GST: Body Corporate (Sinking Fund Levies)

Is the entity, a body corporate, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it receives sinking fund levies from its members?

Yes, the entity is making a taxable supply under section 9-5 of the GST Act, when it receives sinking fund levies from its members.

The entity is the body corporate of a home unit complex. The entity requires its members to contribute to a sinking fund in order to maintain and service the home unit complex.

The entity is registered for goods and services tax (GST). The 'transaction' meets the other requirements of section 9-5 of the GST Act.

Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply. The existence of a 'supply' itself is an essential element in determining whether a transaction is a taxable supply under section 9-5 of the GST Act.

Section 9-10 of the GST Act discusses the meaning of the word 'supply' for GST purposes. Paragraph 9-10(2)(g) of the GST Act states that a supply includes:

an entry into, or release from, an obligation: (i) to do anything; or (ii) to refrain from an act; or (iii) to tolerate an act or situation.

The supply a body corporate makes to its members is the entry into an obligation to maintain and manage the complex in a sound condition. This comes within the definition of supply contained in the GST Act.

The fact that the supplier is an entity of which the recipient of the supply is a member, or that the supplier is an entity that only makes supplies to its members, does not prevent the payment made by the recipient from being consideration. Therefore, a payment from an owner to a body corporate can be consideration for a supply made by the body corporate to the owner.

The entity is registered for GST and the transaction is a 'supply' that fulfils all of the requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it receives sinking fund levies for the supply of an entry into an obligation to maintain and manage the complex in a sound condition. [NOTE: When the entity actually spends the sinking fund levies on budgeted items such as refurbishment, painting etc., it can claim input tax credits for the GST included in this expenditure, as it will be for a creditable purpose and will relate to supplies that are neither input taxed or private or domestic in nature (Division 11 of the GST Act).]