When considering whether or not to group several entities for GST purposes, it is important to consider not just the administrative and current GST position of the entities, but the overall impact that forming a GST group will have on each member entity.
A GST group consists of two or more business entities that operate as a single business for GST purposes. To form a GST group, entities must satisfy certain requirements and the nominated group representative must notify the ATO.
The consequence of forming a GST group is that the entities that make up the GST group are effectively treated as a “single entity” (Division 48 of the GST Act) for various GST purposes. The effect of forming a GST group is that:
- the representative member is responsible for lodging a single GST return on the group’s behalf;
- internal transactions between group members are generally ignored for GST purposes;
- all GST transactions made by the group with external parties (i.e. taxable supplies, creditable acquisitions, taxable importations) are effectively treated as being made through the representative member. However, the Tax Office expects tax invoices to be issued in the name of the entity that makes the supply, and not the name of the representative member;
- the representative member is responsible for any GST payment and related input tax credit, and for any adjustments that are due (except where a member has since left the GST group). However, the group members are still jointly and severally liable for the group’s tax debts.
For GST groups, the representative member of the GST group is liable for the GST debts of the entire group. Additionally, under section 444-90 of Schedule 1 to the Tax Administration Act, all members of a GST group are jointly and severally liable for the GST payable by the GST group. However, the representative member and the other group members can enter into an indirect tax sharing agreement to limit a group member’s exposure to joint and several liability to GST
Importantly, GST thresholds are applied for the group as a single entity and not to each member. For example, the financial acquisitions threshold in Division 189 only applies to the GST group as a whole and cannot be allocated to each member of the GST group. The turnover limits (i.e. cash accounting, monthly tax periods) apply to the group as a whole and all members must be on the same reporting basis and GST period (ie. cash/accruals, monthly/quarterly).
Administratively, although the representative member is responsible for lodging the group’s GST return, each member would still prepare its own BAS to substantiate the GST claims it makes.
Finally, it is important to differentiate between GST grouping and forming a tax consolidated group. The two are not the same and grouping for GST does not mean the entity members are tax consolidated.
The above provides a snapshot of the implications of grouping. If you would like to discuss the matters further, please contact Mimi Ngo at MKT.