Edited version of private ruling

Authorisation Number: 1011742615868

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Ruling

Subject: GST and sale of commercial premises

Issue 1

Question 1

Is the trust arrangement between the Custodian and the SF trustee a bare trust relationship (for which GSTR 2008/3 would apply)?

Answer

Yes.

Question 2

Is the SMSF the "recipient" of a supply for the purposes of Section 38-325 and the "entity to which the supply is made" in accordance with the recipient definition in Section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 3

If the Custodian Deed is not a bare trust relationship, which entity is carrying on the enterprise and required to apply for an ABN and register for GST?

Answer

N/a.

Question 4

Will the entity carrying on the enterprise that is registered for GST (the SMSF) satisfy the requirements of Section 38-325 of the GST Act for the purposes of the GST free going concern concession?

Answer

Yes.

Relevant facts

You are a self managed super fund (SMSF) and are registered for GST purposes.

You have arranged for the purchase of a commercial property.

Pursuant to the Superannuation Industry (Supervision) Act 1993, the property is to be acquired by a nominee company on behalf of the trustee of the SMSF.

The nominee company was formed for the sole purpose of acquiring the property, and executed a contract as purchaser. This company is not registered for GST.

Prior to completion of the sale contract you and the nominee will enter into a deed of trust confirming ownership of the property as bare nominee. A copy of the deed has been provided. Relevant terms of the deed are as follows:

· the Custodian acts at the direction of the SF trustee

· the Custodian must not deal with the asset except in accordance with the SF trustee's instructions

· the Custodian has no powers, rights, duties or discretions except those specifically set out in the trust deed

· the SF Trustee has the right to acquire legal ownership of the asset by making one or more payments after acquiring the beneficial interest

· the SF Trustee is absolutely entitled against the Custodian to the beneficial interest

· the SF Trustee has present entitlement to any income and capital derived by the custodian in respect to the asset

You have advised that the commercial property is currently leased to a third party by the vendor, and that it will remain under that lease on completion of the sale contract.

The vendor under the sale contract has advised you it is registered for GST.

The vendor and the purchaser have agreed in writing that the sale is the supply of a going concern (by checking the GST free box on the sale contract and adding further terms/conditions to the written contract).

Reasons for decision

Issue 1

Question 1

Summary

The Custodian Trust Deed shows that the characteristics of the arrangement fit within the scope of a bare trust arrangement as detailed in GSTR 2008/3 Goods and services tax: dealings in real property by bare trusts.

Detailed reasoning

A bare trust is an arrangement where an entity may arrange for real property to be used in its enterprise to be acquired by another entity (trustee) to hold on a bare trust for the first entity (beneficiary). The acquiring entity would have no other active duties to perform, or only minor active duties. The trustee only acts at the direction of the beneficiary in respect of the relevant dealings in the trust property and has no independent role in respect of the trust property.

Whether a trust is a bare trust is a question of fact. As outlined in GSTR 2008/3, if a trust displays the key characteristics of only acting at the direction of the beneficiary and having no independent role in respect of the trust property then it will be treated as a bare trust in the manner outlined in the ruling.

The Custodian Trust Deed sets out the arrangement between the Custodian and the SF trustee. This states clearly that the Custodian acts at the direction of the SF trustee, that it holds the asset as bare trustee, and that the SF Trustee has the right to acquire legal ownership of the asset by making one or more payments after acquiring the beneficial interest. The SF Trustee is absolutely entitled against the Custodian to the beneficial interest. Also, the SF Trustee has present entitlement to any income and capital derived by the custodian in respect to the asset. The Custodian must not deal with the asset except in accordance with the SF trustee's instructions. The Custodian has no powers, rights, duties or discretions except those specifically set out in the trust deed. These characteristics are typical of a bare trust as outlined in GSTR 2008/3.

Based on these facts it is accepted that the Custodian Trust Deed establishes a bare trust arrangement for the purpose of acquiring the commercial property. The bare trust does not carry on an enterprise for GST purposes by virtue of its dealings in the trust property (and therefore cannot be registered). Instead the beneficiary of the bare trust (the SMSF) may carry on an enterprise involving the asset being held on trust for it by the bare trustee.

Question 2

Summary

The recipient, in relation to a supply, means the entity to which the supply was made (195-1 GST Act). The relevant supply is the supply of commercial premises. It has been established that as the arrangement is a bare trust, the SMSF is carrying on the enterprise and will be the recipient of the supply.

Detailed reasoning

As detailed in GSTR 2008/3, we look through the bare trust arrangement such that the SMSF is the recipient of the supply. An acquisition may be made in the course of an enterprise carried on by the beneficiary notwithstanding that title to the relevant property is conveyed to a bare trustee for the beneficiary. Therefore, in the circumstances described the SMSF will be the recipient of the supply of commercial premises (see paragraph 83 of GSTR 2008/3).

Question 3

As a result of our decision that the trust arrangement constitutes a bare trust, it is not necessary to consider this question. The appropriate entity to be registered is the SMSF (with the trustee as a legal entity when required).

Question 4

Summary

It has been established that as the arrangement is a bare trust, the SMSF is carrying on the enterprise and will be the recipient of a supply of commercial premises. Whether this supply is taxable is determined by the circumstances of the supplier. The requirements for recipients of a going concern are that they provide consideration, are registered and that they agree in writing that the supply is a supply of a going concern. All other requirements for this concession to apply depend on the supplier.

Detailed reasoning

As the recipient, you will make a creditable acquisition if a supply is a taxable supply. However, you will be the recipient of a supply of a going concern (and therefore not entitled to any GST credits) if the requirements for a supply of a going concern are met by the vendor as the supply to you will not be taxable.

Section 38-325 provides that, if certain conditions are satisfied, the 'supply of a going concern' is GST-free. For there to be a supply of a going concern, the supplier must supply you with all the things that are necessary for the continued operation of the enterprise, and must carry on the enterprise until the day of the supply (whether or not as part of a larger enterprise carried on by the supplier).

The definition of enterprise includes a series of activities done on a regular or continuous basis in the form of a lease. Commercial leasing is therefore an enterprise in itself. Where the enterprise forms part of a larger enterprise, a supply is a 'supply of a going concern' when all of the things necessary to continue the operation of that part of the enterprise as an independent enterprise are supplied (see paragraph 30 GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free?).

The commercial property is currently leased to a third party by the vendor and will remain under that lease on completion of the sale contract. You will carry on this enterprise, and you are registered for GST. All things necessary for the continued operation of the leasing enterprise will therefore be supplied under the sale contract. You have stated that the vendor will carry on the enterprise until the day of the supply. Note that it is the responsibility of the vendor to ensure that this condition is met. Based on these facts the supply will be a supply of a going concern if the other conditions in 38-325 are met.

These conditions are that the supply is for consideration, the recipient is registered or required to be registered, and that the parties have agreed in writing that the supply is of a going concern. The supply of the commercial premises is being made for consideration, being the purchase price, and you as the recipient are registered. Your contract indicates that both parties agree in writing that the supply is of a going concern. As stated in GSTR 2008/3, if the trustee of the bare trust agrees in writing that the supply is a supply of a going concern it does so on behalf of the beneficiary and therefore this requirement is satisfied.

Based on all these facts, the supply of the premises by the vendor qualifies for the going concern exemption. Failure to satisfy all the requirements will leave the vendor with a GST liability.

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