House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 5 - Special rules for certain entities

Overview

5.1 This Chapter explains the provisions in Division 5 of new Part VI . This Division imposes separate obligations on certain entities if other entities have obligations under the GST law.

Summary of the legislation

5.2 The special rules apply to the following entities:

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partners in a partnership;

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participants in a joint venture;

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members of the committee of management of an unincorporated association or body of persons;

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members of a GST group;

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representatives of incapacitated entities;

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liquidators or receivers;

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public officer of a company; and

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directors of a company.

Explanation of the legislation

Liability of partners

5.3 An entity for the purposes of the GST law includes a partnership (see definition of entity , in section 184-1 of the GST Act). However, as a partnership is not a separate legal entity the GST law also imposes separate obligations on the partners of a partnership.

5.4 Partners will be jointly and severally liable for any amount payable by the partnership and will be taken to have individually committed offences committed by the partnership. The GST law will also provide that if a person is prosecuted for an offence under these provisions, certain defences will be available. [New section 50]

Liability of participants in a GST joint venture

5.5 Two or more companies may participate in a GST joint venture (see Division 51 of the GST Act). Consequences of a GST joint venture are that the liability for GST and the entitlement to input tax credits rest with the joint venture operator.

5.6 Participants in a GST joint venture will be jointly and severally liable for any amount payable by the joint venture operator that relates to the joint venture. Participants will each be taken to have committed offences committed by the joint venture operator but certain defences will be available to them. [New section 51]

Liability related to unincorporated associations or bodies of persons

5.7 The GST law treats an unincorporated association or body of persons as an entity (see definition of entity , in section 184-1 of the GST Act). Although any member may discharge an obligation imposed by the GST law, obligations that the unincorporated entity has are separately imposed on members of the committee of management of the unincorporated entity. Members will each be taken to have committed offences committed by the unincorporated entity but certain defences will be available to them. [New section 52]

Liability of members of a GST group

5.8 Two or more companies that belong to a 90% owned group (as defined in Division 190 of the GST Act) may operate for GST purposes as a GST group (see Division 48 of the GST Act). Consequences of a GST group are that the liability for GST and the entitlement to input tax credits rest with the representative member of the group.

5.9 Members of a GST group will be jointly and severally liable for any amount payable by the representative member that relates to the group. Members will each be taken to have committed offences committed by the representative member but certain defences will be available to them. [New section 53]

Liability of representatives of incapacitated entities

5.10 The GST law imposes obligations on the representative of a bankrupt or an entity in liquidation or receivership if the representative is required to be registered for GST purposes (see Division 147 of the GST Act).

5.11 If there are 2 or more representatives of the incapacitated entity each will be jointly and severally liable for any amount payable by the representatives that relates to the entity. Representatives will each be taken to have committed offences committed by any of the representatives but certain defences will be available to them. [New section 54]

Obligations of liquidator or receiver

5.12 Special obligations are imposed on a liquidator or receiver if they are not required to be registered for GST purposes. This may occur if the enterprise carried on by the company has ceased prior to their appointment.

5.13 A liquidator or receiver who takes control of the assets of a company will be required to notify the Commissioner of that fact within 14 days of taking control. As soon as practicable, the Commissioner will be required to notify the liquidator or receiver of the amount necessary to set aside to cover the GST that is payable by the company or may become payable.

5.14 The liquidator or receiver will not be able to part with any assets of the company without the Commissioner's permission but this obligation will not apply to the payment of a debt that is not an ordinary debt. An ordinary debt is an unsecured one that is not required by any law to be paid in priority to the other debts of the company.

5.15 The formula for calculating the assets to be set aside will include the expression 'notified other taxes' which means the total of any amounts, other than GST, which the Commissioner has notified as being outstanding. [New section 55]

Public officer of a company

5.16 The public officer of a company will be responsible for ensuring that the company meets all its obligations under the GST law and will be liable if the company defaults on those obligations. The person appointed as public officer for the purposes of the Income Tax Assessment Act 1936 , will also be the public officer for GST purposes.

5.17 A proceeding may be brought against the public officer and notices or other documents relevant to the GST law may be served on the public officer. [New section 56]

Liability of directors etc. of a company

5.18 Directors, company officers and attorneys or agents of a company will have the same potential liabilities as the public officer of a company.

5.19 If the Commissioner thinks fit, documents may be served on them and any proceeding may be taken against them instead of or in addition to the company or public officer. [New section 57]

Obligations of agent winding up business for non-resident principal

5.20 Special obligations will apply to agents winding up businesses for principals who are not residents of Australia. Within 14 days of being instructed by the principal to wind up the business the agent will be required to advise the Commissioner of the instruction.

5.21 The Commissioner will then be required as soon as practicable to advise the agent of any GST payable by the principal and the agent will be required to set aside sufficient assets to pay the GST. The agent will be liable as trustee to pay the GST owing by the principal to the extent of the value of the assets that the agent is required to put aside.

5.22 If the agent fails to comply with these obligations, the agent will be personally liable to pay the GST and will be guilty of an offence punishable on conviction by a fine of up to 10 penalty units. [New section 58]