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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012170979941

Ruling

Subject: GST and forestry managed investment scheme

Question 1

Are you carrying on an enterprise for GST purposes?

Answer

Yes you are carrying on an enterprise for GST purposes.

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:

Answer

You are entitled to input tax credits in respect of the acquisitions of the establishment services and the specified right.

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

You are entitled to an input tax credit where the amount that you pay into the trust account is used as consideration for a creditable acquisition that you make.

Relevant facts and circumstances

You are registered for GST.

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

The project:

Investors become participants in the project by entering into the project constitution and associated agreements (project documents) with the manager of the project.

The project documents relevantly provide that:

In consideration of the manager agreeing to carry out the establishment services, the participant agrees to pay the manager the establishment services fee set out in the project documents.

The establishment services fee is inclusive of all costs and disbursements incurred in the provision of the establishment services.

The establishment services fee is for the provision of the establishment services and is the only fee paid by the participant to the manager in return for the establishment services.

Additional management fees are payable from time to time.

Each participant enters into an agreement with the manager for the grant of the specified right and provides consideration for the grant of that right. The right relates to a specified supply to be made by a participant to the manager.

Under the project documents a land trust is established. The trustee of the land trust acquires the land and leases the land to the manager.

The participant is required to make specified payments for the purposes of meeting council rates and other charges relating to the forestry right land. The manager deposits those payments into a trust account. The trust account will also be used to pay the costs of the relevant insurance cover.

Each participant may terminate the management agreement for breach.

You advised that the participants are liable to pay the insurance premiums as they take out the insurance cover.

The information provided in relation to the project demonstrates that a participant will make a profit over the life of the Project.

The manager is registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(b)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(c)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(d)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-20(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 11-5(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 11-5(b)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 11-5(c)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 11-5(d)

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

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 provides, 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:

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

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:

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 acquisitions of the establishment services and the specified right as these are creditable acquisitions.

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

You are entitled to an input tax credit where the amount that you pay into the trust account is used as consideration for a creditable acquisition that you make from either the manager or a third party supplier.

Detailed reasoning

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to an input tax credit for any creditable acquisitions that it makes.

A creditable acquisition is defined in section 11-5 of the GST Act as follows:

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

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 taxable supply as follows:

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:

Furthermore, the supplies of the establishment services and the specified right 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 acquisition of the establishment services and the specified right meet the requirement of paragraph 11-5(b) of the GST.

The acquisition of the establishment services and the specified right 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 specified rights 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

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.

Various acquisitions paid for out of the trust account

The Project documents provide that the trust account is a deposit account held in the name of the manager for the purposes of meeting the costs of council rates and other applicable statutory charges in relation to the forestry right land of the participant.

The project document provides that the trust account will also be used to pay the cost of the insurance cover.

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) deals with agency relationships and the application of the law.

Paragraph 45 of GSTR 2000/37 provides that a transaction is considered to be made by the principal through the agent, if the agent is authorised to undertake the transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction.

Paragraph 28 of GSTR 2000/37 outlines the factors that indicate that an agency relationship exists.

This paragraph states:

Paragraphs 48 and 49 of GSTR 2000/37 deal with agency relationship and disbursements and state:

Accordingly, the entitlement to an input tax credit would depend on the circumstances of each acquisition that is made using the funds in the trust account.

Where the manager makes an acquisition from a third party as your agent, thereby binding you to the legal effects of the transaction with the third party, you are the recipient of the supply made by the third party. In this situation the manager is not making a supply to you as they are merely acting as a paying agent.

If the supply by the third party to you is a taxable supply, and your acquisition of the thing meets the other requirements of section 11-5 of the GST Act you are entitled to an input tax credit on that acquisition under section 11-20 of the GST Act.

For example, you advised that the participants are liable to pay the insurance premiums as they take out the insurance cover. In this situation, if the manager merely arranges the insurance cover on your behalf and pays for the insurance using the funds in the trust account as a paying agent, the reimbursement does not form part of the consideration that you pay to the manager for a supply that the manager makes to you. The insurance company is making the supply to you. You are entitled to an input tax credit under section 11-20 of the GST Act if the supply of the insurance cover by the insurance company to you is a taxable supply and your acquisition of the insurance cover meets the other requirements of section 11-5 of the GST Act.

Where the manager makes an acquisition in its capacity as a principal in the course of its enterprise, the manager is the recipient of the supply. If the manager on charges you the costs in relation to this acquisition by paying for it through the trust account, the on charged amount will form part of the consideration that you pay to the manager for the supplies that the manager makes to you under the project documents. Where these supplies meet the requirements of a creditable acquisition as set out in section 11-5 of the GST Act, you will be entitled to the input tax credits in relation to the creditable acquisitions.

In conclusion, where the amount you pay into the trust account is used as consideration for an acquisition that you make from either the manager or a third party supplier, and this acquisition meets the requirements of a creditable acquisition as set out in section 11-5 of the GST Act, you will be entitled to the input tax credits in relation to that creditable acquisition.


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