Definition of "associated persons" in the GST Act, and charitable bodies

Changes have been made to the definition of "associated persons" in the Goods and Services Tax Act 1985 to ensure that supplies to and by charitable and non-profit bodies do not give rise to a GST obligation when the donor or donee is associated with the body.

Section 2A(1) of the Goods and Services Tax Act 1985

Changes have been made to the definition of "associated persons" in the Goods and Services Tax Act 1985 to ensure that supplies to and by charitable and non-profit bodies do not give rise to a GST obligation when the donor or donee is associated with the body.

Background

GST charged in relation to a supply of goods and services is calculated by reference to the value of that supply, which is normally the consideration paid for the goods and services in question. It is possible, therefore, that two associated persons may agree to enter into a transaction with each other where the consideration charged for goods or services is either reduced or is nil. The GST Act provides a special valuation rule in these circumstances whereby the consideration for a supply is treated as being the open market value of the supply where the supply is made between associated persons. However, the special valuation rule applies to any supply made for nil value, including the supply of goods and services by or to a charitable or non-profit body.

Section 2A of the GST Act contains the definition of "associated persons". The combined effect of the wording of the "associated persons" definition before the amendments and the special valuation rule was that certain activities of charitable and non-profit bodies could be subject to GST on the full open market value because they were made by or to an associated person.

Key features

Section 2A(1)(f) associates a trustee and a beneficiary of a trust. The section has been amended so it does not apply in relation to a supply of goods and services when:

  • the trustee is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic, or cultural purposes and the supply is made by the trustee in carrying out these purposes; and
  • the beneficiary is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic, or cultural purposes and the supply enables them to carry out these purposes.

Section 2A(1)(h) associates a trustee of a trust and a trustee of another trust if the same person is a settlor of both trusts. The section has been amended to ensure that two trustees with a common settlor are not associated when one of those trusts is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic, or cultural purposes, and the supply is made in carrying out, or enables the carrying out, of these purposes.

Application date

The amendments apply from 7 December 2009.