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  • Issue no. 17 - Trusts

    17.1 A very common method of business operation that will involve making taxable supplies is through a trust. For GST purposes, the trust is the entity making the supply and that entity will have an ABN and GST registration.

    The public face of the entity is the trustee, often a company. The trustee is the person with the legal capacity to carry on the business. Even though the trust is the entity for taxation purposes, that trust is not a 'person' for other purposes.

    On most occasions when the trustee is carrying out activities on behalf of the trust pursuant to the trust deed, the trustee does not disclose the fact that it is acting in the capacity of a trustee and does not disclose the name of the trust. There is probably no requirement under any other law that this disclosure be made. For example, where a trustee (say KC Nominees Pty Ltd) issues invoices in its capacity as trustee for the trust (say The KC Family Trust), that invoice will only bear the name of KC Nominees Pty Ltd.

    Under GST, The KC Family Trust will have an ABN and be registered for GST purposes. KC Nominees Pty Ltd may not have an ABN, (although eventually it will) and is unlikely to be registered for GST as it is unlikely to carry on an enterprise in its own right.

    The entity that is registered on the Australian Business Register is the trust. Although an entity is defined to include a trust, because the trust has no legal personality, it is not capable of carrying on an enterprise. The trust is not able to make a taxable supply. Rather, the trustee entity carries on the enterprise in its capacity as trustee. Consequently the ABN will be issued to the trustee entity and not to the trust "entity". The trust itself will not have an ABN in its own right.

    If an entity acts as trustee for more than one trust, they are taken to be a different entity in respect of each different capacity in which they act- see subsection 184-1(3).

    17.2 When a trustee company acts for a trust, there is an issue with the application of the tax invoice requirements, particularly the obligation to show "the ABN of the entity that issues [a tax invoice]"

    The only name on the invoice will be say KC Nominees Pty Ltd. As an interim measure, the ACN of the company must also be shown. Eventually, the ABN of KC Nominees Pty Ltd must be shown.

    The entity making the supply, from the context of the GST legislation is The KC Family Trust, but this is not the entity that will issue the tax invoice.

    There will be reluctance on the part of trustees to disclose either the fact that they are acting in the capacity of a trustee in a transaction or to disclose the name of the trust on whose behalf they are acting unless the law most clearly imposes this obligation.

    Goods and services tax ruling GSTR 2000/17, which deals with tax invoices, comments as follows on the issue of the name which should appear in such a situation:

    Tax invoices issued by the trustee of a trust

    59. Although an entity is defined to include a trust,11 a trust has no legal personality and so will not be registered in its own right on the Australian Business Register. Rather, the trustee of the trust will be registered and will be issued with an ABN in its capacity as trustee. The legal name of the entity will be identified on the register as the trustee for the particular trust, for example 'The Trustee for the Jones' Family Trust'.

    60. A tax invoice for a supply made by a trustee must show the trustee's ABN.12 That is, the ABN issued to the trustee in that capacity.13 A tax invoice must also show the name of the supplier.14 Additionally, tax invoices with a total amount payable of $1000 or more must show the name of the recipient.15 The requirement to show the name of the trustee is satisfied if the tax invoice shows:

    • the legal name for the trustee - for example, The Trustee for the Jones' Family Trust or Aqua Pty Ltd as Trustee for the Jones' Family Trust;
    • the name of the trustee - for example, Aqua Pty Ltd.
    • the trading name of the enterprise carried on by the trustee - for example, Aqua Hydroponic Supplies.

    61. Although the last two options do not identify the underlying trust relationship, the Australian Business Register will reveal that the entity is a trust.

    The approach minimises the extent to which the trustee must disclose that capacity. While the GST legislation compels the use of the trust's ABN when the trustee issues tax invoices in that capacity, the proposed approach minimises the disclosure required.

    The ABN and ACN requirements in such cases are dealt with by question 70.

    17.3 Distributions in specie - please provide some guidance on distributions in specie particularly where distributions are made to beneficiaries and where rights are surrendered by beneficiaries upon a distribution

    We consider that the supply of something, in specie, from a trust to a beneficiary is a supply between associated entities. A distribution made by a trust to a beneficiary does not involve the surrender to the trust of any rights held by the beneficiary in the trust. As a supply from a trust to a beneficiary will be made to an associate for no consideration, the application of Subdivision 72-A will need to be considered for each supply. If Subdivision 72-A applies to the supply, the value of the supply will be the GST-exclusive market value of the supply.

    The disposal, by way of redemption, of units held by a beneficiary in a unit trust for consideration consisting of an in specie distribution from the trust, involves both the trust and the beneficiary making a supply for consideration.

    17.4 Transfer of assets as a result of change in trustee

    Issue

    Company A is a corporate trustee for a discretionary trust. All of the assets including land and buildings are held in the name of company A. Company B is to be to be the new corporate trustee and the trust deed is so amended. The assets are transferred from company A to company B including title changes on the land and buildings.

    Company A and company B are associates for the purposes of Section 82 of the GST legislation. Does the transfer of the assets from company A to company B trigger a GST taxable supply at market value?

    Supplementary Issue

    The Tax Office to consider whether the following information can be incorporated in the response:

    • if company A was sold to company B, would it be a taxable supply?

    Further Issues requested in February 2003:

    • What happens if the thing acquired is not for a solely creditable purpose? Will Division 72 apply? If so, what is the market value?
    • Why is there a supply? Isn't the entity the trust? Division 184 merely states that the trustee of a trust is taken to be an entity. The trust is still the entity so there is no supply.

    It would be useful if the response went on to consider the position if the trust assets do relate to making input taxed supplies (rather than simply saying that the trust assets will 'most likely relate to making taxable supplies).

    Before considering that point, the discussion in the meeting as to whether a supply even arises where there is a change of trustee is noted. To determine this, we need to confirm who is 'carrying on the enterprise' in relation to the trust assets - the 'trustee' or the 'trust'. This point is not clear from Division 184. If it is the trust (rather than the trustee) that is carrying on the enterprise, no supply will arise when there is a change in trustee. Having given trusts the status of 'entity' for GST purposes, it is reasonable to assume that GST law regards the trust 'entity' to be 'carrying on the enterprise' in respect of the trust assets.

    That said, if it is determined that there is a supply arising out of a change of trustee, we need to consider the potential application of Division 72 to a situation where the old and new trustee are associates, and the supply is of assets that relate to making input taxed supplies. Having looked at Division 72, it would appear that no GST liability will arise on the transfer of assets such as shares or units (which will be used to make input taxed supplies). This is because the transfer itself would be input taxed. Whilst Division 72 provides that a supply for no consideration between associates is not prevented from being a taxable supply, it does not transform what would otherwise be an input taxed supply (such as the transfer of shares) into a taxable supply.

    ATO response

    There is no new entity created for ABN or GST purposes when there is a change in trustee, provided there is no change in the underlying trust.

    A trust is an entity under paragraph 184-1(1)(g) of the GST Act.

    However, there is a problem in providing that a trust is an entity. This is because rights and obligations can only be placed on a separate legal entity. A trust is not a separate legal entity.

    Subsection 184-1(2) is designed to overcome the problem. It is designed to ensure that the rights and obligations under the GST Act are conferred or imposed on the trustee.

    First it provides that the trustee is taken to be an entity. It is as though we are pretending that the trustee is the trust. For instance Company A is the trustee of the Jones Family Trust. The entity is the Jones Family Trust. For the purposes of the GST Act, Company A is taken to be the trust.

    Second it describes who the trustee is. This is the person (including a company) who is the trustee at any given time. The use of the phrase 'at any given time' takes into account that a trustee may change. For example on 1 January Company A is the trustee of the Jones Family Trust. Company A is the person who is taken to be the trust at that time. However, on 1 March Company B becomes the trustee of the Jones Family Trust. Company B is then the person who is taken to be the trust. There is only ever one entity (the Jones Family Trust) but the person who is taken to be that entity changes.

    The change of trustee must be notified to the Registrar for ABR purposes but there is no change of the ABN for the trust (trustee).

    Similarly, there is no change in the trust entity for GST purposes. The transfer of assets from Company A to Company B is therefore not a supply. There is no taxable supply from Company A to Company B.

      Last modified: 22 May 2014QC 28063