The Pros and Cons of GST Grouping

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21
May

The Pros and Cons of GST Grouping

21.05.19

A GST group is a group of two or more associated business entities that operate as a single business for the purposes of GST.

How does it work?

A GST group has a ‘representative member’ that becomes wholly responsible for reporting and paying GST liabilities for the entire group, including preparing and lodging business activity statements (BAS). The representative is then entitled to claim any GST credits for all group entities, as well as liable for any GST that is due to be remitted to the ATO.

What are the advantages and disadvantages of a GST group?

Advantages

Disadvantages

  • Reduced compliance requirements as transactions you conduct with other group members are ignored for GST purposes.
  • Tax invoices for intragroup transactions do not need to be issued (tax invoices for transactions outside the group must still be issued by the group member making the sale).
  • Only the representative member will complete the activity statement to report GST on behalf of all group members (only one single activity statement needs to be lodged).
  • Extra care must be taken to ensure that intragroup transactions are correctly excluded. (GST must still be levied on the relevant transactions that are not between group members.)
  • GST Groups are assessed for threshold on a group basis. Businesses that are turning over in excess of $20m per year must also lodge BAS’ on a monthly rather than quarterly basis.
  • Each member of the GST group is still jointly and severally liable for the GST liability of the group. However, the risks of this issue can be mitigated by all group members entering into an indirect tax sharing agreement.

 Who is eligible to join a GST Group?

Companies, trusts and partnerships with common ownership or membership may operate as a group. Individuals, or family members of individuals, associated with these entities may also be part of a GST group. However, a GST group can't consist solely of individuals.

One member of the group must be nominated as the representative member. This member must be an Australian resident for tax purposes. Other members don't need to be Australian residents for tax purposes.

What are the requirements to form a group?

In order to form a GST group, each member must:

  • be registered for GST;
  • have the same tax period as all the other members of the proposed GST group;
  • account for GST on the same basis (either cash or accrual) as all the other members of the proposed GST group;
  • not belong to any other GST group;
  • have no branches for GST purposes; and
  • satisfy the requirements and regulations of that particular type of entity.

ESV has assisted many business with assessing the need for a GST group and the actual formation of GST Groups. For further information or advice on GST grouping please contact our office on 02 9283 1666.

 

Article by Chris Kirkwood