GST and grouping of two partnerships from 1 April 2003

Do entity A and entity B, both partnerships, satisfy the membership requirements of a GST group under section 48-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), from 1 April 2003 where: • entity A consists of Individual X and Family Trust Y (the family trust of Individual Y, who is a family member of Individual X); and • entity B consists of Individual X, Individual Y, Family Trust X (Individual X's family trust) and Family Company Y (a company whose sole shareholder is Individual Y)?

Yes, both entity A and entity B satisfy the membership requirements of a GST group under section 48-10 of the GST Act from 1 April 2003.

Entity A and entity B are Australian resident partnerships that are registered for goods and services tax (GST).

Entity A comprises two partners: Individual X and Family Trust Y.

Entity B comprises four partners: Individual X, Individual Y, Family Trust X and Family Company Y.

For the purposes of a GST group; • Individual X is a family member (refer note 1) of Individual Y; • Family Trust Y is the family trust (refer note 2) of Individual Y; • Family Trust X is the family trust of Individual X; and • Family Company Y is the family company (refer note 3) of Individual Y.

Entity A and entity B share the same tax periods and account for GST on the same basis. Entity A and entity B have jointly applied to the Commissioner, in the approved form, for approval as a GST group. In their application, entity A is nominated as the representative member for the group.

Neither entity A nor entity B belongs to any other GST group, nor do they have any branches that are registered under Division 54 of the GST Act.

Entity A notified the Commissioner, in the approved form, of the formation of a GST group and is nominated in that notice as representative member of the GST group.

The membership requirements of entities proposing to form a GST group are outlined in section 48-10 of the GST Act. In relation to partnerships, each entity must: • satisfy the requirements specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) • be registered for GST • have 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 • account for GST on the same basis as all the other members of the GST group or proposed GST group • not be a member of any other GST group, and • not have any branch that is registered under Division 54 of the GST Act.

Entity A and entity B are registered for GST, have the same tax periods, account for GST on the same basis, are not members of another GST group and do not have any branches registered under Division 54 of the GST Act. Therefore, the entities will satisfy the membership requirements if they satisfy the requirements specified in the GST Regulations.

Regulation 48-10.02 of the GST Regulations sets out the membership requirements that must be satisfied for a partnership to be a member of a GST group.

Subregulation 48-10.02(2A) of the GST Regulations states that:

If the GST group consists only of partnerships: (a) there are no further requirements for one of the partnerships; however (b) each of the other partnerships in the group must satisfy the requirements of subregulation (5).

Either partnership can be chosen to meet the requirements of paragraph (a). For the purpose of this ATO Interpretative Decision, entity A is taken to be this partnership (the member partnership). Therefore, entity B (the candidate partnership) must satisfy the requirements of subregulation 48-10.02(5) of the GST Regulations to qualify for membership of a GST group.

Subregulation 48-10.02(5) of the GST Regulations is satisfied if the candidate partnership meets the four requirements of the subregulation. In this case, entity B is the candidate partnership that must satisfy this subregulation.

This requirement is satisfied for a candidate partnership where the member partnership is a member of the group because of the operation of paragraph 48-10.02(2A)(a) or subregulations 48-10.02(3), 48-10.02(3A) or 48-10.02(4) of the GST Regulations or the application, or repeated application, of subregulation 48-10.02(5) of the GST Regulations.

Entity A is a member of the GST group and the member partnership because it was taken to be the partnership that satisfied paragraph 48-10.02(2A)(a) of the GST Regulations. Therefore, entity B satisfies this requirement.

This paragraph requires that each partner in the candidate partnership is an individual, a family trust of an individual or a family company of an individual.

There are four partners in entity B, the candidate partnership. The four partners are individual X and individual Y (two individuals), Family Trust X (a family trust of an individual) and Family Company Y (a family company of an individual). The partners of entity B are of a type listed in paragraph 48-10.02(5)(b) and entity B satisfies this requirement.

To meet this requirement, for each partner in the candidate partnership there must be a partner in the member partnership that is of a kind listed in this provision. For entity B to satisfy this requirement, each of the four partners of entity B must have a particular relationship (as listed in the provision) with a partner of the member partnership.

Each partner in entity B has a relationship with a partner in entity A (which includes being a partner in entity A) and the relationships are as follows:

Individual X (a partner of entity B) is also a partner in entity A and therefore has a relationship with entity A (subparagraph 48-10.02(5)(c)(i) of the GST Regulations);

Family Trust X (a partner of entity B) is a family trust of individual X and individual X is a partner of entity A. Family Trust X has a relationship with entity A (subparagraph 48-10.02(5)(c)(i) of the GST Regulations);

Individual Y (a partner of entity B) has a family trust, Family Trust Y, which is a partner in entity A. Therefore Individual Y has a relationship with entity A (subparagraph 48-10.02(5)(c)(ii) of the GST Regulations); and

Family Company Y (a partner of entity B) is a family company of Individual Y. Family Trust Y, a family trust of Individual Y, is a partner of entity A. Therefore, Family Company Y has a relationship with entity A (subparagraph 48-10.02(5)(c)(ii) of the GST Regulations).

Entity B has therefore satisfied this requirement.

To meet this requirement, at least two of the partners in the candidate partnership must satisfy paragraph 48-10.02(5)(c) of the GST Regulations through different partners in the member partnership. That is, one of the partners in entity B, the candidate partnership, must comply through Individual X and another partner must comply through Family Trust Y.

Individual X is a partner in both entity B (the candidate partnership) and entity A (the member partnership). Individual Y, a partner in entity B, satisfies paragraph 48-10.02(5)(c) of the GST Regulations through Family Trust Y, a partner in entity A. Therefore, two partners in entity B, the candidate partnership, comply through different partners in entity A. This requirement is then met.

All of the requirements of subregulation 48-10.02(5) of the GST Regulations are satisfied by entity B, the candidate partnership.

As the proposed group consists only of two partnerships, entity A and entity B, and entity B meets all of the requirements of subregulation 48-10.02(5) of the GST Regulations, the conditions of subregulation 48-10.02(2A) of the GST Regulations are satisfied.

Therefore, entities A and B satisfy the membership requirements of a GST group under section 48-10 of the GST Act from 1 April 2003. Note 1 The meaning of 'family member' is set out in subsection 48-15(2) of the GST Act and section 272-95 of Schedule 2F to the Income Tax Assessment Act 1936 . Generally, a 'family member' includes a parent, grandparent, brother, sister, nephew, niece, child or child of a child of an individual or the individual's spouse. Note 2 Refer paragraph 48-10.02(6)(a) of the GST Regulations for the definition of the term 'family trust'. Note 3 Refer paragraph 48-10.02(6)(b) of the GST Regulations for the definition of the term 'family company'. Note 4: Division 48 of the GST Act was amended with effect from tax periods starting on or after 1 July 2010. Prior to the amendments, entities were required to apply to the Commissioner for approval to form a GST group. As a result of these amendments, references to the Commissioner approving the formation of a GST group have been removed from this ATO ID.