Intra-group supply when an invoice is issued after recipient leaves a GST group

Does subsection 48-40(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to a supply made from Entity A to Entity B if it is made at a time when they are in the same GST group, but the related invoice is issued when Entity B is no longer a member of the GST group?

Yes, subsection 48-40(2) of the GST Act 1999 applies to Entity A's supply to Entity B such that it is not a taxable supply, as the supply was made at a time when both entities were members of the GST group.

In tax period 1 Entity A and Entity B are both members of the same GST group.

Entity A is the representative member of the GST group.

In tax period 1 Entity A makes a supply (supply X) to Entity B.

At the end of tax period 1, after supply X is made, Entity B ceases to be a member of the GST group.

In tax period 2 Entity A issues an invoice to Entity B for supply X. No consideration was received for the supply before the invoice was issued.

Entity A and Entity B account for GST on a non-cash basis and have monthly tax periods.

But for subsection 48-40(2) of the GST Act 1999 supply X would be a taxable supply.

Subparagraphs 48-40(2)(a)(i) of the GST Act 1999 and 48/40(2)(a)(ii) of the GST Act 1999 do not apply to supply X.

All legislative references are to the GST Act 1999.

Division 48 of the GST Act enables two or more entities to form a GST group provided that certain requirements are satisfied. In accordance with section 48-1 of the GST Act this allows one member of the GST group to deal with all GST liabilities and entitlements, and (in most cases) exclude intra-group transactions from the GST.

Relevantly, subsection 48-40(2) provides that in certain circumstances intra-group supplies are treated as if they are not taxable supplies. Paragraph 48-40(2)(a) states that: (a) a supply that an entity makes to another *member of the same *GST group is treated as if it were not a *taxable supply, unless: i. it is a taxable supply because of Division 84 (which is about offshore supplies other than goods or real property); or ii. the entity is a participant in a *GST joint venture and acquired the thing supplied from the *joint venture operator for the joint venture; and ... [Note: * denotes a defined term in the GST Act].

Subsection 29-5(1) determines in which tax period GST payable on a taxable supply is to be attributed when a supplier accounts for GST on a non-cash basis, it states: (1) The GST payable by you on a *taxable supply is attributable to: a) the tax period in which any of the *consideration is received for the supply; or b) if, before any of the consideration is received, an *invoice is issued relating to the supply - the tax period in which the invoice is issued.

Therefore, but for subsection 48-40(2), supply X would be a taxable supply, so it would follow that attribution of GST payable would occur in tax period 2 as that is when the invoice relating to the supply was issued (as no consideration was received for the supply prior to this time).

However, to determine if a potential intra-group supply is to be treated as if it were not a taxable supply the key issue is the interpretation given to the phrase 'supply that an entity makes to another member of the same GST group' in paragraph 48-40(2)(a). Hence it is apparent that both entities need to be members of the relevant GST group at the relevant time - being the time of the supply - for the provision to take effect. It follows that when one of the relevant members either leaves or joins the GST group, there is a need to determine when the supply was made relative to the membership of the group changing.

The GST Act is silent on the issue of when a supply is made, although the Act does contain rules (generally in Division 29) which determine the tax period to which any GST payable on the supply is attributable. However while these attribution rules determine when GST is payable they do not address when the supply is made. If a supply is made in a tax period that is different to the tax period in which any GST payable on the supply is to some extent attributed, the timing of attribution does not change the character of the supply, as being taxable or not, nor does it change when the supply occurs.

In the case of a supply that is an intra-group supply subsection 48-40(2) treats the supply as if it were not a taxable supply if it is made while both entities are members of the GST group. There is nothing in subsection 48-40(2), nor elsewhere in Division 48, that changes the way the supply is treated if, subsequent to the supply being made, one of the entities leaves the group. The time at which the supply is made and the application of subsection 48-40(2), are not affected by the notion that (if subsection 48-40(2) did not in fact apply) the related GST payable would have been attributed under section 29-5 at a time when Entity B was no longer a member of the GST group.

In this instance supply X is made at a time when both Entity A and Entity B are members of the same GST group, therefore subsection 48-40(2) applies to Entity A's intra-group supply to Entity B so that it is not treated as a taxable supply. This is not affected by Entity A subsequently issuing the related invoice when Entity B is no longer a member of the GST Group. Note: The conclusions in this ATO ID are consistent with the ATO Guidance contained in the NTLG GST issues register - Issue 5.9 Formation and revocation of GST groups -www.ato.gov.au