of the entity, by inspection of the entity's governing documents. In this instance we have examined your constitution. | Your constitution stipulates that your main or dominant purpose is to undertake activities to foster develop and administer a sport throughout your region and surrounding areas. Your activities would include activities that are for the furtherance or carrying on of your main or dominant purpose. | These activities including the provision of sporting facilities to your members, members of affiliated clubs and schools for fees, the maintenance of those facilities and the repayment of the "loan" to the Council, are undertaken by you for the promotion, development and administration of the sport. As such these activities, when undertaken by the "Facility Committee" cannot be regarded as separately identifiable from your main or dominant activities. | Therefore as all the requirements of Division 63 are not met, you are unable to elect to have your "Facility Committee" treated as a non-profit sub-entity. | Further information on non-profit sub-entities is provided in the Charities Consultative Committee resolved issues document (available from the ATO website www.ato.gov.au).