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Ruling

Subject: GST and trustee services

Question 1

Did the entity (in its personal capacity) make a taxable supply of trustee services to the Fund for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the consideration for the services was deducted from the Fund and included a specific fee (Fee) component?

Answer

Yes, the entity (in its personal capacity) made a taxable supply of trustee services to the Fund for the purposes of section 9-5 of the GST Act) where the consideration for the services was deducted from the Fund and included a Fee component.

Question 2

Did the entity (in its personal capacity) make a wholly creditable acquisition for the purposes of section 11-5 of the GST Act when it acquired services from a distributor for consideration which included a Fee component paid by the entity to the distributor?

Answer

Yes, the entity (in its personal capacity) made a wholly creditable acquisition for the purposes of section 11-5 of the GST Act when it acquired services from a distributor for consideration which included a Fee component paid by the entity to the distributor.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The entity was the trustee of a superannuation fund (Fund).

Both the entity and the Fund are residents of Australia and are registered for the goods and services tax (GST).

The entity is making this ruling application acting in its personal capacity and not in its capacity as trustee of the Fund.

While it was the trustee of the Fund, the entity was registered with the Australian Prudential Regulation Authority as a Registrable Superannuation Entity.

The entity had an Australian Financial Services Licence (AFSL) issued by the Australian Securities and Investment Commission (ASIC) that authorised it to issue superannuation products and to provide general advice in relation to the fund.

As an AFSL holder, the entity was licensed to provide general financial product advice to Members and prospective Members.

Under the terms of its AFSL, the entity was licensed to only provide general advice to a member about the Fund and it was not licensed to provide personal financial advice.

In its capacity as trustee of the Fund, the entity received contributions from individuals or from employers for or on behalf of their employees. For the purposes of this ruling application, the persons on whose behalf the contributions were held are referred to as 'Member' or 'Members'.

The conduct of a superannuation fund trustee is predominantly governed by the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS) and related regulations. The relevant sections of SIS that are pertinent to this ruling application are sections 58, 59 and 62.

Apart from the specific proscriptions in SIS, a trustee of a superannuation fund is broadly entitled to do whatever the governing rules of the superannuation fund authorise it to do subject to certain statutory covenants in subsection 52(2) of SIS.

The Fund has been established pursuant to the Trust Deed.

The Trust Deed provides for the entity as trustee of the Fund to be remunerated for its services to the Fund.

The fees that the entity could charge the Fund for providing trustee services were detailed in the Trust Deed and included a specific Fee.

The supply of services by the entity to the Fund was in accordance with the terms of the Trust Deed. For the purposes of this ruling application, the services that the entity could provide to the Fund under the terms of the Trust Deed and superannuation laws are called 'trustee services'.

The trustee services that were provided by the entity to the Fund were performed in Australia.

The trustee services included, among other things, promoting and marketing the Fund to Members and prospective members, providing advice to Members in relation to Fund matters and providing various administrative services related to an investment in the Fund.

Under the Trust Deed, the entity can engage third parties to perform the services that it is required to provide as trustee of the Fund. This includes engaging third parties to promote and market the Fund and to provide advice to Members in relation to the Fund.

The entity had arrangements with a number of arm's length parties in order to distribute and promote the Fund. In this ruling, these parties are referred to as 'Distributors' and the services that the Distributors could provide to the entity under these arrangements are collectively referred to as 'distribution services'.

The entity entered into the arrangements with the Distributors in its personal capacity, and not in its capacity as trustee of the Fund.

All the Distributors carry on enterprises within Australia; are registered for GST; and provided their services to the entity in Australia.

Under the arrangements between the entity and the Distributors, a Distributor could engage the services of other persons such as financial advisers that were either contractors or employees of the Distributor. These financial advisers are referred to as 'Representatives' in this ruling.

There would have been a separate legal agreement in place between each Distributor and their Representative relating to this arrangement.

While a Distributor could engage Representatives to assist with the provision of services to the entity, the Distributor was the relevant party that had agreed to provide services to the entity for consideration. There was no separate contractual relationship between the entity and the Representatives in relation to the services that the Representatives provided to Distributors as their authorised representatives.

The entity and the Distributors have agreed on the form of remuneration that would be paid by the entity in consideration for the services provided by the Distributors.

The entity has paid consideration which included a specific Fee component to Distributors for the services it received from the Distributors.

The consideration paid for the distribution services was not paid from the Fund to Distributors, but rather from monies that the entity has earned in providing trustee services to the Fund.

The entity was only liable to pay remuneration to a Distributor for their services. The remuneration that the Distributors would then have paid to their Representatives would have been subject to separate legal arrangements that each Distributor might have had with its Representatives.

While each Member would have agreed with the Distributor or their Representative on the quantum of the Fee component that would be deducted from their account, the arrangements in place between the Fund, the entity and each Distributor provide the terms upon which the Fee would be paid. The Fee was deducted from the Fund under the terms of the Trust Deed for trustee services and paid by the entity to each Distributor under the terms of their agreement for distribution services.

From the fees that the entity deducted from each Member's account for trustee services, the entity paid a portion of those fees to Distributors for facilitating the sale of the Fund to Members.

Both the quantum of the fees charged to Members and the fees paid to Distributors by the entity was a commercial decision. The amount payable by the entity would have been commercially negotiated with each Distributor.

The Fee was paid by the entity in its corporate capacity to the Distributor as part of the consideration for the acquisition of distribution services.

The Fee was consideration for the supply of introducing a new member to the Fund. Accordingly, the Fee was only payable where a person became a member of the Fund, where that member was introduced by the Distributor/Representative.

The Fee was part of the remuneration that the entity was entitled to charge under the Trust Deed as consideration for the trustee services that it provided to the Fund.

From an accounting perspective, the fees (including the Fee) were recognised as income earned by the entity in providing trustee services. For income tax purposes, these fees were recognised as taxable income that the entity derived in its personal capacity in the provision of trustee services.

The fees (including the Fee) that were paid to Distributors for distribution services were recognised from an accounting perspective as an expense of the entity in its personal capacity. From an income tax perspective, these fees (including the Fee) were treated as deductible expenses of the entity in its personal capacity.

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 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 184-1(2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 184-1(3)

Reasons for decision

A taxable supply is defined in section 9-5 of the GST Act as follows:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that you *carry on; and

· the supply is *connected with Australia; and

· you are *registered, or *required to be registered.

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

(* denotes terms that are defined in section 195-1 of the GST Act)

In order for the first requirement of section 9-5 of the GST Act to be satisfied the following three conditions must be satisfied:

· there must be a supply;

· there must be consideration; and

· the supply must be made for consideration (in other words, there must be a sufficient nexus between the supply and consideration).

Supply

A supply is defined in section 9-10 of the GST Act as 'any form of supply whatsoever'.

Under the terms of the Trust Deed and the SIS, the entity in its personal capacity made a supply of trustee services to the Fund. At issue is whether the provision of the advice is a service that was supplied by the Distributor directly to the Member; or whether the service was provided to the entity which then formed part of the trustee services supplied by the entity to the Fund; or whether the service was then supplied directly to the member by the entity.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) outlines the Commissioner's views on 'supplies'. Part 3 of GSTR 2006/9 relevantly states the following:

Part 3: Supply in the context of a tripartite arrangement

Analysing a tripartite arrangement

In a two party transaction, a thing supplied to an entity is typically also provided to that entity.

In more complex arrangements involving more than two entities, which the Commissioner refers to as tripartite arrangements, analysis may reveal:

· a supply made to one entity but provided to another entity;

· two or more supplies made; or

· a supply made and provided to one entity and consideration paid by a third party.

In relation to tripartite arrangements, Proposition 11, at paragraph 119 of GSTR 2006/9 states:

Proposition 11: the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply

119. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.

There are two agreements that need to be examined in relation to the advice being supplied by the Distributors, namely:

· the agreement between the entity and the Distributors, and

· the Trust Deed between the entity and the Fund.

The agreement between the entity and the Distributors

Under the agreement, the Distributors were engaged by the entity to provide services including distributing and promoting the Fund to Members and prospective Members; advising upon the investment options offered to Members; and providing other investment advice and services agreed to by the parties in respect of the Fund.

The advisory service in question was limited to providing general advice to a member about joining the Fund, which was merely part of an introductory service.

Trust Deed between the entity and the Fund

Under the Terms of the Trust Deed, the Trustee has complete management and control of the Fund as if it were a natural person, including promoting and marketing.

When considering the interaction between the relevant arrangements, and the fact that there may not be a separate agreement between the Members and the Distributors (and/or their representatives), we agree that in relation to the advisory service supplied by the Distributors, there was a supply being made by the Distributors to the entity.

What needs to be determined next is whether the advisory service could be considered as part of the trustee services supplied by the entity to the Fund or whether it was a supply which was independent of the trustee services, that is, whether it was directly supplied to the members of the Fund by the entity. In this regard, the character of the supply needs to be analysed.

Under the terms of its AFSL and its general obligations under the SIS provisions, the entity is prohibited from supplying specific advisory services to a fund and/or the member and that any advice that it provides should be general in nature which should be supplied as part of the trustee services.

GSTR 2006/9 states the following in relation to the recipient of a supply:

You make an acquisition if you are the recipient of a supply. That is, the supply is made to you. In most transactions concerning GST the recipient of a supply is the entity that is also provided with that supply. In contrast, some supplies are made to the recipient, but provided to another entity. Arguably, such provisions are also supplies. However, these are not relevant because there is no contractual or reciprocal relationship between the supplier and the entity being provided with the supply. An entity must have made an acquisition of a thing to satisfy the requirements of section 11-10. It is not sufficient that an entity has merely been provided with the supply. Also, an entity does not make an acquisition merely by paying for a supply.

Therefore, given that the advice provided was merely general advice (which was an introductory service provided as part of the entity's trustee services) that every member that joined the fund had to receive, we agree that the provision of advice was part of the trustee services supplied by the entity to the Fund.

Whilst there were three parties involved in relation to the advisory services, the advisory services made by the Distributors were made to the entity pursuant to an agreement between the entity and the Distributors, and the services were also provided to the entity.

The advice consisted of simply informing a prospective member of their possible choices of investments in the Fund as part of the introductory service which was not specific advice tailored to a member's individual circumstances. Therefore, the 'beneficiary' of such general advice being provided was the entity rather than the member of the Fund.

Consideration

Consideration is defined in section 9-15 of the GST Act to include 'any payment ... in connection with a supply of anything ...'

Under the Trust Deed, the entity was entitled to be remunerated for its services to the Fund. The amount of consideration that the entity charged for the supply of trustee services to the Fund was governed by the Trust Deed and was a commercial decision.

As the entity provided trustee services to the Fund and received remuneration in connection with those services, there was sufficient nexus between the supply of the trustee services and the consideration.

Moreover, considering the fact that under SIS rules, a trustee cannot charge for anything other than trustee services and the entity could only provide general advice under its AFSL, we consider that the entity made the supply of trustee services to the Fund, for consideration that included the Fee amount.

The remaining requirements of section 9-5 of the GST Act

Section 9-20 of the GST Act provides the definition of enterprise for GST purposes. It sets out the meaning of enterprise to include, amongst other things, an activity or series of activities done by a trustee of a trust or complying superannuation fund, a charitable institution or charitable fund.

As such, the supply of the trustee services by the enity to the Fund, in accordance with the terms of the Trust Deed, was a supply made in the course and furtherance of an enterprise that it carries on.

Pursuant to subsection 9-25(5) of the GST Act, the supply of the trustee services was connected with Australia as the services were performed in Australia. Moreover, the supply was neither GST-free nor input taxed under the provisions of the GST Act.

Therefore, all the requirements of a taxable supply under section 9-5 of the GST Act are satisfied. Consequently, the entity has made a taxable supply of trustee services to the Fund where the consideration for the services included the Fee amount.

Acquisitions

Section 11-20 of the GST Act provides that entities that are registered for GST are entitled to claim input tax credits for creditable acquisitions that they make.

Section 11-5 of the GST Act states:

You make a creditable acquisition if

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide *consideration for the supply; and

(d) you are registered or required to be registered.

Subsection 184-1(2) of the GST Act provides that the trustee of a trust or of a superannuation fund is taken to be an entity consisting of the person who is the trustee, or the persons who are the trustees, at any given time.

Subsection 184-1(3) of the GST Act provides that a legal person can have a number of different capacities in which the person does things and in each of those capacities, the person is taken to be a different entity.

In this case, the entity acts in two different capacities for GST purposes:

· in its capacity as trustee of the Fund (being a separate entity for GST purposes); and

· in its own corporate capacity, making supplies of trustee services to the trust.

An entity makes a creditable acquisition if it makes an acquisition solely or partly for a creditable purpose and all the other requirements of section 11-5 of the GST Act are met.

Therefore, for the purposes of paragraph 11-5(a) of the GST Act, the entity must determine whether the acquisitions made were:

· acquisitions of the trust entity for which it was trustee; or

· acquisitions made in its own corporate capacity.

On the facts presented, the supply of the distribution services by the Distributors satisfied all the requirements of section 9-5 of the GST Act for a taxable supply. As such, the supply was a taxable supply to the entity. The entity was liable to pay fees (including a Fee amount) to the Distributors in consideration for the supply of distribution services to it. The entity was registered for GST in its own personal capacity.

Accordingly, it must be determined whether the acquisitions of distribution services by the entity in its personal capacity were for a 'creditable purpose'.

Section 11-15 of the GST Act defines the meaning of 'creditable purpose' as follows:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.

Subsection 11-15(1) of the GST Act requires that the entity acquires a thing in carrying on its enterprise. The acquisition must be made in the course of the activities that constitute the enterprise. An acquisition is made 'in carrying on your enterprise' if it is made for the purposes of that enterprise, but not if it is made for some other purpose.

Consequently, it is necessary to identify the activity or series of activities that constitute the enterprise to determine whether the acquisition is acquired in carrying on that enterprise.

The first step in determining the creditable purpose of an acquisition is therefore to establish a sufficient connection between the acquisition and the enterprise, such that it can be said that the acquisition was made 'in carrying on your enterprise'.

However, even if it is established that an acquisition is made in carrying on an enterprise under subsection 11-15(2) of the GST Act, paragraph 11-15(2)(a) of the GST Act will preclude it from being for a creditable purpose to the extent that it 'relates to' making input taxed supplies (such as financial supplies) or is of a private or domestic nature. The words 'relates to' in paragraph 11-15(2)(a) of the GST Act are wide in scope and an acquisition can either directly or indirectly relate to a supply. The result of this is that such an acquisition is not for a creditable purpose.

In this case, the entity in its personal capacity acquired the distribution services in order to provide trustee services to the Fund, as required under the Trust Deed. Therefore, we are of the view that these services were acquired by the entity in the course of carrying on its enterprise.

The acquisition of the distribution services by the entity, in its own corporate capacity, related to its supply of trustee services to the Fund. The provision of trustee services to the Fund was a taxable supply. As such, the acquisition did not relate to making supplies that would be input taxed. Moreover, the acquisition of distribution services by the entity was not of a private or domestic nature. Consequently, the acquisition was solely for a creditable purpose for the purposes of section 11-15 of the GST Act and paragraph 11-5(a) of the GST Act was satisfied.

As the requirements under section 11-5 of the GST Act were satisfied, the acquisition was a creditable acquisition. The entity (in its personal capacity) made a wholly creditable acquisition for the purposes of section 11-5 of the GST Act when it acquired services from a distributor for consideration which included a Fee component.

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