Edited version of your written advice

Authorisation Number: 1051436951853

Date of advice: 4 October 2018

Ruling

Subject: GST and statutory trustees

Question 1

Are you, in your capacity as statutory trustees, required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

Are you liable for GST pursuant to section 9-40 of the GST Act in regard to properties you sell in your capacity as statutory trustees?

Answer

Yes

This ruling applies for the following period(s)

1 July 2017 – 30 June 2018

The scheme commences on

2016

Relevant facts and circumstances

As at xx/xx/xxxx, the following properties (the Properties) were owned by Company A as trustee for the ABC Trust (Company A):

● Unit 1

● Unit 2

● Unit 3

On that date Individual A and Individual B (You) were appointed as Statutory Trustees under section 38 of the Property Law Act 1974 (X) (Property Law Act) by the Relevant Court of X to sell the Properties.

Pursuant to the court order, the Properties vested in you on your appointment with the net proceeds of sale to be distributed by you to the First and Second Applicants.

You subsequently entered into contracts for the sales of the Properties.

Settlement date for the sale of Unit 1 was xx/xx/xxxx with a sale price of $xxx,xxx.

Settlement date for the sale of Unit 2 was xx/xx/xxxx with a sale price of $xxx,xxx.

Settlement date for the sale of Unit 3 was xx/xx/xxxx with a sale price of $xxx,xxx.

In the period in your role as Statutory Trustees, Unit 2 generated rental income. You were responsible for the collection of the rental income.

Your duties also involved engaging third parties such as real estate agents, solicitors and conveyancers. You paid the costs of acquisitions from the third parties together with rates and other costs relating to the Properties.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-40

Section 9-20

Paragraph 9-20(1)(c)

Section 23-5

Division 38

Section 40-65

Section 40-75

Subsection 188-10(1)

Section 188-15

Section 188-20

Section 188-25

Paragraph 188-25 (a)

Paragraph 188-25 (b)

Section 195-1

Property Law Act 1974

Section 38

Conveyancing Act 1919

Section 66G

Reasons for decision

Note: In this reasoning, unless otherwise stated,

● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Question 1

Section 23-5 provides that you are required to be registered if:

● you are carrying on an enterprise; and

● your GST turnover meets the registration turnover threshold (currently $75,000 or $150,000 for non-profit bodies).

Carrying on an enterprise

The term ‘enterprise’ is defined in section 9-20 and includes an activity, or series of activities, done in the form of a business. The phrase ‘carrying on an enterprise’ includes doing anything in the course of the commencement or termination of the enterprise (section 195-1).

The question of whether a party, or parties, appointed as Statutory Trustees for the sale of property was considered by White J in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 (Toyama). Whilst in the Toyama case the appointment of the Statutory Trustee was made pursuant to section 66G of the Conveyancing Act 1919 (Conveyancing Act), the provisions of section 66G of the Conveyancing Act are mirrored in section 38 of the Property Law Act.

In Toyama, White J at [68] noted that the ‘enterprise which the trustees carried on was the series of activities required to be undertaken pursuant to their appointment as trustees for sale. The sale of the property, being the very thing they were appointed to do, was in furtherance of that enterprise’.

White J added at [69] that the activity, or series of activities, which the trustees carried on, was done in the form of a business.

White J found at [72] that ‘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’.

In this case, you were appointed by the Court to effect the sale of the Properties and distribute the net proceeds of sale to the First and Second Applicants. In the course of your duties you collected rent in respect to one of the properties and engaged third parties such as real estate agents, solicitors and conveyancers. You paid the costs of acquisitions from the third parties together with rates and other costs relating to the Properties.

We consider the comments of White J in Toyama have similar application in this case. As such, we consider you are carrying on an enterprise for GST purposes in conducting your duties and obligations as trustees appointed by the Court for the sale of the Properties.

GST turnover

Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if:

(a) your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is less than $75,000; or

(b) your projected GST turnover is at or above $75,000.

‘Current GST turnover’ is defined in section 188-15 as the sum of the values of all of your supplies made in a particular month and the preceding 11 months.

‘Projected GST turnover’ is defined in section 188-20 as the sum of the values of all of your supplies made in a particular month and the following 11 months.

However, in the calculations of both ‘current GST turnover’ and ‘projected GST turnover’, the value of supplies that are ‘input taxed’ are disregarded.

Section 40-65 provides that the sale of real property is input taxed to the extent that the property is residential premises to be used predominately for residential accommodation. However, the sale will not be input taxed to the extent that the residential premises are either ‘commercial residential premises’ or ‘new residential premises’.

In this case it is common ground that the Properties are ‘residential premises’ with the relevant question being whether the Properties are ‘new residential premises’.

You have made the following contention:

We further note that the completed units of Company A would be “New Residential Premises” under section 40.65 of the GST Act. If the Statutory Trustee is the holder of the properties than Company A would have disposed of those new residential premises to the Statutory Trustee. As such the residential premises could no longer be “New Residential Premises” under the GST Act. The sale of those properties by the Statutory Trustee would be input taxed. As input taxed supplies do not form “turnover” under the GST act then the Statutory Trustee is not required to be registered for GST. Accordingly no GST would be payable by the Statutory Trustee.

Section 40-75 defines ‘new residential premises’ and includes residential premises that have not previously been sold as residential premises.

In Toyama, White J established at [66] that the supply of the property in question, having been vested in the trustees, was made by the trustees. The trustees enter into the contract for the sale of the property and conveyed the title to it. As such, we consider that you make a supply of the Properties when sold in your role as Statutory Trustees.

As such, the relevant question is whether the Properties were ‘previously sold’ to you when the Properties vested to you pursuant to the court order.

Goods and Services Tax Ruling; Goods and services tax: supplies (GSTR 2006/9) discusses the concept of ‘supply’ and also ten propositions that are considered relevant in analysing a transaction in relation to a supply.

Of relevance is the discussion of Proposition 5 being that an entity will make a supply if it provides something to another entity. In general a supply requires an entity to do something.

Paragraphs 80 to 84 discusses this concept in respect to the vesting of real property. Whilst GSTR 2006/9 discusses this issue primarily in the context of real property being vested in a government authority pursuant to legislation (referred to as the compulsory acquisition of property), the principles discussed may be equally applied to this case.

Paragraphs 82 - 82A of GSTR 2006/9 further state:

In cases where land vests in the authority as a result of the authority seeking to acquire the land, and initiating the compulsory acquisition process pursuant to its statutory right, then the owner does not make a supply because it takes no action to cause its legal interest to be transferred or surrendered to the authority.

However, in other cases the owner may do something or undertake some action such that it does make a supply of the land that vests in the authority. For example, see the decision in Re Hornsby Shire Council v. Commissioner of Taxation in which the Administrative Appeals Tribunal found that, in the circumstances the owner, CSR Limited, made a supply of its land by way of entry into an obligation and the surrender of its land when it issued a notice, pursuant to statute, compelling the Hornsby Shire Council to acquire its land.

This discussion in GSTR 2006/9 in relation to compulsory acquisitions states that it is necessary to examine the relevant facts and circumstances to determine whether or not the owner makes a supply of the land to the authority.

Similarly, to determine whether or not Company A makes a supply to you when the Properties vest in you (as statutory trustee), it is necessary to consider whether Company A undertook any action to cause the Properties to vest with you.

In this case, it was an application made to the Relevant Court of X by the First and Second Applicants that was the trigger in you being appointed.

As such, we consider that there was not a supply made by Company A to you when the Properties vested in you on xx/xx/xxxx (date of your appointment). Consequently, we consider that the Properties were not ‘sold’ at that time.

Therefore, we consider that as at the dates you made the supplies of the Properties, the Properties were ‘new residential premises’ for GST purposes and the supplies were not input taxed. Thus, on this basis, the proceeds from your sales would not be disregarded when calculating your current and projected turnover for GST registration purposes.

Section 188-25 provides that when calculating your projected GST turnover the following supplies are disregarded:

● transfers of ownership of a capital asset; or

● supplies solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover GSTR 2001/7) discusses the above turnover issues.

The ATO view of the meaning of ‘capital assets’ is discussed in paragraphs 31 to 36 of GSTR 2001/7. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise and are often referred to as 'structural assets'. Paragraph 33 of GSTR 2001/7 states that an asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a). Paragraph 35 continues stating that if the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction.

You were appointed pursuant to section 38 of the Property Law Act for the sale of the Properties.

In this case, the sole purpose for holding the Properties is for sale as prescribed for under Court ordered appointment however you also conducted a leasing enterprise pursuant to paragraph 9-20(1)(c) in regards to Unit 2 and received rental income. In this case we would consider the sale of Unit 2 to constitute the transfer of a capital asset. Therefore the sale of Unit 2 is not included in your projected turnover however we do not consider your supply of Unit 1 and Unit 3 to be the transfer of ownership of a capital asset and as such not excluded from calculations of your projected GST turnover by virtue of paragraph 188-25(a).

The second limb of 188-25 (paragraph 188-25(b)) provides that you do not included supplies solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

Paragraphs 38 to 41 of GSTR 2001/7 discuss the meaning of the term ‘solely as a consequence’. Paragraph 41 of GSTR 2001/7 states that for the purposes of section 188-25 a supply is made, or is likely to be made, 'solely as a consequence' where the supply is made only as a result of the ceasing of an enterprise or the substantial and permanent reduction in size or scale of an enterprise.

In this case, your supply of the Properties is not a result or consequence of you ceasing (or substantially and permanently reducing the size) of your enterprise. In this case the ceasing of your enterprise will be a consequence of your sale of the Properties (and fulfilling your other obligations as Trustees).

This issue is considered in regard to an isolated transaction of a single asset in paragraphs 46 and 47 of GSTR 2001/7 which provides that an enterprise may consist of an isolated transaction or a dealing with a single asset. The disposal of that single asset is not a transfer solely as a consequence of ceasing to carry on an enterprise. In such circumstances the enterprise ceases as a consequence of the disposal of the single asset, rather than the single asset being disposed of in consequence of the ceasing to carry on the enterprise.

As such, your supply of Unit 1 and Unit 3 will not be excluded from calculations of your projected GST turnover by virtue of paragraph 188-25(b).

The sales of Unit 1 and Unit 3 do not fall within the exclusions provided for in section 188-25 and will be included in the calculation of your projected GST turnover. Therefore, you (in your role or capacity as statutory trustees) will be required to register for GST at a time when your current GST or projected GST turnover is $75,000 or more.

Question 2

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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 for GST.

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

The issue is whether your supplies of the Properties are taxable supplies.

As discussed above, the sales of the Properties are made in the course or furtherance of an enterprise that you carry on. Furthermore, the supplies were made for consideration and connected to the indirect tax zone (Australia) and, also as discussed above, you are required to be registered for GST.

Also in the discussion above, your supplies of the Properties are not input taxed and considered to be supplies of new residential premises. The supplies also do not fall within the GST-free provisions of Division 38.

Therefore, the sale of the Properties will be taxable supplies as defined in section 9-5 and you will be liable for GST in respect to those supplies pursuant to section 9-40.

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