Edited version of your written advice

Authorisation Number: 1012824789517

Date of advice: 17 August 2015

Ruling

Subject: GST and the Appointment of a Statutory Trustee

Question

Are you, as Trustee for Sale (Statutory Trustee), making a taxable supply of Lot X (the Trust Property) on behalf of the G Trust, pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, you, as Statutory Trustee of Lot X, will make a taxable supply of Lot X pursuant to section 9-5, on behalf of the G Trust, as the supply of Lot X is for consideration, is made in the course of the enterprise of property development of the G Trust, the supply is made in Australia and the G Trust is registered for GST. Further, the supply of Lot X is not GST-free or input taxed.

Relevant facts and circumstances

You, are the Principal of a law firm. You registered for Goods and Services Tax (GST) from 1 July 2000. You provide various legal services. One of the services you provide, is to take on the role of a Court appointed Trustee. You are often appointed by the Supreme Court and the Family Court of Australia for this role. The assets, subject to such appointments, are usually real property but may include other assets and chattels such as cars and boats. Your appointment as a Trustee for Sale predominantly arises in the context of marital/de facto disputes.

On XXYYYY, you were appointed as Trustee for Sale (Statutory Trustee) of a vacant block of land described as Lot X (the Trust Property), by the Family Court of Australia (the Court Order). The Trust Property was vested in your name as Statutory Trustee on XXYYYY.

The two individuals involved in this dispute were Y and Z (Z and Y). They were both directors and shareholders of Company A which was the trustee of the G Trust. Company A as trustee for the G Trust is registered for GST.

Z and Y were experienced property developers prior to the purchase of the Trust Property.

The G Trust was established by Z and Y for the purpose of subdividing the Trust Property into XX residential lots and to sell the developed lots as vacant land and / or house and land packages.

The land was vacant except for an old, open, corrugated iron shed. It had no walls on two sides and was not used for any purpose by Z and Y for the duration of ownership.

The G Trust spent more than $XX on engineers, planners, surveyors, lawyers, landscape architects, council application fees etc, for the purpose of developing the Trust Property and took all required steps to continue with the development up to the time it was vested in you. The G Trust received the following approvals for the Trust Property in the course of its development activities prior to the vesting of the Trust Property in you:

1. Development Permit for Material Change of Use [XX residential allotments] (the Development Approval); and

2. Negotiated Decision Notice - Operational Works Approval (the Operational Works Approval).

On XXYYY, the Family Court of Australia, issued a Court Order which stated as follows:

1. That the Trustee be appointed as Trustee for Sale of the real properties described as:

(a) Lot X

and that the properties vest in the Trustee for the purposes of sale.

2. That the Trustee be entitled to sell the properties in such order and by such method as he deems appropriate in the circumstances including but not limited to sale by auction or by private treaty.

3. …

4. That in the event of sale by private treaty, the Trustee shall determine the appropriate marketing of the properties including listing price from time to time, the appointment of any agent or agents for the sale of the properties and the terms and conditions of such appointment or appointments.

5. That in the event of sale by auction:

(a) The Trustee shall determine the appropriate marketing campaign for the properties including a marketing budget for advertising, the appointment of any agent or agents for the sale of the properties and the terms and conditions of such appointment or appointments;

(b) The Trustee shall determine the reserve price for the auction after consultation with the auctioneer and considering any recommendations of the auctioneer;

(c) Should either of the parties be the unsuccessful bidder at auction, the Trustee is authorized to sell to that party without a requirement that the purchasing party pay a deposit at the time of execution of the contract;

(d) …

6. That the Trustee is authorised to reasonably expend money on the properties in preparation for their sale using the recommendations…

On XXYYYY, the Trust Property was sold at auction. You entered into a Contract of Sale with Company B.

On XXYYYY, the Contract of Sale settled following a number of extensions to the Settlement Date by agreement of the parties.

You are holding an amount equivalent to the GST on the sale in trust, pending the outcome of this ruling.

You have provided the following documentation in support of your ruling application:

1. Order made in the Family Court of Australia dated XXYYYY

2. Historical Title Search

3. Contract of Sale for Lot X

Further, in an e-mail from your representative to the Australian Taxation Office (ATO), dated XXYYY, he confirmed as follows:

Question 1

Were there any other development projects undertaken by the G Trust?

Not by the G Trust itself, but Z and Y, the directors and shareholders of Company A, the trustee of the G Trust, were experienced property developers and had embarked on making a business of property development prior to their purchase of Lot X.

Company A, as trustee for the G Trust, was established by Z and Y solely for the purpose of developing Lot X & selling the X subdivided lots.

Question 2

What was the intention with regards to Lot X? That is, did the G Trust intend to build houses/ commercial property on the land?

The G Trust intended to develop Lot X into X subdivided residential lots and sell the developed lots as vacant land and/or house and land packages.

The G Trust spent more than $XX on engineers, planners, surveyors, lawyers, landscape architects, council application fees etc to fully develop Lot X. It took all required steps to continue with and fully complete the Lot X development up to the time it was sold.

Question 3

What was the origin of the land? That is, did the land contain the residential home of Z and Y or was this a separate piece of land acquired by the Trust for the express purpose of undertaking a property development?

No, the land did not contain the residential home of Z and Y (or anyone else). Lot X was a separate piece of land acquired by the Trust for the express purpose of undertaking a subdivision property development.

Question 4

Pursuant to your ruling request, could you please advise whether Company A, as trustee for the G Trust, completed any other development activities (e.g. in addition to the proposed development of Lot X)?

Please see the response to question one above.

Question 5

Could you please advise what buildings were on the property at the time of sale i.e. residential or commercial?

The only building on Lot X at the time of the sale (and since it was purchased by the G Trust) was an old open corrugated iron shed. It had no walls on two sides and was not used for any purpose by Z and Y for the duration of their ownership.

Further, in an e-mail dated XXYYY, your representative provided the following additional information and documentation:

1. The beneficiaries of the G Trust

2. Trust Deed for the G Trust

3. Court orders that relate to the application of the sale proceeds arising from the sale of Lot X, dated XXYYY.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(1),

A New Tax System (Goods and Services Tax) Act 1999 Division 184,

A New Tax System (Goods and Services Tax) Act 1999 Subsection 184(2) and

A New Tax System (Goods and Services Tax) Act 1999 Subsection 184(3).

Reasons for decision

In this reasoning, please note:

• All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

• All terms marked by an *asterisk are defined terms in the GST Act.

• For the sake of clarity, please note that we have responded to your contentions in relation to the draft ruling issued to you on XXYYY, at the end of the 'Reasons for decision'.

Section 9-5 states:

You make a taxable supply if:

(a)  you make the supply for *consideration; and

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

(c)  the supply is * connected with the indirect tax zone; and

(d)  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.

You were appointed as Trustee for Sale (Statutory Trustee) of a vacant block of land described as Lot X (the Trust Property) by the Family Court of Australia (the Court Order). The Trust Property was vested in your name as Statutory Trustee on or about XXYYYY.

On XXYYYY, the Property was sold at auction. You entered into a Contract of Sale with Company B.

We need to consider in what capacity you sold the Trust Property and whether an enterprise is conducted in that capacity in relation to the Trust Property.

Division 184 explains the meaning of entity which includes inter alia, a trust.

Subsection 184(2) states:

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(3) goes on to explain that a legal person can have a number of different capacities in which the person does things. In each of those capacities, the person can be taken to be a different entity.

Consequently, we consider that that you, as Statutory Trustee, were acting in a different capacity in relation to the Trust Property from the capacity in which you act in relation to the activities you conduct as part of your legal services enterprise.

In accordance with the terms of the Court Order, you, as Statutory Trustee, have a wide scope in relation to your powers to sell the Trust Property, including:

• determining the appropriate marketing of the Trust Property

• determining the reserve price for the auction

• appointing any agents for the sale of the Trust Property; and

• spending money on the Trust Property to prepare it for sale (to be reimbursed out of the sale proceeds in accordance with paragraph 9 of the Court Order).

In this case, you, in your capacity as Statutory Trustee of the Trust Property, arranged the sale of the Trust Property and transferred the title in accordance with the requirements of the Court Order dated XXYYYY for the benefit of the parties to that Court Order (and distributed the sale proceeds in accordance with the Court Order dated XXYYYY). Therefore you disposed of the Trust Property in your capacity as Statutory Trustee for the Trust Property.

Enterprise conducted as Statutory Trustee of the Trust Property

The enterprise of the G Trust was one of property development and the purpose of the G Trust was to develop and sell the subdivided property as vacant land and/or house and land packages. The activities of the G Trust constituted an enterprise because the Trust Property was acquired with the intention of resale at a profit and therefore the activities were carried out in the conduct of a profit making undertaking or scheme. These activities would (as a minimum) be considered to be an enterprise in the form of an adventure or concern in the nature of trade under paragraph 9-20(1)(b).

The reasoning in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 (Toyama) is relevant in so far as it considers whether the court appointment of a trustee to take the place of someone involved in activities which previously amounted to carrying on an enterprise would alter the characterisation of those activities.

In Toyama, Justice White held that the Trustees appointed by the Court in that case carried on an enterprise, being a series of activities done in the form of a business, required to be undertaken pursuant to their appointment as Trustees for Sale of the relevant property.

You submit that Justice White erred in deciding Toyama in so far as:

• The Trustees were undertaking their function in accordance with the obligations imposed by a Court Order

• Justice White placed too much reliance on the fact that the Trustees were appointed based on their professional qualifications, rather than the practical experience of the taxpayer in dealing with property; and

• The Trustee's remuneration does not have the characteristic of a profit making venture but rather compensation for time spent by the Trustees for Sale, assisting the court's process rather than undertaking work related to their legal practice.

The following paragraphs from the judgement in Toyama are relevant in considering whether the principles in Toyama have application to your role, as a Court appointed Statutory Trustee, in selling the Trust Property:

• Paragraph 66 of Toyama states that the trustees:

'entered into the contract for the sale of the property and conveyed the title to it. The trustees are the entities who made the supply.'

• Paragraph 67 of Toyama states:

'The trustees carried on an enterprise within the meaning of the Act, being a series of activities done in the form of a business. They were appointed as trustees by the Court because of their professional qualifications as solicitors. Although the orders appointing them do not currently provide for their remuneration, Landmark accepts that they will be entitled to proper remuneration for the work they have done. That work includes retaining real estate agents, solicitors, counsel and accountants; giving instructions for the marketing of the property; liaising with Toyama and Landmark; preparing the contract of sale; arranging for the marketing and public auction of the development site; and selling of the site. These activities have a commercial character.'

• Paragraph 73 of Toyama states:

'When the enterprise carried on by the trustees is regarded as a whole, it can be seen that it involves a series of acts done by the trustees. These included the engaging of consultants, the marketing of the property, the obtaining of judicial advice and the sale of the property.'

• Paragraph 76 of Toyama states:

…Whilst I accept that the trustees were engaged in a separate activity from the joint venturers, Landmark and Toyama, it was nonetheless a related activity. The trustees were appointed to wind up the venture on which Toyama and Landmark had engaged when they fell out. In my view, the mere appointment of a trustee to take the place of someone involved in activities which amounted to the carrying on of an enterprise , would not alter the characterisation of those activities. Clearly the activities conducted by the joint venturers, Toyama and Landmark, were activities in the nature of a business done for profit. The activities of the trustees, although a different enterprise, because carried on by different entities, had a business or commercial character because they brought the activities of the joint venturers to fruition. Moreover, the trustees were themselves acting in business, as professional persons who would charge fees for the work done in selling the site for the profit of the joint venturers.

Whilst White J referred at [67] of Toyama to the Trustees being appointed because of their qualifications as solicitors; and at [76] stated that '…the trustees were themselves acting in business, as professional persons who would charge fees for the work done in selling the site for the profit of the joint venturers', White J emphasised at [69] that there were a series of activities 'done in the form of a business' by the Trustees which had a commercial character. What was done by the Trustees were 'business activities', whether considered from the point of view of their providing services to the beneficiaries, or from the point of view of their effecting a sale of the land (emphasis added).

In relation to your contention at point 2.2 of your submission that 'the remuneration does not have the characteristic of a profit making venture', White J did refer at [70] to one of the features of carrying on a business as 'conducting an enterprise systematically and regularly with a view to profit', and later stated at [76] that '…Clearly the activities conducted by the joint venturers, Toyama and Landmark, were activities in the nature of a business done for profit.' Furthermore, your contention at point 2.2 of your submission does not take into account that the question of whether the activities in relation to the Trust Property are conducted with a 'view to profit' must also take into account the business activities which included 'effecting a sale of the land' and not just the remuneration for the work undertaken by the Trustees.

As stated above, the reasoning in Toyama is relevant in so far as it considers whether the Court appointment of a Trustee to take the place of someone involved in activities which previously amounted to carrying on an enterprise would alter the characterisation of those activities.

For example, in [73] of Toyama White J states

'…the property sold was not owned by an individual and used as a residence, but a disused house on a development site having development consent. … The sale of the development site was a commercial transaction'.

Further at [76], White J notes the mere appointment of a trustee to take the place of someone involved in activities would not alter the characterisation of those activities. The activities of the trustees, although a different enterprise, had a business or commercial character because they brought the activities of the joint venturers to fruition. That is, it is relevant to consider the surrounding purposes of the property in question - for example, whether the property was held for commercial development purposes or say domestic purposes.

In your case, you were appointed by the Court to dispose of the Trust Property that was held for commercial development purposes, thereby bringing the activities of the G Trust to fruition. That is:

(1) Company A at the G Trust was established by Z and Y solely for the purpose of developing the Trust Property and selling the X subdivided lots as vacant land and/or house and land packages.

(2) The G Trust spent more than $XX on engineers, planners, surveyors, lawyers, landscape architects, council application fees, etc, to fully develop the Trust property. Company A took all the required steps to continue with the property development up to the time it was vested in you, as Court appointed Trustee.

(3) When the Trust Property was vested in you, as Court appointed Trustee, you engaged the relevant professionals to ensure the Trust Property was sold within the terms of the Court Order in a business-like manner.

These factors confirm that the sale of the Trust Property was to be made in the course or furtherance of an enterprise (if it had been made by Company A as trustee for the G Trust).

Although no single factor is determinative in deciding the enterprise question, in your case, you, as Statutory Trustee, carried on related activities in regards to the G Trust's Property (which later vested in you, in accordance with the Court Order). That is, considerable weight is given to the fact that a series of activities were done by you, as Statutory Trustee that had a commercial character in relation to the sale of the development site that was the Trust Property.

The activities conducted by you, in your capacity as Statutory Trustee of the Trust Property, are on par with Toyama in that those activities were made in the course of an enterprise carried on by you in relation to the Trust Property, thereby bringing the activities of the G Trust to fruition.

Contentions dated XXYYYY in response to draft ruling issued on XXYYYY

In your letter dated XXYYY, you state that the taxpayer cannot be seen to have brought the property development intention of the G Trust to "fruition" on any view.

As stated above, the activities of the G Trust constituted an enterprise because the Trust Property was acquired with the intention of resale at a profit and therefore the activities were carried out in the conduct of a profit making undertaking or scheme.

Whilst the activities of G Trust did not proceed to a stage in which the land was subdivided and sold, it spent more than $XX on engineers, planners, surveyors, lawyers, landscape architect and council application fees for the purpose of developing the land. The intention to make a profit in relation to the Trust Property did not change but rather the means by which that profit was realised changed due to the dispute arising between Z and Y

Miscellaneous Taxation Ruling MT 2006/1, The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) states at paragraph 270:

270. In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade.¹¹¹

This also accords with the income tax treatment on revenue account of an isolated commercial transaction where land is acquired for the purpose of development, subdivision and sale but the development and subdivision do not proceed (Taxation Determination TD 92/126).

In your case, the powers conveyed on you, by the Court as Statutory Trustee, empower you to achieve an outcome on behalf of the G Trust, which although not its ultimate intention, still achieved its basic objective being the disposal of the Trust Property for a profit. As indicated in paragraph 270 of MT 2006/1, where land is sold that was purchased with the intention of resale, the related activities are still considered to be an enterprise regardless of whether the land is sold as it was purchased or whether it was subdivided before sale.

That is, although no additional steps were taken by you, as Trustee for Sale, to progress the subdivision of the Trust Property, we consider your activities in marketing and selling the Trust Property were activities that had a commercial character and brought to fruition the profit making intention of the G Trust in relation to the Trust Property.

Of relevance, in Toyama, White J noted at [73] the land had 'a disused house on a development site having development consent. … The sale of the development site was a commercial transaction'. Further at [76], White J noted the mere appointment of a trustee to take the place of someone involved in activities would not alter the characterisation of those activities. The lack of actual development on the land did not impact on this decision.

Defining the 'Trust' - continuity of the trust estate

The current Australian Taxation Office (ATO) position on trust resettlements is set out in the Decision Impact Statement for Commissioner of Taxation v David Clark; Commissioner of Taxation v Helen Clark [2011] FCAFC 5 (Clark)

As discussed in the Decision Impact Statement, in considering any changes made to a trust, the relevant focus is on whether continuity of the trust has been maintained, based on the authority in Federal Commissioner of Taxation v. Commercial Nominees of Australia Ltd [1999] FCA 1455 (Commercial Nominees)". The Commissioner considers the test to be applied, looks to whether changes to one or more of the trust's constituent documents, the trust property and the identity of those with a beneficial interest in the trust property are such as to terminate the existence of the trust. " In Clark there were significant changes to the property, membership and operation of the relevant trust without any finding by the courts that there was a loss of continuity in the relevant trust.

Following the decision in Clark, the Australian Taxation Office (ATO) issued Taxation Determination TD 2012/21, which stated at paragraph 20 that continuity of a trust estate is maintained so long as the trust is not terminated for trust law purposes. Paragraph 21 of TD 2012/21 then states that assuming there is some continuity of property and membership of the trust, an amendment to the trust that is made in proper exercise of a power of amendment contained under the Deed will not have the result of terminating the trust, irrespective of the extent of the amendments so made so long as the amendments are properly supported by the power. Paragraph 21 further states that while amendment of those obligations might occur; any amendment must be in accordance with the terms of the original trust.

Paragraph 27 of TD 2012/21 notes that it may be the case that assets held originally as part of the trust property commence to be held under a separate charter of obligation as a result of a change to the terms of the trust - whether by exercise of a power under the Deed (including a power to amend) or court approved variation.

Paragraph 28 of TD 2012/21 then provides an example of this, as was the case in Commissioner of State Revenue v Lam & Kym Pty Ltd [2004] VSCA 204, in which a trustee executed an instrument in which it declared that it 'hereafter held separately in trust' particular real estate for certain beneficiaries. Paragraph 29 of TD 2012/21 concludes that depending on the facts, the effect of a change to the terms of the trust might be such as to lead to the conclusion that a particular asset has been settled on terms of a different trust by reason of being made subject to a charter of rights and obligations separate from those pertaining to the remaining assets of the trust. Example 4 of the TD provides an example where there is the settling of a trust asset in a new trust (Examples 1 to 3 of the of the TD provide examples where the powers of amendment contained in the Trust Deed do not cause a new trust to arise for trust law purposes).

In the case of the G Trust, there has been a Court appointment of a Statutory Trustee for Sale in relation to Lot X. In order to determine whether this has affected the continuity of the G Trust we need to determine whether the activities of the Statutory Trustee for Sale, in selling Lot X in accordance with the initial Court Order and the later Court Order which sets out the direction as to the distribution of proceeds to the parties, would have been within the powers of the Trustee (Company A) as set out in the Trust Deed for the G Trust. In order to determine this question, we would need to compare what was required under the relevant Court Orders with what could have been achieved under the Trust Deed.

The G Trust is a discretionary trust and as such, the powers and duties of the Trustee are wide and include the ability to sell any of the Trust's Property and to distribute any proceeds at the Trustee's discretion. The beneficiaries, as defined in the Trust Deed of the G Trust include the parties to the Court Order, dated XXYYYY, and the beneficiaries pursuant to Clause 14 of the Court Order dated XXYYYY.

Consequently, we consider that the continuity of the G Trust is maintained notwithstanding the vesting of Lot X in the Statutory Trustee and the subsequent activities in relation to that Trust Property.

When we compare what was required to be done pursuant to the Court Order dated XXYYYY and the Court Order dated XXYYYY, with what could have been achieved by the Trustee in accordance with its powers under the G Trust Deed, we conclude that the result outlined in the Court Orders was able to be brought about by an exercise of the Trustee's powers under the G Trust Deed. That is, the Trustee of the G Trust had the power (discretion) to sell assets and distribute the assets to the beneficiaries (as defined) which included the parties to the Court Order. Taking into consideration the fact that the discretion given to the Trustee under the G Trust Deed was sufficiently broad as to permit the result stipulated in the Court Order dated XXYYYY, the Court appointment of a separate Trustee for Sale did not cause a resettlement of the G Trust.

As such, you, as Statutory Trustee for Sale of the Trust Property (Lot X), made a taxable supply of Lot X to pursuant to section 9-5, on behalf of the G Trust, as the supply of Lot X is for consideration, is made in the course of the enterprise of property development carried on behalf of the G Trust, the supply is made in Australia and the G Trust is registered for GST. Further, the supply of Lot X is not GST-free or input taxed.

Contentions dated XXYYYY in response to draft ruling issued on XXYYYY

In your letter dated XXYYYY you state that 'two distinct trusts existed following the appointment of the taxpayer as trustee for sale, each of which were governed by a distinctly different set of rights and obligations.

As stated above, the Court appointment of you, as a Trustee for Sale of the Trust Property and the subsequent execution of the relevant Court Orders did not cause a resettlement of the G Trust.

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