Edited version of your written advice

Authorisation Number: 1012850342460

Ruling

Subject: Goods and Services Tax (GST) and a supply of legal services

Question

Is the supply of legal services by an Australian entity (you) in relation to the deceased estate GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) except to the extent that:

(a) the supply was made or provided to the Executor of the Estate while he was physically in Australia in relation to the supply;

(b) the supply was directly connected with real property situated in Australia.

Answer

Yes, the supply of legal services is GST-free under item 1 and 2 of the GST Act except to the extent that:

(a) the supply was made or provided to the Executor of the Estate while he was physically in Australia in relation to the supply; or

(b) the supply was directly connected with real property situated in Australia.

Your supply of legal services in relation to the deceased estate is a mixed supply as it contains both taxable and non-taxable parts.

Relevant facts

• You are an Australian entity who is registered for GST.

• You have provided legal services in relation to the trustee of the deceased estate.

• The deceased lived overseas most of his life. However, he was a citizen of Australia and had a resident in Queensland at the time of his death.

• The deceased died overseas in 200X, leaving a will (Will) made outside Australia.

• The deceased was survived by XX children from his various relationships.

• At the time of death of the deceased, the Estate was compromised of assets in Australia and outside Australia. Estate assets included, without limitation:

- land in Australia and overseas;

- shares in public companies in Australia and overseas;

- shares in private companies in Australia and overseas;

- motor vehicles in Australia and overseas;

- vessels and other goods and personal items.

• The majority of the assets of the Estate were located overseas.

• The real property of the Estate included properties located in Queensland and in New South Wales (NSW).

• At the time of death, some of the Australian properties were occupied by one or more beneficiaries without any formal tenancy arrangements.

• While it was considered that some of the Australian properties would be transferred to specific beneficiaries at a certain stage in the administration of the Estate, no such transfers took place.

• The Executor lives overseas and has significant business interests of his own overseas. While the Executor is a citizen of Australia, he is not a resident of Australia.

• For the purpose of administering the Estate, the Executor;

- established an office overseas; and

- caused to be engaged certain persons to assist in the administration of the Estate, outside professional advisers.

• You were engaged by the Executor to provide legal services in relation to the administration of the Estate.

• Your initial involvement in relation to the Estate involved the following

- conducting searches and the like to locate all Estate property in Australia;

- obtaining probate of the Will in Queensland;

- liaising with agents to obtain a re-seal in NSW of grant of probate of the Will issued out of the foreign court;

- doing such work as necessary to obtain the voluntary deregistration of an Australian company by the deceased; and

- advising generally with respect to the administration of the Australian component of the Estate, including liaising with the Estate's accountants in Australia and attending meetings with the beneficiaries in Australia.

• You were later instructed by the Executor to:

- prepare such documents as necessary to transfer some of the Australian properties to certain beneficiaries;

- attend to the conveyance for properties in Australia which were sold to third parties;

- find and liaise with solicitors in Australia to arrange for the sale of the Australian property;

- engage counsel and do such work as necessary to obtain from the Supreme Court of orders with respect to the operation of the Will, including issued such as the law governing the Will, whether there was one trust for each of miners or one trust only for all minors and the investment powers of the trustee of the minor trusts;

- liaise with the accountants for the Estate overseas;

• You have issued tax invoices to the Executor in relation to your supply of legal services.

• The tax invoice include charges for professional fees and disbursements, such as:

- searches in relation to Australian land (such as title and rates searches);

- couriers in Australia and overseas;

- Australian company searches;

- airfares to overseas;

- accommodation overseas; and

- court filing fees.

• The professional fees (excluding GST) invoiced for the period is total approximately $X,XXX,000.00.

• You advised us that the Executor is a non-resident. He is not registered or required to be register for GST.

• one of the solicitors who works for you attended various meetings or court proceedings in Australia with the Executor in relation to the Estate:

• While the Executor may have been in Australia for a short period before or after each of these attendances, your records do not indicate that he was in contact with you in relation to the Estate on such days and you are not aware of the specific details of those visits.

• The Executor also paid the legal costs of certain beneficiaries, by agreement or Court order and invoices for those expenses were also paid by you from funds held on trust. The GST treatment of these supplies is not the subject to this application.

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 9-25

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(3)

Reasons for decision

Taxable supply

GST is payable on a taxable supply. Under section 9-5 of the GST Act, 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 Australia; 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.

The supply of legal services by you to the executor will be taxable if all the requirements in section 9-5 of the GST Act are satisfied.

Based on the facts given, the supply of legal services by you to the Executor of the deceased estate satisfies paragraphs 9-5(a) to (d) of the GST Act, as follows:

(a) you make the supply of legal services for consideration by way of payments;

(b) you make the supply in the course of carrying on its enterprise;

(c) the supply is connected with Australia; and

(d) you are registered for GST in Australia.

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

Input taxed supply

There are no provisions in the GST Act under which your supply of legal services to the executor would be input taxed.

GST-free

Section 38-190 of the GST Act lists supplies of things other than goods or real property, for consumption outside Australia that are GST-free.

In applying Section 38-190 of the GST Act it is necessary to determine whether the trust is a resident of Australia.

The trust is a resident of Australia if at least one of its trustees is a resident of Australia or the trust's central management and control is located in Australia.

Based on the facts provided, the Executor is the trustee of the trust (deceased estate) and the Executor is not a resident of Australia. Furthermore, the central management and control of the trust is managed by the Executor who is outside Australia. Therefore, the trust (deceased estate) is a non-resident of Australia.

Of relevance to the facts provided is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free where:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

For the supply of your legal services to be GST-free under item 2, there is a precondition that the recipient must not be in Australia in relation to the supply when it is provided. Paragraph 68 of Goods and Services Tax Ruling GSTR 2000/31: 'supplies connected with Australia', states:

For the purposes of items 2 and 3 in subsection 38-190(1) of both the current law and the proposed amendments (items 2 and 3 are discussed in paragraph 67(ii) and (iii) respectively), the pre-condition that the recipient is not in Australia at the relevant time requires that neither the recipient, nor a representative acting on behalf of the recipient if the recipient is a company, is in Australia in relation to the supply.

Precondition of item 2 - recipient is 'not in Australia'

The Commissioner has issued Goods and Services Tax Ruling GSTR 2004/7 which explains when a recipient is not in Australia when the thing supplied is done for the purposes of item 2.

In this case, the deceased estate (trust) is the recipient of the supply. The Trust itself is not a legal person and therefore must be represented by the trustee for the Trust. If the recipient of the supply is the Trust the test to determine whether an individual is in Australia is the relevant test to use where the trustee is an individual. Accordingly, we consider that an individual trustee's presence in Australia is a relevant factor in determining the GST-free status of the supply.

You advised us that the Executor came to Australia various times for the purpose of attending face-to-face meetings with you. These attendances in Australia were solely or primarily for purposes associated with your supply of legal services. Accordingly the condition that the Executor is not in Australia in relation to your supply of legal services is not satisfied and none of your services are GST-free if the services are performed while the Executor was in Australia.

Item 2(a)

Where a supply is directly connected with real property in Australia, the supply will not be GST-free under paragraph 2(a) in the table in subsection 38-190(1).

Goods and Services Tax Ruling GSTR 2003/7 provides guidance in determining whether a supply is directly connected with real property. Paragraph 27 provides the example of a supply of legal services in administering a deceased estate. Where the legal services involve acting for a beneficiary in the conveyance of land, that part of the legal services is directly connected with real property.

Paragraph 43 of GSTR 2003/7 provides that conveyancing services in respect of real property are directly connected with real property.

Based on the information provided, some of things that you do have a clear connection with real property in that they propose to affect the ownership of the property. Similarly, the transferring of the property to the beneficiaries affects the ownership of the property and is directly connected with real property. Therefore, part of your supply in connection with the administration of the Estate is directly connected with real property situated in Australia and is not GST-free.

Item 2(b)

Your supply of legal services may be GST-free under paragraph 2(b) in the table in subsection 38-190(1) of the GST Act if the non-resident acquires them in carrying on its enterprise but is not registered or required to be registered for GST in Australia and provided the non-residents are not in Australia in relation to the supplies when the supplies are made. As we do not consider that these services were acquired by the non-residents in carrying on an enterprise, paragraph 2(b) does not apply. These supplies are taxable.

In summary

The part of your supply of legal services in connection with the administration of the Estate that is directly connected with real property situated in Australia is not GST-free.

To the extent that your supplies of legal services, other than the services directly connected with real property in Australia, were performed when the Executor was not in Australia, these services are GST-free.

To the extent that your supplies of legal services, other than the services directly connected with real property in Australia, were performed when the Executor was in Australia, these services are taxable under section 9-5 of the GST Act.

Apportionment

Part IV of GSTR 2004/7 explains the requirement for apportionment of the supply where the non-resident or other recipient of a supply is in Australia in relation to the supply for a part of the time when the thing supplied is done. It discusses the need to apportion the consideration between the GST-free and taxable parts of the supply.

To work out the value of the taxable part and GST-free part of the supply, it is necessary to apportion the consideration on a reasonable basis.

You should use a fair and reasonable basis to apportion your supply of legal services into taxable and GST-free components.

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on apportioning the consideration for the supply that includes taxable and non-taxable parts.

All public rulings which have been referred to in this ruling are available from the Tax Offices website at www.ato.gov.au.

The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.

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