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Authorisation Number: 1011991811094

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Ruling

Subject: GST and charitable property trusts

Do you, in your capacity as Trustee, have the liability for GST payable and entitlement to input tax credits that arise from transactions in relation to the trust property?

Answer

Yes

Relevant facts and circumstances

You are an unincorporated association that acts as the State arm of the organisation. Your functions include providing trustee services to local branches in regard to real property.

You, have charitable property trusts established for the benefit of local branches whereby:

you, as the State Trustee, act as a trustee, or

a local property trustee company acts as trustee.

Situation 1 The State Trustee offers a trustee service to its local branches by which:

· it enters into contracts to acquire real property as trustee to hold the property for the public charitable purposes of the local branch

· it is recorded on the title as the registered owner as trustee

· the terms of the trust (traditionally a schedule of trusts attached to the Form 1 Transfer) are recorded on the title. You provided a sample schedule.

· the terms of the trust usually oblige the State Trustee corporation to act on the direction of the local branch (the controller)

· the State Trustee Corporation is normally passive in this trust arrangement with the costs and management of the real property being met and carried out by the local branch.

Situation 2 Alternatively, local branches sometimes form a company limited by guarantee for the sole purpose of acting as the trustee of a public charitable trust to provide the trustee services that would otherwise be delivered by the State Trustee as trustee.

The authority of the various trustees to deal with the property is set out in schedules to the Letters Patent dated ddmmyyyy. You provided copies of sample schedules for the two situations.

The sample schedules for situations 1 and 2 are largely the same.

Clause (a) states that the land and the income and profits derived shall be held on trust for the members of the local branch.

Clause (b) vests the Trustee with wide powers, authorities and discretions, Including:

o Generally deal with trust property: to sell, call in, convert into money, grant options or rights to purchase, mortgage, charge, sub-charge, or otherwise deal with, dispose of or transfer any item or asset held by the Trustee under the terms of the Trust for such consideration and on such terms as in its discretion it may think fit as if it were the absolute and beneficial owner of such item or asset.

o To let: to lease and let property held on trust for such period, at a rental and to persons and upon such terms as the Trustee may decide and to accept surrenders from, make allowances to and arrangements with, a tenant with or without consideration as the Trustee may think fit.

o Power to lend: to lend moneys or give credit to any person or company on such terms as the Trustee may decide...

o Power to borrow: to raise or borrow moneys either alone of jointly with another or others, from any person including a firm or company, either bearing or free of interest and on terms and conditions and for purposes as the Trustee may decide, and to secure the repayment of any moneys or other indebtedness by mortgage, charge or other security or encumbrance over the whole or part of the property held in trust as the Trustee may decide...

o Pay general expenses: to pay insurance premiums, rates, taxes, rents and outgoings in connection with real or personal property of the trust and to manage such property and effect repairs as the Trustee may consider necessary or advisable and where the Trustee is unable to charge such expenditure against income it is at liberty to resort to capital.

o Power to set aside: to set aside out of income or capital from time to time such money as may in the opinion of the Trustee be sufficient to meet any debt or obligation due or accruing.

o Choses-in-action: to acquire choses-in-action, including debts and obligations of all kinds for value or by way of gift or at a discount or premium and to assign, release, vary, relinquish or otherwise deal with such choses-in-action in any way on such terms and conditions as the trustee may see fit.

o Legal proceedings: to institute, join in and defend proceedings at law or by way of meditation or arbitration and to proceed to the final end and determination and to compromise and settle any such dispute or proceedings for such consideration and upon such terms and condition as the Trustee may decide.

Clause (c) states that the Trustee shall follow the lawful directions of the said local branch. Such directions shall be given in accordance with the Constitution of the local branch.

Under clause e the local branch may determine the trust by notice given in accordance with the procedures for Direction to Trustee.

Clause (f) provides that if the local branch is disbanded, ceases to exist or ceases its activities, the property will be held pursuant to the provisions of the Constitution of the local branch. If the Constitution is silent as to dissolution the Trustee will hold the land at the direction of the State Executive of the organisation.

Under clause (h), it is lawful for the Trustee to vary or add to any of the provisions of the trust so long as such revocation, variation or addition is not inconsistent with the general scope of the trust.

Your representative contends that you act as a bare trustee for the various local branches.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

Reasons for decision

Situation 1

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay GST on any taxable supply that you make.

Section 11-20 of the GST Act provides that you are entitled to the input tax credits for any creditable acquisition you make.

Therefore we need to consider whether "you" refers to you as trustee of the charitable property trust or to the beneficiaries.

Your authority to deal with the property is set out in a schedule to the Letters Patent dated ddmmyyyy.

Clause (a) states that the land and the income and profits derived shall be held on trust for the members of the local branch.

In this instance, the charitable property trusts exist for the charitable purposes of the various local branches. This is reflected in Clauses (c) to (e), which require you to deal with the property in accordance with the instructions of the local branch.

However, although you are required to act at the direction of the local branch, the Trust Deed confers considerable powers on you to act independently of the local branch. Further, in certain circumstances, you are required to act in accordance with the direction of the State Executive.

Goods and Services Tax Ruling GSTR 2008/3 sets out the Commissioner's view of what constitutes a bare trust and the consequences of its dealings in relation to property.

Paragraph 37 of GSTR 2008/3 states:

37. The activities of a bare trustee are essentially passive in nature. A trustee of the type of trust considered in this Ruling has either no active duties to perform or only minor active duties. A bare trust as that term is used in this Ruling does not carry on an enterprise for GST purposes by virtue of its dealings in the trust property.

Paragraph 39 of GSTR 2008/3 states:

39. If the asset is sold, the transaction will involve a transfer of the legal title to the property to a third party by the trustee at the direction of the beneficiary.

Clauses (c) to (e) of the trust deed require you to act at the direction of the local branch. However, some clauses give you extensive powers to deal with the property. Other clauses require you to act, in certain circumstances, in accordance with the State Executive.

A bare trustee, as contemplated in GSTR 2008/3, has no active power to deal with the trust property.

The extensive powers conferred on you and the requirement for you to act, in certain circumstances, in accordance with the direction of the State Executive, mean that you have the ability to actively take action at your discretion to attain the objectives laid out in the Trust Schedule. This indicates that you hold the property in a capacity other than that of a bare trustee.

Therefore, we do not consider you to be acting as a bare trustee and the view expressed in GSTR 2008/3 does not apply to your situation. Accordingly, if the requirement of sections 9-5 and 11-5 of the GST Act are satisfied, you in your capacity as Trustee, have the liability for GST payable and the entitlement to input tax credits that arise from transactions in relation to the trust property.

Further information

Situation 2

You also sought advice in relation to other trustees who are companies limited by guarantee. These trustees provide the trustee services that you would otherwise provide.

Whilst we are unable to rule to you about the GST obligations of other trustees, the principles used to establish your obligations and entitlements apply equally to other trustees.