Private ruling: GST grouping
Date of advice: 12 May 2017
Published: September 2017

Ruling: Q1: Does entity B satisfy the eligibility requirements to be added to the entity A GST group? | A1: Yes, entity B satisfies the eligibility requirements to be added to the entity A GST group.

Relevant facts and circumstances: Entity A is an Australian resident trust which is registered for GST and is currently the representative member of a GST group. The entity A GST group consists only of trusts and the members account for GST on a non-cash (accruals) basis in monthly tax periods. Entity B is an Australian resident company that has entity C as trustee for entity A as its sole shareholder. Entity B is registered for GST on a non-cash (accruals) basis with monthly tax periods and it is currently not a member of any GST group nor does it have any GST branches. Entity A is proposing to add entity B to its GST group from a certain date. Entity B has not yet agreed in writing to join the entity A GST group but it intends to do so before entity A notifies the Commissioner in the approved form about its inclusion.

Relevant legislative provisions: 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 paragraph 48-15(1)(a) | A New Tax System (Goods and Services Tax) Act 1999 paragraph 48-70(1)(a) | A New Tax System (Goods and Services Tax) Act 1999 section 48-71 | A New Tax System (Goods and Services Tax) Act 1999 section 190-5

Reasons for decision: Summary: Based on the information provided, entity B satisfies the relevant membership requirements set out in subsections 48-10(1) and (3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore, once entity B has agreed in writing to its inclusion, it will be eligible to be added to the entity A GST group. | 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. Once formed, Subdivision 48-C of the GST Act sets out the administrative matters involved in changing the membership, etc of a GST group. In particular, paragraph 48-70(1)(a) of the GST Act provides that the representative member of a GST group may, with the written agreement of an entity that satisfies the membership requirements of the GST group, add that entity to the GST group. In this case, entity A is proposing to add entity B to its GST group. However, entity B has not yet agreed in writing to join the entity A GST group but it intends to do so before entity A notifies the Commissioner in the approved form about its inclusion into the GST group. According to paragraph 48-70(1)(a) of the GST Act, not only must entity B agree in writing to be added, it must also satisfy the membership requirements of the GST group. In relation to the membership requirements, subsection 48-10(1) of the GST Act 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 the GST Act). In this case, entity B is a company but as there are no other companies in the current entity A GST group, the requirement in paragraph 48-10(1)(b) of the GST Act that entity B must be part of the same 90% owned group of companies as all of the other members of the entity A GST group that are also companies does not apply. In relation to the other membership requirements in paragraphs 48-10(1)(c) to (g) of the GST Act, entity B is registered for GST on a non-cash (accruals) basis with monthly tax periods which is the same accounting basis and tax periods applying to the other members of the entity A GST group. In addition, entity B is not a member of any other GST group nor does it have any branches under Division 54 of the GST Act. Therefore, entity B satisfies the membership requirements in paragraphs 48-10(1)(c) to (g) 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. This means that, as entity B will be the only company in the entity A GST group it must also satisfy one of the relationship requirements set out in section 48-15 of the GST Act. Of relevance to this case, is paragraph 48-15(1)(a) of the GST Act which provides that a company that is a member of a GST group, or a proposed GST group, satisfies this section if a partnership, trust or individual that is a member of the GST group or proposed GST group would, if it were another company, have at least a 90% stake in that company. Under section 190-5 of the GST Act, a company has at least a 90% stake in another company when it controls at least 90% of the voting power and it has the right to receive at least 90% of any dividends and capital distributions. The facts show that entity C in its capacity as trustee for entity A is the sole shareholder of entity B and therefore, it would have effective control of all of the voting power of entity B, as well as, the sole right to all dividends and capital distributions paid by entity B. Consequently, the requirement in paragraph 48-15(1)(a) of the GST Act is satisfied. Therefore, based on the information provided, entity B satisfies all of the membership requirements in subsections 48-10(1) and (3) of the GST Act and as such, once it has agreed in writing to its inclusion, entity B will be eligible to be added to the entity A GST group. In addition, as per section 48-71 of the GST Act, the Commissioner will approve the requested date of effect for the addition of entity B into the entity A GST group.