Miscellaneous Taxation Ruling

MT 2008

Bank account debits tax : minor business activities of government bodies

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FOI status:

May be releasedFOI number: I 1122411

PREAMBLE

Section 11 of the Bank Account Debits Tax Administration Act 1982 provides for the issue of certificates of exemption in respect of bank accounts of government departments, government authorities, municipal corporations or other local governing bodies (hereafter referred to as government bodies) where the Commissioner of Taxation is satisfied that debits to the accounts are "excluded debits" as defined in sub-section 3(1) of the Act.

2. By virtue of sub-paragraph (a)(vii) of the definition of "excluded debits", as originally enacted, debits to the bank account of a government body did not qualify as "excluded debits" in two circumstances, i.e. -

(1)

where the sole or principal function of the government body was to carry on an activity in the nature of a business (whether or not for profit) or

(2)

where the debit resulted from a transaction entered into by the government body in connection with the carrying on of an activity in the nature of a business (whether or not for profit).

3. The second circumstance meant that government bodies such as local councils which, along with their local government functions, conducted business activities such as swimming pools, child care centres, caravan parks, etc. were subject to the bank account debits tax even though the business activities represented a minor or insignificant part of the council's functions.

4. Because transactions relating to such business activities were generally conducted through the local council's main operating bank account that account was not eligible for the issue of a certificate of exemption. Instead, the council was initially required to pay tax on all debits to the account and subsequently claim a refund from the Taxation Office of the tax paid on its non-business debits relating to its local government activities.

5. In some cases, local councils established separate bank accounts for their local government activities and for their business activities. A certificate of exemption was issued in respect of the main operating account but tax was payable on all debits made to the account relating to its business activities.

6. The Bank Account Debits Tax Administration Amendment Act 1984 - Act No.102 of 1984 - effective on and from 1 November 1984 - extends exemptions from bank account debits tax to debits to accounts of government bodies where the debit arises from any business activity which is a minor or insignificant part of the functions of the government body. The amendment largely removes the second circumstances referred to earlier.

7. This will mean, for example, that a local council will no longer be subject to the tax in respect of a business activity such as operating a caravan park or swimming pool where, viewed overall, that activity represents a minor or insignificant part of the council's functions.

8. However, a council which carries on, for example, a substantial electricity undertaking by acquiring and distributing electricity to residents in its area of responsibility will not be eligible for exemption in respect of debits relating to that business activity because it would not ordinarily be a minor or insignificant part of the council's functions.

9. The purpose of this ruling is to provide guidelines to assist in the implementation of the legislation change.

RULING

10. Government bodies such as local municipal councils which continue to maintain separate bank accounts for local government activities and for their business activities will need to apply to the Taxation Office for a certificate of exemption for their business activities account where they consider that the business activities form a minor or insignificant part of their overall functions.

11. Some government bodies may decide to cease operating separate "exempt" and "non-exempt" accounts on and after 1 November 1984 and to conduct all their transactions, business or otherwise, through the "exempt" operating account. The question arises in these cases whether a fresh application is required to be made to the Taxation Office in respect of the combined cheque account to authorise the exemption of the account from the tax.

12. Rather than revoke existing certificates of exemption and issue fresh ones in cases where government bodies decide to combine their "exempt" and "non-exempt" transactions into one cheque account, existing certificates of exemption are to remain in force provided that:-

(i)

debits in relation to business activities such as operating swimming pools, child care centres, caravan parks are included in the "exempt" account; and

(ii)

the activity represents a minor or insignificant part of the government bodies' functions.

13. On the other hand, if a government body commences to include in an existing "exempt" account debits in relation to business activities which represent more than a minor or insignificant part of its functions, e.g. the operations of an electricity undertaking, the government body's certificate of exemption would need to be revoked.

14. Where any government body which decides to combine its existing "exempt" and "non-exempt" accounts has any doubt whether its business activities represent a minor or insignificant part of its functions the matter should be taken up with the nearest branch of the Taxation Office.

COMMISSIONER OF TAXATION
23 October 1984

References

ATO references:
NO J49/287 F266

Date of effect:
1 November 1984

Related Rulings/Determinations:

MT 2002

Subject References:
GOVERNMENT BODIES MINOR BUSINESS ACTIVITIES

Legislative References:
BANK ACCOUNT DEBITS TAX ADMINISTRATION ACT 1982 SS 3(1)