Goods and Services Tax Determination

GSTD 2006/6

Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999?

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Preamble

1. Yes. Miscellaneous Taxation Ruling MT 2006/1^[1] considers the meaning of the terms 'entity' and 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act). The ABN Act uses the definitions of these terms that are contained in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The principles in that Ruling apply equally to the terms 'entity' and 'enterprise' and can be relied upon for GST purposes.

2. A brief summary of some of the main principles in MT 2006/1 follows.

Definitions of 'entity' and 'enterprise'

3. The term 'entity' is defined in section 184-1 of the GST Act.^[2] The term 'enterprise' is defined in section 9-20 of the GST Act. Unless otherwise stated, all legislative references in this Determination are to the GST Act.

What is an entity?

4. 'Entity' means any of the following:

(a)

an individual;

(b)

a body corporate;

(c)

a corporation sole;

(d)

a body politic;

(e)

a partnership;

(f)

any other unincorporated association or body of persons;

(g)

a trust; or

(h)

a superannuation fund.

5. 'Entity' is defined in section 184-1; previously, there was also a definition of the term 'entity' in section 37 of the ABN Act, which was repealed by the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006.^[3] A similar definition of 'entity' can be found in section 960-100 of the Income Tax Assessment Act 1997 (ITAA 1997). It is intended that the term entity has a common meaning across the ABN, GST and income tax Acts. However, the particular definition of 'entity' still needs to be considered in the context of the Act in which it is found. Also note for ABN and GST purposes a defined part of an entity may be taken to be an entity in itself.^[4]

What is an enterprise?

6. An enterprise is defined as an activity or series of activities done in a certain manner or by certain entities. The activities covered include those done in the form of a business or an adventure or concern in the nature of trade, leasing on a regular or continuous basis, activities done by charitable or religious institutions, superannuation funds, and activities done by the Commonwealth, a State, a Territory, or local government.

7. It should be noted that there is a difference between the way in which the GST and ABN Acts treat superannuation funds. Although superannuation funds have a common definition for GST and ABN purposes, there is a difference in the treatment when considering if they carry on an enterprise for GST purposes. This difference is that although all superannuation funds are entitled to an ABN (as entities taken to be carrying on an enterprise under section 5 of the ABN Act) broadly, for GST purposes, it is only a complying superannuation fund's activities that are taken to be an enterprise (paragraph 9-20(1)(da)). Other superannuation funds not meeting the requirements of paragraph 9-20(1)(da) fall for consideration under the more general terms of the remainder of subsection 9-20(1).^[5]

8. There are certain activities that are excluded from the 'enterprise' definition. These exclusions include activities done as an employee, as a private recreational pursuit or hobby, or by individuals or partnerships (all or most of the members of which are individuals) without a reasonable expectation of profit or gain. Paragraph 18 of this Determination has details of these and other exclusions as mentioned in subsection 9-20(2).

9. 'Enterprise' is defined in section 9-20; previously there was also a definition of the term 'enterprise' in section 38 of the ABN Act, which was repealed by the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006.

An activity or series of activities^[6]

10. Essentially, this is any act or series of acts that an entity does. The meaning of the term 'activity or series of activities' for an entity can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity.^[7]

In the form of a business^[8]

11. An enterprise includes an activity, or series of activities, done in the form of a business. The phrase 'in the form of a business' is broad and has as its foundation the longstanding concept of a business. The wider phrase has not been considered by Australian courts.^[9] The definition clearly includes a business and the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own. This occurs in the case of non-profit entities. In such instances we consider that not all of the main features of a business such as a capacity to earn and distribute profits need to be present before an activity has the form of a business.

12. The definition of 'business' in section 195-1 is the same as that used in subsection 6(1) of the Income Tax Assessment Act 1936 and in section 995-1 of the ITAA 1997. It follows that the meaning of 'business' should be interpreted in a similar way. As such, it is appropriate to refer to Taxation Ruling TR 97/11 which considers the meaning of 'business'.^[10]

In the form of an adventure or concern in the nature of trade^[11]

13. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the sale of the family home, a private car or other private assets is not, without other factors being present, an adventure or concern in the nature of trade.

14. As a matter of statutory interpretation the phrase 'in the form of an adventure or concern in the nature of trade' is wider than 'an adventure or concern in the nature of trade'. However, the underlying concept of an adventure or concern in the nature of trade does not logically lend itself, in any meaningful way, to being broadened. In a practical sense, an activity is either an adventure or concern in the nature of trade or it is not.^[12]

When is an enterprise being carried on?

15. The term 'carrying on' is defined in section 195-1 and ensures that activities done in the course of commencement or termination of an enterprise are included in determining whether the activities of the entity amount to an enterprise.

16. An identical definition of 'carrying on' an enterprise can be found in section 41 of the ABN Act and section 995-1 of the ITAA 1997.

17. It follows from this definition that activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise.^[13]

Exclusions to the definition of enterprise^[14]

18. There are specific statutory exclusions to the definition of enterprise. Excluded are activities done:

•

by a person:

-

as an employee;

-

as a company director;

-

as an office holder; or

•

under a labour hire arrangement or as specified by regulation;^[15]

•

as a private recreational pursuit or hobby;

•

by an individual (other than a trustee of a charitable fund or of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN), or a partnership (all or most of the members of which are individuals) without a reasonable expectation of profit or gain; or

•

as a member of a local governing body established by or under a State Law or Territory law (except a local governing body to which subsection 12-45(3) in Schedule 1 to the Taxation Administration Act 1953.^[16]

Date of Effect

19. This Determination explains our view of the law as it applied from 1 July 2000. You can rely upon this Determination on and from its date of issue for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953. Goods and Services Tax Ruling GSTR 1999/1 explains the GST rulings system and our view of when you can rely on our interpretation of the law in GST public and private rulings.

20. If this Determination conflicts with a previous private ruling that you have obtained or a previous public ruling, this public ruling prevails. However, if you have relied on a previous ruling, you are protected in respect of what you have done up to the date of issue of this public ruling. This means that if you have underpaid an amount of GST, you are not liable for the shortfall prior to the date of issue of this later ruling. Similarly, you are not liable to repay an amount overpaid by the Commissioner as a refund.

Commissioner of Taxation
13 December 2006

Not previously issued as a draft

References

ATO references:
NO 2004/11631

Related Rulings/Determinations:

TR 97/11
GSTR 1999/1
MT 2006/1

Subject References:
activity or series of activities
adventure or concern in the nature of trade
business
carrying on an enterprise
commencement of an enterprise
employee
enterprise
entity
in the form of
private recreational pursuit or hobby

Legislative References:
ANTS(GST)A 1999 9-20
ANTS(GST)A 1999 9-20(1)
ANTS(GST)A 1999 9-20(1)(a)
ANTS(GST)A 1999 9-20(1)(b)
ANTS(GST)A 1999 9-20(1)(da)
ANTS(GST)A 1999 9-20(2)
ANTS(GST)A 1999 Div 63
ANTS(GST)A 1999 Div 149
ANTS(GST)A 1999 184-1
ANTS(GST)A 1999 195-1
ANTS(ABN)A 1999 5
ANTS(ABN)A 1999 37
ANTS(ABN)A 1999 38
ANTS(ABN)A 1999 41
ITAA 1936 6(1)
ITAA 1997 30-15
ITAA 1997 960-100
ITAA 1997 995-1
TAA 1953 Sch 1 12-45(3)
TAA 1953 Sch 1 105-60
Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006

Case References:
Body Corporate Villa Edgewater Cts 23092 v. FC of T
2004 ATC 2056
55 ATR 1162

Toyama Pty Ltd v. Landmark Building Developments Pty Ltd
2006 ATC 4160
[2006] NSWSC 83
62 ATR 73