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Ruling

Subject: GST and supply of a going concern

Question 1

Will the sale of the property, by the C Trust to the Super Fund, be a GST-free supply of a going concern for GST purposes where all the conditions under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied?

Answer

Yes, the sale of the property, by the C Trust to the Super Fund will be a GST-free supply of a going concern for GST purposes where all the conditions under section 38-325 of the GST Act are satisfied.

Question 2

If yes, does the Super Fund, the bare Trust (holding the installment warrant for the property) or both need to register for GST for the going concern rules to apply?

Answer

It is the trustee of the Super Fund (beneficiary) that is the entity required to be registered for GST.

Relevant facts and circumstances

The C Trust, A Trust and the Super Fund are all related entities.

The C Trust purchased a property a few years back.

The A Trust trading as xxx rents the property from the C Trust, solely for business purposes.

The property is used as the office and consulting rooms of xxx.

It is proposed that the C Trust sells the property to the Super Fund.

The A Trust will continue to rent the property solely for business purposes from the Super Fund after the property sale.

The property is located in a predominantly commercial use locality. The property is zoned Business 2 which allows for the use as offices and ancillary commercial purposes. The local Council Planning Department currently only permits the property to be utilized, for office or ancillary commercial purposes. The property does not have planning permission to allow its use for residential purposes.

The Super Fund will have to borrow money to fund the purchase. A bare trust with Trustee Company will be established as custodian of the property until the loan is paid off.

Relevant legislative provisions

A New Tax System (Goods and Services Tax Act) 1999 (GST Act) subsections 38-325(1) and

38-325(2)

Reasons for decision

Going concern

Under subsection 38-325(1) of the GST Act a supply of a going concern is GST-free if:

· the supply is for consideration; and

· the recipient is registered or required to be registered; and

· the supplier and the recipient have agreed in writing that the supply is of a going concern.

According to the facts provided:

· the Super Fund will have to borrow money to fund the purchase; and

· a bare trust with Trustee Company will be established as custodian of the property until the loan is paid off.

Therefore, according to the facts available, the supply of the property to the Super Fund will be for consideration.

Goods and Services Tax Ruling GSTR 2008/3 (GSTR 2008/3) explains how the GST Act applies to supplies of real property involving bare trusts and similar trusts where the trustee has limited active duties and acts solely at the direction of the beneficiary or beneficiaries.

Paragraphs 82-83 of GSTR 2008/3 state the following:

Agreement that a supply is a supply of a going concern

82. For a supply to be GST-free as a supply of a going concern, the supplier and the recipient must agree that the supply is a supply of a going concern.

83. In accordance with the principles discussed in this Ruling, a supply or acquisition may be made in the course of an enterprise carried on by the beneficiary, such that the beneficiary is liable for any GST or entitled to any input tax credit, notwithstanding that title to the relevant property is conveyed by or to a bare trustee for the beneficiary. In those circumstances, if the trustee agrees in writing that the supply is a supply of a going concern, it does so on behalf of the beneficiary. The requirement for the supplier or recipient, as the case may be, to agree to the supply being a supply of a going concern is satisfied in those circumstances.

Therefore, where the trustee of the Super Fund (beneficiary/recipient) is registered for GST and has an agreement in writing with the (supplier) C Trust subsection 38-325(1) of the GST Act will be satisfied.

However, for a supply to be a supply of a going concern, subsection 38-325(2) of the GST Act also needs to be satisfied.

The statutory term supply of a going concern is defined in subsection 38-325(2) of the GST Act as a supply under an arrangement under which:

· the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and

· the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier).

In this case it is understood that the Super Fund will continue to carry on the leasing enterprise of the property and that the A Trust trading as xxx will continue to lease the property for business purposes.

Hence, where the C Trust (supplier) carries on the leasing enterprise until the day of sale and puts the Super Fund (recipient) in a situation where the Super Fund can carry on the identified leasing enterprise then all of the things that are necessary for the continued operation of that enterprise would be supplied.

Therefore, where all the things necessary for the continued operation of the leasing enterprise are passed on to the Super Fund and where the Super Fund is able to continue the identified leasing enterprise at the day of the supply, the supply of the property to the Super Fund will be a GST-free supply of a going concern.

2. We are informed that the Super Fund will continue to carry on the leasing enterprise of the property and that the A Trust trading as xxx will continue to lease the property for business purposes.

Paragraphs 37-38 of GSTR 2008/3 have been reproduced below:

37. The activities of a bare trustee are essentially passive in nature. A trustee of the type of trust considered in this Ruling has either no active duties to perform or only minor active duties. A bare trust as that term is used in this Ruling does not carry on an enterprise for GST purposes by virtue of its dealings in the trust property.

38. On the other hand, a beneficiary of a bare trust may carry on an enterprise involving an asset held on trust for the beneficiary by the bare trustee. For instance, in the example at paragraph 11 of this Ruling, despite legal title to the property being held by T, the property is used by B in carrying on its enterprise.

For GST purposes, trusts and superannuation funds are considered to be entities which are capable of carrying on an enterprise. However, it is the trustee of the trust or superannuation fund which is required to be registered for GST purposes as trustee of the trust or fund which is carrying on the enterprise. That is, it is the trustee which has the legal identity of the entity of which it is trustee.

Therefore, in this instance, it is the trustee of the Super Fund (beneficiary) that is the entity required to be registered for GST.

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