Edited version of private advice

Authorisation Number: 1051689524079

Date of advice: 18 March 2021

Ruling

Subject: GST and requirement to register

Question

Are you, in your capacity as sole trustee in bankruptcy for the estates of Individual A and Individual B required to be registered for GST pursuant to section 58-20 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No.

Relevant facts and circumstances

You were appointed sole trustee of the bankrupt estates of Individual A and Individual B (A and B) on dd/mm/yyyy. You have provided a copy of the appointment.

Prior to becoming bankrupt, A and B owned as joint proprietors the following two properties:

•   Property 1

•   Property 2

(collectively, the Properties).

Neither A nor B, either as individuals or as a partnership, are currently registered for GST.

Prior to acquiring the Properties, A and B were registered for GST as a partnership (the Partnership) for the period dd/mm/yyyy to dd/mm/yyyy.

The Partnership carried on an enterprise of 'Renting or leasing agricultural land or pastoral properties as owner'.

A and B lived on Property 1.

A farming business was operated across the Properties.

The following structure was adopted:

•   The Partnership leased the Properties to their family trust.

•   The A & B Family Trustcarried on the farming business.

•   Individual B was the Trustee of the A & B Family Trust

When A and B bought Property 1, a lawyer was engaged to draft up a lease agreement (Lease) between the A & B Family Trust (as tenant) and the Partnership (as landlord).

The Lease provides the following:

•   Landlords are A and B.

•   Rental amount of $xx,xxx.xx per annum plus outgoings to be paid by equal calendar monthly instalments in advance.

•   Commencement date of dd/mm/yyyy for a term of xx years.

•   Outgoings payable are the ABC Council rates and XYZ Water rates.

In late yyyy, A and B purchased Property 2. No new lease agreement was written for Property 2. The Lease was informally modified such that there was no additional lease charge to the A & B Family Trust for leasing Property 2.

Shortly before becoming bankrupt, the A & B ceased living on Property 1 and the A & B Family Trust ceased operating the farming business. However, the A & B Family Trust remained registered for GST.

There was no formal termination of the Lease.

A & B engaged a real estate agent to sell the Properties.

However as set out above, you were appointed sole trustee of the bankrupt estates of A and B and the sale process was then controlled by yourself.

On the date of bankruptcy, the jointly owned Properties automatically vested in you in accordance with section 58 of the Bankruptcy Act 1966.

You sold the Properties and provided copies of the Contract of Sale (the Contracts).

Settlement occurred on dd/mm/yyyy for Property 2 and dd/mm/yyyy for Property 1.

Under the Contracts, the Properties were sold as a GST-free supplies pursuant to section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999.

The Partnership did not have a written partnership agreement.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 Division 58

A New Tax System (Goods and Services Tax) Act 1999 Subsection 58-5(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 58-5(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 58-20

A New Tax System (Goods and Services Tax) Act 1999 Section 184-1

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 188-15

A New Tax System (Goods and Services Tax) Act 1999 Section 188-20

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)

•   all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

•   all reference materials referred to are available on the Australian Taxation Office (ATO) website ato.gov.au

Division 58 contains provisions detailing the GST implications involving activities of an incapacitated entity and a representative of the incapacitated entity.

Section 195-1 defines 'incapacitated entity' to include an individual who is bankrupt and an entity which has a representative appointed.

The definition of a 'representative' in section 195-1 includes a trustee in bankruptcy.

Therefore, for GST purposes, and more specifically division 58, both A and B, as individuals and together collectively, are considered 'incapacitated entities' and you are a 'representative'.

Section 58-20 provides:

(1)    A representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered.

(2)    This section has effect despite section 23-5 (which is about who is required to be registered.

The issue in this case is whether A and B, either as individuals or together, were registered or required to be registered as at the date you were appointed as Trustee in Bankruptcy. If so, you, in your capacity as a 'representative' will be required to be registered pursuant to section 58-20.

Neither A or B as individuals nor together were registered for GST prior to your appointment. The next issue to consider is whether there was a requirement to be registered.

Pursuant to section 23-5, an entity is required to be registered for GST if it carries on an enterprise (paragraph 23-5(a)) and its turnover meets the GST registration threshold (paragraph 23-5(b)), in this case $75,000.

The term 'enterprise' is defined for GST purposes in section 9-20 and includes, among other things, an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property (paragraph 9-20(1)(c)).

The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

We consider the leasing of the Properties constitute an 'enterprise' for GST purposes pursuant to paragraph 9-20(1)(c).

A and B are joint proprietors of the Properties, and Landlords (under the Lease).

For the purposes of income tax and GST, a 'partnership' is defined as:

(a)  an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or

(b)  a limited partnership.

Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property discusses in part, the concept of a 'tax law partnership'.

Paragraphs 9, 10 and 11 of GSTR 2004/6 state:

9. The first limb of paragraph (a) of the definition refers to 'an association of persons (other than a company or a limited partnership) carrying on business as partners'. This reflects the general law definition of a partnership, which is 'the relation which subsists between persons carrying on a business in common with a view of profit'. We refer to this type of partnership as a general law partnership.

10. The second limb of paragraph (a) of the definition includes as a partnership an association of persons (other than a company or a limited partnership) 'in receipt of ordinary income or statutory income jointly'. We refer to this type of partnership as a tax law partnership.

11. Tax law partnerships exist only for tax purposes. General law does not recognize tax law partnerships. At general law, joint tenancy, tenancies in common, joint property or part ownership do not, in themselves, create a partnership in respect of anything that is so held. Neither does the sharing of any profits from the use of such property result in a partnership. The receipt of income jointly from investments without carrying on business is outside the definition of a partnership under general law.

We consider A and B, being an association of persons in receipt of ordinary income jointly under the Lease, are regarded for the purposes of GST as a tax law partnership (TLP). The TLP is the entity, for GST purposes, that is carrying on the enterprise of leasing the Properties.

Therefore paragraph 23-5(a) has been satisfied.

The next issue to consider is whether the turnover of the TLP meets the GST turnover threshold of $75,000.

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, or are likely to make, in a particular month and the following 11 months.

In essence a determination of whether an entity meets the GST turnover threshold is done on rolling basis each month. In this case we need to determine whether the TLP met the threshold in the month of your appointment).

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 discusses meaning of the phrase 'likely to make' at paragraphs 21 to 24. Specifically, paragraph 23 of GSTR 2001/7 states:

23. For the purposes of sections 188-15, 188-20 and 188-25, the expressions, 'likely to make', and 'likely to be made', mean that on the balance of probabilities, it can be predicated that the supply is more likely than not to be made.

In this case, the farming enterprise operated by the A & B Family Trust has ceased and is no longer operating from the Properties.

As such, whilst the Lease was not formally terminated, after considering the unique circumstances including that A and B ceased living on Property 1 prior to becoming bankrupt and the A & B Family Trust ceased operating the farming business, we consider that on the balance of probability, the supply of the Properties by way of lease to the A & B Family Trust would also cease and the projected turnover of the TLP would not meet the registration threshold.

Consequently, the GST turnover of the TLP would not meet the registration turnover threshold. Therefore paragraph 23-5(b) would not be satisfied and the TLP was not required to be registered.

Following on, the criteria of section 58-20 is not met and you, in your capacity as trustee in bankruptcy, are not required to register for GST.

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