Member Q&A – Are fines issued to members subject to GST?

Question

Our organisation is a not-for-profit sports association that operates a league for member clubs. Where a member club has breached certain membership rules imposed by the association the member club is fined. Are these fines subject to GST?

Answer

A supply will be subject to GST if it meets the requirements of a taxable supply.

One of the pre-conditions of a taxable supply is that there must be a supply for consideration.

Where a fine is imposed by an association on a member club in the following circumstances:

• the fine is imposed, in accordance with the constitution or rules of that association, on a member who has refused or neglected to comply with the rules of membership of the association, or has been found guilty of conduct unbecoming a member or prejudicial to the interests of the association; and
• the fine is primarily intended as a punishment and/or to act as a deterrent;

the ATO’s considers that there is no supply made by the association and payment of the fine is not consideration for a supply. As a result there is no GST liability for the association in relation to the imposition/receipt of fines. From the perspective of a member club, there would be no input tax credit available arsing from payment of the fine.

On the basis that your association has imposed the fine for a breach of its membership rules and on the assumption the fine is primarily intended as a punishment, then the fine will not be subject to GST.

If the fine is not imposed under the above circumstances, then consideration will need to be given as to whether a supply has been made and if so, whether the requirements of a taxable supply have been met.

For further information on the GST treatment of fines please refer to GSTD 2005/6.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.