Edited version of private ruling

Authorisation Number: 1011922303489

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Ruling

Subject: GST and participation in a forestry managed investment scheme

Question 1

Are you carrying on an enterprise for GST purposes?

Answer

Yes.

Question 2

Are you entitled to an input tax credit for any GST imposed by the manager in relation to the amounts charged to you as a participant in respect of:

· the establishment services

· the grant of a put option, and

· issue of land trust units?

Answer

You are entitled to input tax credits in respect of the acquisition of the establishment services fee and the grant of a put option.

You are not entitled to an input tax credit in respect of the acquisition of the land trust units.

Relevant facts and circumstances

You are registered for GST.

You have invested in a forestry managed investment scheme (the project).

The project:

· is a forestry managed investment scheme as defined in subsection 394-15(1) of the Income Tax Assessment Act 1997 (ITAA 1997)

· is a managed investment scheme under the Corporations Act 2001, and

· involves the establishment and tending of trees for felling in Australia.

An Investor becomes a participant in the project by entering into the project documents with the responsible entity.

The constitution provides that the responsible entity of the project is to be appointed as the manager of the project (the manager).

The Project documents relevantly provide that:

· each participant is granted a forestry right over a timber lot

· the forestry right provides the participant with the right to enter the land; the right to establish, maintain and harvest a crop of trees on the land; the right to construct and use buildings, works and facilities as may be necessary for the participant to establish, maintain and harvest a crop of trees on the land

· the participant owns all the trees on their timber lot and all plantation produce produced by or derived from those trees

· the participant is entitled to all harvest proceeds from the sale of the plantation produce

· the participant controls what agricultural activities take place on the plantation and has the capacity to implement activities which differ from the recommendations of the manager

· the participant appoints the manager as an independent contractor to provide forestry services

· the forestry services include site preparation; planting, fertilising, replanting, managing and maintaining the plantation; maintenance of roads and other necessary infrastructure; harvesting and rehabilitation of the plantation land

· each participant may terminate the management agreement for breach or, in company with other participants, resolve to dismiss the manager

· in consideration of the manager agreeing to carry out forestry services, the participant agrees to pay to the manager a management fee

· additional management fees are payable from time to time

· the manager grants the participant a put option which requires the manager to purchase the put option property from the participant, and

· the manager in its capacity as a trustee issues to the participant units in the land trust fund.

The information provided in relation to the project demonstrates that a participant will make a profit from the project.

The manager is registered for GST.

The manager in its capacity as the trustee is registered for GST.

Reasons for decision

Question 1

Summary

We consider that you are carrying on a series of activities 'in the form of a business' for the purposes of paragraph 9-20(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). As none of the activities carried out by you fall into the exceptions listed under subsection 9-20(2) of the GST Act, we conclude that you are carrying on an enterprise under section 9-20 of the GST Act.

Detailed reasoning

An entity may be registered for GST if it is carrying on an enterprise. 'Enterprise' is defined in paragraph 9-20(1)(a) of the GST Act to include an activity, or series of activities, done in the form of a business.

The Commissioner considers 'an activity or series of activities' are essentially any act or series of acts that an entity chooses to do, and that the acts can range from a single transaction to groups of related transactions or to entire operations of the entity.

Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case. It is important that the relevant activity or series of activities are identified in order to determine whether an enterprise is being carried on.

Paragraph 170 of Miscellaneous Taxation Ruling MT 2006/1 states, amongst other things, that the phrase 'in the form of a business' is broad and has as its foundation the longstanding concept of a business. The definition clearly includes a business and the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own.

MT 2006/1 further states at paragraphs 175 and 176:

175. The definition is the same as the definition of 'business' in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), and section 995-1 of the ITAA 1997.

176. As the definition of 'business' is identical in the GST Act and the ITAAs, it can be interpreted in a similar way. The meaning of 'business' is considered in Taxation Ruling TR 97/11. Although TR 97/11 deals with carrying on a primary production business, the principles discussed in that Ruling apply to any business.

Paragraph 178 of MT 2006/1 sets out the indicia of business referred to in paragraph 13 of TR 97/11 as follows:

· a significant commercial activity;

· a purpose and intention of the taxpayer to engage in commercial activity;

· an intention to make a profit from the activity;

· the activity is or will be profitable;

· the recurrent or regular nature of the activity;

· the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

· activity is systematic, organised and carried on in a businesslike manner and records are kept;

· the activities are of a reasonable size and scale;

· a business plan exists;

· commercial sales of product; and

· the entity has relevant knowledge or skill.

Whether a participant in an agricultural managed investment scheme is carrying on an enterprise under section 9-20 of the GST Act is discussed in ATO Interpretative Decision ATO ID 2010/197.

There are a number of factors which we consider will support a finding of an enterprise being carried on in the form of a business. As expressed in ATO ID 2010/197, the features of a scheme that are relevant include:

· the participants intend to make a profit from their participation in the scheme

· the continued operation over an extended period of time

· the repetitive nature of the work involved in farming each timber lot (to be paid for on a regular basis)

· the ownership by the participants of the trimmings and final harvest, and of the proceeds from their sale

· each applicant may terminate the management agreement for breach or, in company with other participants, resolve to dismiss the manager

· each applicant has an ongoing commitment to pay the manager to do what is necessary in order to facilitate commercial production of timber over a lengthy period of time.

In your case, viewing the arrangement set out in the Project documentation as a whole, we consider that the Project displays the features required to support a finding that an enterprise is being carried on by you in the form of a business.

Therefore, we conclude that you are carrying on an enterprise in respect of your participation in the project unless those activities fall into the exclusions listed under subsection 9-20(2) of the GST Act.

On the facts provided by you, none of the activities carried out by you fall into the exclusions, therefore we conclude you are carrying on an enterprise under section 9-20 of the GST Act.

Question 2

Summary

You are entitled to input tax credits in respect of the acquisition of the establishment services and the put option as these are creditable acquisitions.

However, you are not entitled to claim input tax credits in respect of the acquisition of the land trust units as the acquisition is not a creditable acquisition.

Detailed reasoning

Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisitions that it makes.

Under section 11-5 of the GST Act, you make a creditable acquisition if:

· you acquire anything solely or partly for a creditable purpose

· the supply of the thing to you is a taxable supply

· you provide, or are liable to provide, consideration for the supply, and

· you are registered or required to be registered for GST.

Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose if you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or the acquisition is of a private or domestic nature.

As expressed above, we consider that you are carrying on an enterprise in respect of your activities as a participant in the Project. The acquisitions in question are for a creditable purpose as they are acquired solely for use in that enterprise. The acquisitions do not relate to making input taxed supplies nor are they of a private or domestic nature. Therefore, the acquisitions meet the requirements of paragraph 11-5(a) of the GST Act.

Paragraph 11-5(b) of the GST Act requires that the supply of the thing to you is a taxable supply.

Section 9-5 of the GST Act defines what is a taxable supply. Section 9-5 provides that an entity makes a taxable supply if:

(a) it makes the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that the entity carries on

(c) the supply is connected with Australia, and

(d) the entity is registered, or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Establishment services and put option

The supplies of the establishment services and the put option to you meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as:

· the supplies are made for consideration

· the supplies are made in the course or furtherance of an enterprise that Manager carries on

· the supplies are connected with Australia, and

· the manager is registered for GST.

Furthermore, the supplies of the establishment services and the put option are not input taxed or GST-free. Therefore, the supplies are taxable supplies as they meet all the requirements of section 9-5 of the GST Act. As such the acquisitions of the establishment services and the put option meet the requirement of paragraph 11-5(b) of the GST.

The acquisitions of the establishment services and the put option also meet the requirements of paragraphs 11-5(c) and 11-5(d) of the GST Act as you will provide or are liable to provide consideration for the supplies and are registered for GST.

Therefore, the acquisitions of the establishment services and the put option meet all the requirements of section 11-5 of the GST Act. Hence, you are making creditable acquisitions and are entitled to input tax credits under section 11-20 of the GST Act in respect of these acquisitions.

Land trust units

However, the supply of the land trust units to you is an input taxed financial supply. As such, the supply does not meet the requirements of section 9-5 of the GST Act and therefore is not a taxable supply. Consequently, the acquisition of the land trust units does not meet the requirement of paragraph 11-5(b) of the GST Act. As the acquisition of the land trust units does not meet all the requirements of section 11-5 of the GST Act, the acquisition is not a creditable acquisition. Therefore, you are not entitled to an input tax credit under section 11-20 of the GST Act in respect of the acquisition of the land trust units.

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