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Edited version of your written advice
Authorisation Number: 1051473797311
Date of advice: 23 January 2019
Ruling
Subject: GST and transfer of property
Question
Are you liable for GST pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 when you transfer property located at a specified location to a beneficiary?
Answer
Yes
Relevant facts and circumstances
You are registered for GST.
You carry on an enterprise of land and property development.
The beneficiaries of the Trust are Individual A and Individual B (the Beneficiaries).
The Beneficiaries are not registered for GST.
You purchased property located at a specified location (the Property) in xx/xxxx.
You claimed an input tax credit (ITC) in respect to the acquisition of the Property.
You subsequently subdivided the Property and constructed two units with the intention of selling one unit with the other unit to be used by the Beneficiaries as their primary place of residence.
You recently sold one of the units (Unit 1).
You are contemplating transferring the title to the second unit (Unit 2) to the Beneficiaries.
The Beneficiaries will not provide any consideration for the transfer.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999
Section 9-5
Paragraph 9-5(a)
Paragraph 9-5(b)
Paragraph 9-5(c)
Paragraph 9-5(d)
Section 9-10
Paragraph 9-10(2)(d)
Section 9-40
Division 38
Division 72
Section 72-5
Subsection 72-5(1)
Subsection 72-5(2)
Subsection 72-10(1)
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 ato.gov.au
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 existence of a 'supply' itself is an essential element in determining whether the transfer of the Property is a taxable supply. The meaning of the term ‘supply’ is contained in section 9-10 and includes any form of supply whatsoever (subsection 9-10(1)). Paragraph 9-10(2)(d) further clarifies that a ‘supply’ will include a grant, assignment or surrender of real property.
Consideration
Paragraph 9-5(a) requires a supply to be made for consideration. In this case the Beneficiaries will not provide consideration in respect to the transfer of Unit 2 into their names.
However, special rules contained in Division 72 provide that supplies between associates without consideration are brought within the GST system and may still meet the requirements of a taxable supply.
Subsection 72-5(1) provides that a supply to an associate for no consideration will be a taxable supply if the associate is not registered or required to be registered, or the associate acquires the thing supplied otherwise than solely for a creditable purpose.
The term ‘associate’ is defined in section 195-1 with reference to section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 318(3) of the ITAA 1936 provides that an associate of a trustee includes any entity that benefits under the trust (a beneficiary).
In this case the requirements of section 72-5 are satisfied as:
● you (as trustee) are supplying Unit 2 to the Beneficiaries (associates)
● the Beneficiaries will not provide any consideration in respect to the title transfer
● the Beneficiaries are not registered for GST.
Subsection 72-5(2) provides that the above will have effect despite paragraph 9-5(a) requiring a taxable supply to be for consideration.
In the course or furtherance of an enterprise that you carry on
The issue of whether the transfer of Unit 2 is made in the course or furtherance of an enterprise that you carry on as required under paragraph 9-5(b) is discussed in Goods and Services Tax Determination GSTD 2009/1 Goods and services tax: is a supply by way of an in-specie distribution of an asset that is applied in an enterprise carried on by a discretionary trust to a beneficiary of the trust made ‘in the course or furtherance of the trust’s enterprise?.
Paragraph 9 of GSTD 2009/1 states:
9. The application of an asset in an enterprise establishes the necessary connection between the supply of the asset and the relevant enterprise. The fact that the supply in question was made by way of an in specie distribution rather than by sale does not alter the analysis. Entities can dispose of assets in a number of ways. The method of itself is not relevant to whether the supply is in the course or furtherance of the enterprise.
In this case you carry on an enterprise of land and property development and are making a supply of a developed unit (Unit 2) constructed in carrying on your enterprise. Therefore we consider the transfer of Unit 2 to the Beneficiaries to be done in the course or furtherance of an enterprise that you carry on.
Connected to the indirect tax zone and registration
Unit 2 is connected to the indirect tax zone as it is located in Australia and you are registered for GST as required under paragraphs 9-5(c) and 9-5(d) respectively.
GST-free and Input taxed supplies
The transfer of Unit 2 would not fall within the GST-free provisions contained in Division 38.
Whilst a supply of residential premises may be input taxed, the supply will not be input taxed to the extent the premises are ‘new residential premises’. Given the facts in this case, the recently constructed Unit 2 would fall within the definition of ‘new residential premises’.
Conclusion
Given the above, your supply/transfer of Unit 2 to the Beneficiaries will be a taxable supply and you will be liable for GST payable on the supply pursuant to section 9-40.
Other relevant comments
Subsection 72-10(1) provides that if a supply to your associate without consideration is a taxable supply, its value is the GST exclusive market value of the supply.
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