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?
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.