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GST Q&A – GST and Employee Social Clubs

An employee social club is approaching turnover of $150,000 per annum – what GST issues arise?

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Question

An employee staff social club is funded primarily by fortnightly after-tax deductions from employees’ pay. Other sources of funding include an employer contribution and various fundraising events. Annual turnover is approaching $150,000.

 

What GST issues arise regarding the need to register for GST? How is the employer contribution treated? Would the club be entitled to GST input tax credits on expenses, including the provision of events which includes food and drink?

Answer

As a starting point it is critical to confirm the club is an independent entity from the employer (most likely, as either an unincorporated or incorporated association). This issue will have a bearing on both GST and FBT issues arising from the conduct of the social club.

ATO ID 2007/208 confirms where the club is independent of the employer (i.e. has a separate legal structure/independence of decision making) any employer contributions (and the general operation of the club) should not create any FBT exposure for the employer. However, note the rationale of the ATO ID:

”… at the time the benefit is provided by the employer to the social club, the identity of employees is not known with “sufficient particularity”, despite the fact that the social club has been established solely for the benefit of employees of the employer. It cannot be ascertained at that point in time that there has been a benefit provided in respect of any particular individual employee.’

A key consideration for the club where turnover approaches the not-for-profit mandatory GST registration threshold of $150,000 is to assess whether all types of turnover are included when determining whether the threshold is met.

The concept of ‘current GST turnover’ provides that an entity needs to consider the value of all supplies that you have made in the preceding 12 month period excluding certain supplies and, so far as is relevant to this issue, supplies that are not for consideration.

A contribution by the employer to the social club would be expected to take the form of a donation/gift.

On this basis, the employer contribution would not be consideration and the amount should not be included when assessing the $150,000 threshold.

Accordingly, care should be exercised when determining whether the mandatory GST registration threshold has been met. Of course, it is possible to voluntarily register for GST where the mandatory threshold has not been met –  however this introduces the prospect of needing to remit GST on supplies made (including employee membership contributions), the administrative compliance of lodging business activity statements, and raises issues such as the one below.

A general restriction exists under the GST law for claiming GST credits where the acquisition relates to provision of entertainment (subject to various exceptions contained in section 32-40 of the Income Tax Assessment Act 1997). This restriction could prevent a GST registered social club claiming credits on acquisitions that relate to entertainment (i.e. food and drink costs, venue hire etc.) unless the ATO takes the view an exception in section 32-40 applies.

Item 3.1 of s. 32-40 provides an exception where you are providing entertainment for payment in the ordinary course of a business that you carry on. We take the view the exception should apply, although whether a social club is accepted as business is certainly questionable (despite it being accepted as in ‘…the form of a business’ for GST purposes pursuant to a specific provision to that effect). An initial discussion with the ATO suggested they have not formed a view on this issue previously, so if registration is to be pursued this issue should certainly be investigated in advance.

As an aside, we are not aware of any GST registered social clubs.

Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.