Private ruling: GST and non-profit sub-entities
Published: March 2012

Ruling: Q1: Can you treat a branch as a non-profit sub-entity pursuant to Division 63 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You are registered for goods and services tax (GST) and are a non profit body. You have confirmed that you are exempt from income tax. You carry out some of your activities through a branch. The branch's activities can be separately identified from your core activities. The separately identifiable branch's GST turnover is less than $150,000. You advised that you had documented your election to treat this separately identifiable branch as a non-profit sub-entity (for GST purposes) in your records. The branch has its own independent system of accounting.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 63-1 | A New Tax System (Goods and Services Tax) Act 1999 Section 63-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 63-15

Reasons for decision: Summary: Under Division 63 of the GST Act certain non profit bodies have the option to treat branches or units of their organisation as if they were separate entities for GST purposes and not part of the main organisation. An entity choosing to apply Division 63 of the GST Act must be registered for GST purposes and must be: (1) a charitable institutions, trustees of charitable funds, gift-deductible entities or government schools; or (2) a non-profit bodies that are exempt from income tax under any of the following specified provisions of the Income Tax Assessment Act 1997 : (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). You are registered for GST and are a non profit body that is exempt from income tax. Sub-section 63-15(1) of the GST Act requires that the branch which you choose to treat as a non-profit sub-entity must also satisfy the following criteria, that is, it: (a) maintains an independent system of accounting; and (b) can be separately identified by reference to: (i) the nature of the activities carried on through the branch; or (ii) the location of the branch; and (c) is referred to in the entity's records to the effect that it is treated as a separate entity for the purposes of the GST law. | Detailed Reasoning - Independent system of accounting: The ATO view on independent system of accounting is provided on the Charities Consultative Committee Resolved Issues Document (CCC Report) which you can download from the ATO website at www.ato.gov.au. The CCC Report provides that an independent system of accounting does not necessarily require that a separate bank account be kept or that a separate set of books be kept. It is essential however that the records of the sub-entity can be clearly and easily distinguished from the records of the main entity. They should be easy to access and extract. It is recommended that the best means of maintaining clearly identifiable records is to establish separate cash receipts and cash payment books and possibly a separate bank account. Please note that a separate bank account is not essential. You have advised that the branch has an independent and separate system of accounting for its activities. Therefore, the separately identifiable branch satisfies this criterion as it maintains an independent system of accounting. | Detailed Reasoning - Separately identifiable activities: In determining those activities that are separately identifiable by their nature from the main entity it may be necessary to identify the main purpose of the entity, by inspection of the entity's governing documents, use of funds and history if necessary. Those activities that are separately identifiable from the activities undertaken by the entity pursuant to its main purpose can be treated as non-profit sub-entities provided that the other aspects of the test for eligibility are satisfied. Our records indicate that your core activities can be separately identified from the activities of the branch. | Detailed Reasoning - Recording of the election: You have advised that you will be making an election in your records (minutes of meeting) that will make reference to the effect that you will be treating the branch as a non-profit sub-entity. From the date of the election, the activities at the branch are treated as a non-profit sub-entity for GST purposes, unless you revoke your choice or the branch ceases to meet the criteria discussed earlier. Please note that you cannot revoke the choice to treat the branch as a non-profit sub-entity within 12 months after the day on which you make the choice. | Detailed Reasoning - Other important points: If the non-profit sub-entity GST turnover is less than $150,000 it can choose whether it registers or not. Where the sub-entity has a GST turnover of $150,000 or more it will be required to register separately for GST and will have the same rights and obligations as other GST registered entities, except for the ability to form other non-profit sub-entities. The liability for all GST obligations of the unit will be imposed on the persons responsible for the management of the non-profit sub-entity. Non-profit sub-entities are separate entities for GST purposes. Non-profit sub-entities are for GST purposes only not PAYG, FBT, IT. An organisation cannot create a sub-entity for its main activities such as membership of the main organisation. Where an organisation creates multiple sub-entities and the turnover of the main organisation is reduced to below $150,000 the main organisation cannot elect to cancel their registration. In order to enjoy the flexible options under Div 63 the main organisation must remain registered for GST. More information on the operation of non-profit sub-entities can be found in the ATO booklet - Tax basics for non-profit organisations and its Addendum.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.