Edited version of your private ruling

Authorisation Number: 1012560816166

Ruling

Subject: GST and property hold on behalf of a Superannuation Fund

Questions

1. Is the trustee for the Superannuation Fund (Super Fund) carrying on an enterprise in relation to the leasing and management of the commercial property located in Australia (property) despite the fact that Company Z as trustee for the XYZ Trust (Trustee) is the registered owner of the property?

2. Is the Super Fund entitled to the input tax credits for creditable acquisitions arising from the leasing and management of the property?

3. Is the Super Fund liable for goods and services tax (GST) for taxable supplies relating to the leasing and management of the property?

Advice

1. Yes, based on the information received the Super Fund is carrying on an enterprise in relation to the leasing and management of the property despite the fact that the Trustee holds the legal title of the property.

2. Yes, based on the information received the Super Fund is entitled to the input tax credits for creditable acquisitions arising from the leasing and management of the property.

3. Yes, based on the information received the Super fund is liable for GST on the taxable supplies relating to the leasing and management of the property.

Relevant facts

· The Super Fund is registered for GST and has arranged for the purchase of the property.

· Pursuant to the Superannuation Industry (supervision) Act 1993, Company Z was incorporated for the purpose of being the nominee that will acquire the property on behalf of the Super Fund.

· A Trust Deed for the XYZ Trust was executed between the Super Fund and Company Z as trustee for the XYZ Trust (Trustee). The beneficiary for the XYZ Trust is the Super Fund. XYZ Trust is registered for GST.

Under the Trust Deed for XYZ Trust:

· The Super Fund is absolutely entitled to all assets of the Trust.

· The Trustee must deal with the property as directed by the Super fund.

· The super fund has an immediate and indefeasible vested interest in the income from the property.

· The Trustee cannot deal with the property without the Super Fund's consent.

· The super fund has the power to call for the asset to be transferred to it and the Super Fund has the power to remove and appoint the trustee.

· The Trust was established solely for the purpose of acquiring the property by the Super Fund and does not carry out any other activities other than holding the property on trust for the Super Fund and leasing out the property.

· The Super Fund entered into an arm's length Loan Agreement with Company A to fund the purchase of the property.

· The Super Fund entered into an Agency agreement with the Trustee where the Trustee is to purchase the property on its behalf and hold the benefit of the contract and property on its behalf as nominee.

· The Trustee has entered into a registered first mortgage with Company A as security for the borrowing undertaken by the Super Fund.

· The Trustee entered into a sale contract with an independent seller for the purchase of the property. The purchase was funded by the Super Fund which includes the money borrowed from Company A. The parties in the sale contract agreed the supply of the enterprise is of a going concern in accordance with section 38-325 of the A New Tax system (Goods and Services Tax) Act 1999 (GST Act).

· The Trustee as the legal owner of the property became the lessor of areas within the property that were subject to leases at completion.

· In leasing out the property, there was an independent property manager appointed to manage the leasing and management of the property.

· The Trustee will enter into future leasing agreements with tenants and is liable to pay other expenses such as rates and land tax. The Trustee receives the rental income less the management services fees in its bank account from the property manager which is paid to the beneficiary (Super Fund). The Trustee can only deal with the property as directed by the Super Fund.

· The Trustee is refunded for all expenses incurred in relation to the activities they carried on the property.

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 9-20

A New Tax system (Goods and Services Tax) Act 1999 section 11-20

Reasons for decisions

Question 1

From the information received it is clear that a leasing enterprise is in place. What remains is to determine who is carrying on the leasing enterprise that is the Trustee or the Super Fund since the Super fund funded the purchase of the property and the Trustee holds the title of the property and enters into leases under the direction of the Super Fund.

Who is carrying on the leasing enterprise?

Goods and Services Tax Ruling GSTR 2008/3 explains how the GST Act applies to supplies of real property involving bare trusts. This ruling also applies to the form of bare trust (resulting trust) that is created, without a declaration of trust or other instrument, where an intending purchaser place funds in the hands of a nominee to purchase a real property for the intending purchaser and the legal title to the real property is transferred to the nominee and not the intending purchaser.

Paragraphs 11 to 13 of GSTR 2008/3 provide the background for a bare trust arrangement. They state:

11. An entity (B) that carries on an enterprise may, for reasons of convenience or anonymity, arrange for real property which is to be used in its enterprise to be acquired by another entity (T) to hold on a bare trust for B - that is, subject to an obligation to transfer legal title to the asset to B, or to a third party if B so directs, and with no other active duties to perform.

12. Alternatively, the trust may not strictly be a bare trust, because the trustee has minor active duties to perform, but nevertheless the trustee is required to act at the direction of the beneficiary in dealing with title to the trust property. Where this Ruling refers to 'bare trusts' it should also be taken to refer to trusts of this kind which may not strictly fall within accepted definitions of bare trusts but share similar features. The key point is that the trustee only acts at the direction of the beneficiary in respect of the relevant dealings⁴ in the trust property and has no independent role in respect of the trust property.

13. An example of an arrangement where a bare trust may be created is where a general law partnership (B) decides to acquire and develop real property for sale. The partners may not wish to disclose their names to the vendor of the property and so arrange for a company (T) that they control to acquire title to the property. If there are a large number of partners, it may also be more convenient for the partnership to have a single company that can execute legal documents associated with the acquisition, development and disposal of the property. T acquires and holds the legal title to the property on trust for B. T has no discretion regarding the use and disposal of the trust property and deals with it solely at the direction of B.

Footnote 4 in paragraph 12 of GSTR 2008/3 states:

[4] This Ruling concerns itself primarily with dealings by way of sale or purchase of real property, but extends to dealings by way of granting or acquiring a licence or lease of real property. In all of these dealings, the consideration is provided to the trustee by, or received by the trustee for, the beneficiary. The trustee may nevertheless expend monies (provided by or received on behalf of the beneficiary) in maintaining the trust property in the course of its duties as bare trustee.

From the information received:

· The Trust was created solely to purchase the commercial property on behalf of the Super Fund and was set up to comply with the legislative requirements dealing with self-managed super funds that borrow money to acquire commercial real property;

· The Trust does not carry out any other activities other than those concerning the property;

· The Trustee of the Trust acquired the property for the Super fund (beneficiary of the Trust) and holds legal title to the property;

· The Super Fund borrowed money on an arm's length basis from a third party to fund the purchase of the property to be made by the Trustee;

· The Trustee has provided a registered first mortgage as security for the borrowing undertaken by the Super Fund;

· The Trustee leases the property under the direction of the Super Fund. The proceeds of the lease went to the Super fund;

· The Trustee is reimbursed by the Super Fund for all expenses incurred in relation to the property;

· The Trust Deed provides a range of activities for the Trustee under 'powers of the Trustee'. However all activities in relation to the property and undertaken by the Trustee are made at the direction of the Super fund. The Trustee has no independent mind in dealing with the property.

In this instance, we consider that the arrangement between the Trustee and the Super fund is similar to a bare trust arrangement.

Paragraphs 35-41 of GSTR 2008/3 state:

35. Subsection 184-1(1) treats a trust as an entity. Subsection 184-1(2) goes on to note that the trustee of a trust is taken to be an entity consisting of the person who is the trustee at any given time. Subsection 184-1(3) confirms 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.

36. These provisions do not create two separate entities for GST purposes - the trust and the trustee - but rather the relevant entity is the trust, with the trustee standing as that entity when a legal person is required.¹⁸ However, it is necessary to distinguish between the entity that is the trustee acting in that capacity and that entity acting in its own right which are treated as separate entities for GST purposes.

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.

39. If the asset is sold, the transaction will involve a transfer of the legal title to the property to a third party by the trustee at the direction of the beneficiary.

40. The definition of 'taxable supply' concerns itself with supplies made in the course of an enterprise. It is the entity which conducts that enterprise that makes the relevant supply. In other words, if T transfers legal title to the property to a third party at the direction of B, it is B that causes the supply to be made in the course of its enterprise and is liable for GST, if the other requirements for a taxable supply in section 9-5 are met.

41. This is consistent with the scheme of the GST Act. There is nothing in the GST Act requiring legal title to the assets of an enterprise to be held or dealt with by the entity carrying on the enterprise, in order for taxable supplies or creditable acquisitions of the assets to be made.

As determined above, the arrangement between the Trustee and the Super fund is similar to a bare trust arrangement. In this instance, as per paragraph 37 in GSTR 2008/3 the Trustee is considered not to be carrying on the leasing enterprise for GST purposes by virtue of its dealings in the trust property.

Accordingly, it is the beneficiary (Super Fund) that is carrying on the leasing enterprise as under paragraph 9-20(1)(da) of the GST Act it is clear that the Super Fund is by definition carrying on an enterprise. This is consistent with the facts provided whereby the beneficiary (Super Fund) conducts all transactions in relation to the borrowing and leasing arrangements and pay all the relevant expenses and receives the rental income.

Question 2

As discussed in question 1 it is the Super fund that is carrying on the leasing enterprise. The Super Fund is therefore entitled to the input tax credits for creditable acquisitions arising from the leasing and management of the commercial property.

Question 3

As discussed in question 1 it is the Super fund that is carrying on the leasing enterprise. The Super Fund is therefore liable for GST on the taxable supplies relating to the leasing and management of the commercial property.

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