Private ruling: GST and non-profit sub-entities
Date of advice: 17 September 2020
Published: November 2020

Ruling: Q1: Can you choose to treat programs undertaken by branch committees as non-profit sub entities (NFP sub-entities) under Division 63 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, you can choose to treat your programs as NFP sub-entities under Division 63 of the GST Act. This is provided this choice is reflected in your records in accordance with paragraph 63-15(1) (c) of the GST Act.

Relevant facts and circumstances: You are an incorporated association and a non-profit entity that is registered for GST. You have self-assessed to be an income tax exempt non-profit body under the Income Tax Assessment Act 1997 (ITAA 1997).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 division 63 | 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 some kinds of non-profit entities may choose to have some (or all) of their separately identifiable branches treated as separate entities for GST purposes. An entity may choose to apply Division 63 of the GST Act where the entity is registered for GST (subsection 63-5(2) of the GST Act) and is an endorsed charity or a government school or a gift deductible entity that is a non-profit body or relevantly a non-profit body that is, amongst other things, exempt from income tax under section 50-10 (community service) of the Income Tax Assessment Act 1997 (ITAA 1997) (subparagraph 63-5(2)(b)(ii) of the GST Act). Under subsection 65-15(1) of the GST Act while the choice has effect, any branch of the main entity is treated, for the purposes of the GST law as an entity if that branch: (i) the nature of the activities carried on through the branch or (ii) the location of the branch (paragraph 63-15(1)(b) of the GST Act) and It is important for the requirements above to be satisfied in order for the main entity (you) to choose to treat a branch committee (i.e. A, B, C programs and Conference) as an entity in itself for the purposes of the GST law and for that choice to be recorded. You are required to recognise in your own records the separate status of the NFP sub-entity. This can occur in the minutes of meetings or in some other record. Where the requirements of Division 63 of the GST Act (including that there is a record of the choice) are not satisfied, then the branch is not able to be treated as a separate entity for GST purposes. | Detailed Reasoning - Requirements of subsection 63-5(2) of the GST Act: On the facts provided, you satisfy the requirements in section 63-5 of the GST Act because you are an entity registered for GST that is a non-profit body exempt from income tax under the ITAA 1997. The issue here, is whether each of the requirements in paragraphs 63-15(1)(a) (b) and (c) of the GST Act are satisfied in respect of the activities undertaken by the branch committees in respect of each of the programs. | Detailed Reasoning - Maintenance of and independent system of accounting (paragraph 63-15(1)(a)): To satisfy the requirement of paragraph 63-15(1)(a) of the GST Act each of the branch committees undertaking each of the program activities must maintain an independent system of accounting which will allow all of their transaction to be clearly identified. You and each of the branch committees undertaking the programs maintain a system of accounting that constitutes an independent system of accounting in relation to each of the branch committees in question. This is because the system of accounting provides for separate and independent accounts in relation to each branch committees transactions enabling them to extract required individual branch accounts (various income and expenses transactions separately coded) into separate reporting journals and financial statements. The accounting system allows the flexibility to easily distinguish and access all records held, thereby satisfying the requirement that an independent system of accounting is maintained by the branch committees in relation to each of the program transactions in accordance with paragraph 63-15(1)(a) of the GST Act. | Detailed Reasoning - Branch is separately identifiable by reference to the nature of the activities or by location (paragraph 63-15(1)(b)): To satisfy the requirement of paragraph 63-15(1)(b) of the GST Act each of the program branch committees must be separately identified by reference to either the nature of the activities carried on through the branch or by location of the branch. As each of the branch committees undertaking the programs operate from the same location the issue is whether they can be separately identified by reference to the nature of the activities carried on through each of the program branch committees. The phrase 'separately identified by reference to the nature of the activities' and the individual words in that phrase are not defined in the GST Act. Therefore, it is necessary for us to consider the ordinary meaning of these words and their surrounding context. The Australian Oxford Dictionary , 2004, 2nd edn, Oxford University Press defines 'nature' to be 'things of a kind, sort or class'. So, 'nature of the activities' as a phrase indicates activities of a kind, sort or class. The Supplementary Explanatory Memorandum to the A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999 (the Supplementary EM) provides that Division 63 of the GST Act was inserted to enable certain non-profit entities to have greater structural flexibility with regard to GST registration. It states in paragraph 3.3 that: Many charitable organisations have numerous divisions, branches or committees which do not meet the definition of an entity as defined in the GST Act. Often, these smaller units of the organisation work independently of the core entity . The core entity will often exercise little or no effective control over the unit , with the unit producing its own accounts and otherwise managing its own affairs. Given the large numbers of these independent units (thousands in some cases), the current law imposes a large compliance burden on these organisations, requiring them to bring together GST accounts for all of the units at the end of each tax period. Further the core entity often will have little capacity to ensure that the accounts of the units are correct due to the limited control that they exercise over them. (Bold added for emphasis). Further, paragraph 3.12 of the Supplementary EM states: for a branch to be considered a non-profit sub-entity it must: ... be separately identifiable either because the activities carried on by the branch differ from other activities carried on by the entity, or because the branch is in a different location from other parts of the entity... (bold added for emphasis). With regards to each of the separate branch committees undertaken a program reference to the nature of its activities in managing and undertaking the programs allows them to be separately identified from the other branch committees and the core activities undertaken by you. As such each branch committee undertaken the programs in questions is separately identifiable by reference to the nature of the activities and satisfies the requirements of paragraph 63-15(1)(b) of the GST Act. | Detailed Reasoning - Recording of choice or decision (paragraph 63-15(1)(c)): If each of the each of the branch committees undertaking the programs are referred to in your records to the effect that these branch committees are to be treated as sperate entities for the purposes of the GST law in accordance with paragraph 63-15(1)(c) of the GST Act you will satisfy the last requirement to choose to treat the branch committees as separate NFP sub-entities. Where all the requirements of Division 63 of the GST Act are satisfied an NFP sub-entity is taken to be a separate entity carrying on an enterprise for the purposes of the GST law (see paragraph 155 of Miscellaneous Taxation Ruling 2016/1). This means that a registered NFP sub-entity that has chosen to register for GST or is required to be registered for GST will be liable for the GST on the supplies it makes and will be entitled to a GST credit for the GST in the price of goods and services it acquires in carrying on its activities (not those of the main entity).

maintains an independent system of accounting (paragraph 63-15(1)(a) of the GST Act) | is referred to in the main entity's records to the effect that it is to be treated as a separate entity for the purposes of the GST law (paragraph 63-15(1)(c) of the GST Act).