1 Can you choose to treat your unit as a non-profit sub-entity for GST purposes under Division 63 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 Yes, you can choose to treat your unit as a non-profit sub-entity for GST purposes under Division 63 of the GST Act.
You are a non-profit body that is registered for goods and services tax (GST) and exempt from income tax under one of the provisions of the Income Tax Assessment Act 1997 (ITAA 1997) specified in subsection 63-5(2) of the GST Act. You undertake some of your activities not related to your main purpose through a unit. Your constitution (Constitution) sets out your objects and purpose. Your Constitution also includes clauses for a management committee whose functions involve general control and management of the administration of the association's affairs, property, and funds. In the minutes of a meeting of the management committee you recoded the resolution to treat a unit as a separate non-profit sub-entity for the purposes of the GST law. Your accounting software allows you to ensure the unit's records are easily accessed and are kept distinct and separate from the records of activities related to your core operations. A separate bank account is maintained in relation to the unit's activities (receipts and payments).
A New Tax System (Goods and Services Tax) Act 1999 Section 63-1. 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.
Summary As you satisfy the requirements of Division 63 of the GST Act you may choose to treat the unit as a non-profit sub-entity. This includes you being registered for GST and being a non-profit body that is exempt from income tax under one of the provisions of the ITAA 1997 specified in paragraph 63-5(2)(b) of the GST Act. Further, in accordance with subsection 63-15(1) of the GST Act, you maintain an independent system of accounting in relation to the unit, the unit can be separately identified by reference to the nature of its activities (including that those activities do not form part of the activities undertaken by you pursuant to your main purpose) and the unit is referred to in your records (meeting minutes) to the effect that the unit is to be treated as a separate entity for the purposes of the GST law. Detailed reasoning Legislation Under Division 63 of the GST Act some types of non-profit entities specified in subsection 63-5(2) of the GST Act may choose to have some or (all) of their separately identifiable branches or units 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 a non-profit body that is exempt from income tax under any of the provisions of the ITAA 1997 specified in paragraph 63-5(2)(b) of the GST Act. Under subsection 63-15(1) of the GST Act while the choice has effect, any branch or unit of the main entity (you) is treated, for the purposes of the GST law as an entity if that branch or unit: (a) maintains an independent system of accounting; and (b) can be separately identified by reference to: (i) the nature of the activities carried on through the branch; or (ii) the location of the branch; and (c) is referred to in the entity's records to the effect that it is treated as a separate entity for the purposes of the GST law. Each of the requirements of subsections 63-5(2) and 63-15(1) of the GST Act is considered are applied as follows: Are the requirements of subsection 63-5(2) of the GST Act satisfied? Yes
As you are registered for GST and are a non-profit body exempt from income tax under one of the provisions of the ITAA 1997 specified in paragraph 63-5(2)(b) you satisfy the requirements of subsection 63-5(2) of the GST Act. Does the unit maintain an independent system of accounting? Yes To satisfy the requirement of paragraph 63-15(1)(a) of the GST Act the unit must maintain an independent system of accounting which will allow its transaction to be clearly identified. The Australian Taxation Office (ATO) has provided guidance on what constitutes an independent system of accounting in the Charities Consultative Committee Resolved Issues Document (CCC Report) accessible from the ATO website at https://www.ato.gov.au/law/view/document?LocID=%22GIR%2Fcharities-consultative-committee-ch1%22&PiT=99991231235958. Question 5 in the CCC Report under the heading 'specific questions and answers' explains that:
'an independent system of accounting does not necessarily require that a separate bank account be kept or that a separate set of books be kept. It is essential however that the records of the sub-entity can be clearly and easily distinguished from the records of the main entity. They should be easy to access and extract. It is recommended that the best means of maintaining clearly identifiable records is to establish separate cash receipts and cash payment books and possibly a separate bank account'. A separate bank account was set up to receive payments and make purchases related to the operation of the unit notwithstanding that it operates within your overall accounting system. Your accounting software allows for separate reporting of the unit's income (receipts) and expenses (payments) by tracking different sections or cost centres within the same entity.
Transactions are uniquely coded into accounts used exclusively for the unit's activities. The units' activities are accounted for independently within the accounting system using the platform's tracking categories, to allow the financial performance of the unit to be distinguished from that of the main entity. The unit's records are easy to access and extract from within the accounting system. Therefore, the requirement that you maintain, in relation to the unit, an independent system of accounting is satisfied. Is the unit separately identified? Yes To satisfy the requirement of paragraph 63-15(1)(b) of the GST Act the unit must be separately identified by reference to either the nature of the activities carried on through the unit or by location of the units' activities. As the units' activities are undertaken at the same location you undertake your other core activities, the unit is not separately identified by reference to its location. The issue then is whether the unit's activities are separately identified by reference to their nature.
The ATO notes on its website at https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/your-organisation/gst-for-not-for-profits/gst-branches-groups-and-non-profit-sub-entities in the publication entitled 'GST branches, groups and non-profit sub-entities' under the heading 'non-profit sub-entities that: A branch/unit cannot be a non-profit sub-entity if its activities are related to the main purpose of the organisation. For example, an organisation cannot treat its membership activities as the activities of a non-profit sub-entity. The unit's activities revolve around the sale of goods. Your core activities are related to your main purpose and revolve around membership, registration and fostering, developing and advancing activities. The activities of the unit are separate in nature to your membership, registration, fostering etc activities related to your main purpose. The nature of the activities carried on through the unit are such that the unit can be separately identified from you satisfying the requirements of paragraph 63-15(1)(b) of the GST Act. Is the unit referred in your records as a separate entity? Yes
The management committee recorded the resolution in the minutes of the meeting to treat the unit as a separate non-profit sub-entity. On that basis the requirement that the unit be referred to in your records as treated as a separate entity (non-profit sub-entity) for the purposes of the GST law is satisfied. Period for your choice to have effect Subsections 63-10(1) and (2) of the GST Act provide that your choice to treat the unit as a separate entity (recoded in the minutes of the meeting) has effect from the time you made the choice and ceases to have effect if: you revoke the choice or you cease to meet the requirements of subsection 63-5(2) of the GST Act. You cannot revoke your choice to treat the unit as a non-profit sub-entity within 12 months after the day on which you made the choice and you cannot make a further choice within 12 months after the day on which you revoked a previous choice (subsection 63-10(3) of the GST Act). Conclusion
As all the requirements of subsections 63-5(2) and 63-15(1) of the GST Act are satisfied, while the choice made by you has effect, your unit may be treated, for the purposes of the GST law only, as an entity (separate non-profit sub-entity). The unit's treatment as an entity ceases if: the choice ceases to have effect or the unit ceases to meet the requirements of paragraphs 63-15(1)(a), (b) and (c) of the GST Act. However, if the unit is registered for GST, its treatment as an entity continues until its registration is cancelled.