The Government is today announcing the requirements for partnerships and trusts that

wish to use the GST grouping arrangements.

After consultation, rules have been developed to allow a broad range of entity

arrangements to use the GST grouping rules for partnerships and trusts. Regulations

incorporating these rules are expected to be gazetted on Wednesday, 19 April 2000.

The Government will also allow individuals to use the GST grouping provisions.

These changes will help many small and medium businesses to substantially reduce their

GST compliance costs by removing the need to charge GST and claim input tax credits, as

well as create tax invoices for supplies between related entities. This will mean that the

cash flow implications arising from the differences in the timing of payment of GST and

claiming an input tax credit are removed on transactions between grouped entities.

In developing the grouping rules, entity arrangements relating to primary production

businesses, small family businesses, medical practices and professional services

organisations (such as accounting and legal firms) were considered. The family connections

that often exist in these arrangements were also taken into account. Trusts will include

superannuation funds that operate through a trust structure.

The details of the requirements for partnerships and trusts that wish to use the GST

grouping provisions are outlined in the attachment to this press release. Affected

entities will be able to decide how they can structure their organisations for GST

purposes. Each entity that wishes to use the GST grouping rules must separately register

for GST as a precondition of grouping.

Canberra

17 April 2000

Contact: Rob Heferen

(02) 6263 4351

ATTACHMENT

A partnership can be a member of a GST group if it meets any of the following tests:

1. the partnership has at least a 90% stake in a company who is a member of the GST group

   or proposed GST group; or

2. all of the shareholders of a company which is a member of the GST group or proposed GST

   group are:

• for a single shareholder company – a partner in the partnership or a family member

  of that partner;

• for a company with more than one shareholder – partners or family of partners, in a

  way that at least two partners are represented, either personally or by a family member;

  or

3. at least one of the trusts that is a member of the GST group or proposed GST group (ie a

   trust that meets the requirements below), has beneficiaries that include partners in the

   partnership, or family members of those partners, in a way that at least two partners are

   represented:

• either personally or by a family member; and
• either directly or indirectly through one or more interposed trusts.

A trust (whether that trust be a fixed (unit) trust, discretionary trust, hybrid trust

or a superannuation fund operated through a trust structure) can be a member of a GST

group if it meets either of the following tests:

1. it has at least a 90% stake in a company that is a member of a GST group or proposed GST

   group; or

2. it does not distribute any income or capital of the trust to a beneficiary that is not a

   permitted beneficiary.

The following are beneficiaries that will be a permitted beneficiary:

1. a company that is a member of the GST group or proposed GST group;
2. shareholders or family of shareholders of a company that is a member of the GST group or

   proposed GST group if:

• for a single-shareholder company – that shareholder, or a family member of that

  shareholder is a beneficiary of the trust, either directly, or indirectly through one or

  more interposed trusts;

• for a company with more than one shareholder – at least two of the shareholders of

  the company are represented as beneficiaries:

  • either personally or by a family member; and
  • either directly or indirectly through one or more interposed trusts.

3. partners or family of partners in a partnership that is a member of the GST group or

   proposed GST group if at least two partners of the partnership are represented as

   beneficiaries:

• either personally or by a family member; and
• either directly or indirectly through one or more interposed trusts;

4. a charitable institution, a trustee of a charitable fund, or a gift-deductible entity.

‘Family’ of the relevant individual will be any parent, grandparent, brother,

sister, nephew, niece, child, or child of a child of either the individual or the

individual’s spouse. Family of the individual will also include the individual’s

spouse and the spouses of any person mentioned in the previous sentence.

The company satisfies the membership requirements of a GST group in section 48-10 of

the GST Act. The partnership will be able to join in a GST group with the company as more

than one of the partners are shareholders in the company, and all of the shareholders of

the company are either partners or family of partners. The trust will also be able to join

the GST group, as it only makes distributions to permitted beneficiaries.

The company satisfies the membership requirements of a GST group in section 48-10 of

the GST Act. Because the shareholders of the company are the same as the partners in the

partnership, the partnership will be able to join a GST group with the administration

company. Trust A will also be able to join the GST group, as it only makes distributions

to permitted beneficiaries (the 3^rd partner and his/her family are indirect

beneficiaries through an interposed trust). Trust B will not be able to join the GST group

as it distributes to only one partner and their family.