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Ruling

Subject: GST and trustee services

Question 1

Does the entity (in its personal capacity) make a taxable supply of trustee services to the Fund for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the consideration for the services is deducted from the Fund and includes an 'Adviser Fee' (ASF) component?

Answer

Yes, the entity (in its personal capacity) makes a taxable supply of trustee services to the Fund for the purposes of section 9-5 of the GST Act where the consideration for the services includes an ASF component.

Question 2

Is the entity (in its personal capacity) making a wholly creditable acquisition for the purposes of section 11-5 of the GST Act when it acquires financial product distribution services from a financial product distributor for consideration which includes an ASF component?

Answer

Yes, the entity (in its personal capacity) is making a wholly creditable acquisition for the purposes of section 11-5 of the GST Act when it acquires financial product distribution services from a financial product distributor for consideration which includes an ASF component.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The entity is the trustee of a superannuation fund (Fund).

Both the entity and the Fund are residents of Australia and are registered for the goods and services tax (GST).

The entity is making this ruling application acting in its personal capacity and not in its capacity as trustee of the Fund.

The entity is registered with the Australian Prudential Regulation Authority as a Registrable Superannuation Entity. It has an Australian Financial Services Licence (AFSL) issued by the Australian Securities and Investment Commission (ASIC) that authorises it to issue superannuation products and to provide general advice in relation to the fund.

In its capacity as trustee of the Fund, the entity receives contributions from individuals or from employers on behalf of their employees. For the purposes of this ruling application, the persons on whose behalf the investments are held are referred to as 'Member' or 'Members'.

The conduct of a superannuation fund trustee is predominantly governed by the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS) and related regulations.

Apart from the specific proscriptions in SIS, a trustee of a superannuation fund is broadly entitled to do whatever the governing rules of the superannuation fund authorise it to do subject to certain statutory covenants in subsection 52(2) of SIS.

The Fund has been established pursuant to a Trust Deed.

The services that the entity provides to the Fund under the terms of the Trust Deed are called 'trustee services'. The trustee services include the services that the entity can provide under the Trust Deed as well as general law and include promoting and marketing the Fund and providing advice to Members in relation to Fund matters.

The Trust Deed provides for the entity as trustee of the Fund to be remunerated for the services it provides to the Fund.

The fees that the entity can charge the Fund for providing trustee services include an 'Adviser Fee' component.

The 'Adviser Fee' component will be referred to as the ASF, for the purposes of this ruling.

From an accounting perspective, the ASF is recognised as income that the entity has earned in providing taxable trustee services. This is consistent with the income tax treatment where the ASF is recognised as taxable income that the entity derives in its personal capacity relating to the provision of trustee services.

Under the Trust Deed, the entity can engage third parties to perform the services that it is required to provide as trustee of the Fund. This includes engaging third parties to promote and market the Fund and to provide advice to Members. The entity has advised that it enters into these separate legal arrangements in its personal capacity, and not in its capacity as trustee of the Fund.

The entity has entered into contractual arrangements with a number of arm's length parties in order to distribute and promote the Fund as well as to provide advice to Members in relation to investment in the Fund. In this ruling, these parties are referred to as 'Distributors'.

All the Distributors carry on enterprises and are located in Australia.

All the Distributors are registered for GST and all the services are provided to the entity in Australia.

In this ruling, the agreement between the entity and each Distributor is referred to as the 'Services Agreement'.

Under the Services Agreement, a Distributor can procure the services of other persons such as financial advisers that are either contractors or employees of the Distributor. These financial advisers are called 'Representatives' in this ruling. The services that can be delegated by the Distributors to their representatives include the promotion and marketing of the Fund.

The ASF is deducted from the Fund under the terms of the Trust Deed for trustee services and paid by the entity to each Distributor under the terms of the Services Agreement for distribution services.

There is no contractual relationship between the entity and the Representatives in relation to the services to be provided under the Services Agreement.

The entity is only liable to pay a Distributor for the services provided under the Services Agreement. The remuneration that the Distributor would then pay its Representatives would be subject to separate legal arrangements that each Distributor may have with its Representatives.

The services that the Distributors provide to the entity under the terms and conditions of the Services Agreement are collectively referred to as 'distribution services' in this ruling.

In consideration for the Distributor providing the services outlined in the Services Agreement, the entity must pay the Distributor the fees noted as payable to the Distributor under the Services Agreement. These fees include an ASF component amount.

The Distributor will only receive fees (including ASF) from the entity for the provision of its distribution services when

§ the entity accepts an application from a Member to invest in the Fund; and

§ the entity has received contributions into the Fund from Members.

The fees (including ASF) that are paid to Distributors for distribution services are recognised from an accounting perspective as an expense of the entity in its personal capacity. From an income tax perspective, these fees (including ASF) paid to Distributors are treated as deductible expenses of the entity in its personal capacity.

The ASF component is consideration for the supply of introducing a new member to the fund. Accordingly the ASF is only payable where a person becomes a member of the fund where that member is introduced by the Distributor/Representative.

It is commercial practice that a member agrees to the amount that will be deducted from their account.

The entity is licensed to only provide general advice to a member about the Fund. As a trustee of a superannuation fund, the entity has an obligation to act in accordance with the terms of its governing rules which require it to comply with Superannuation Law (as defined), including SIS and the Corporations Act 2001.Under SIS, the entity has an obligation to act in the best interests of beneficiaries and to not do anything that would prevent it from being able to properly perform or exercise its functions or powers. Under the Corporations Act, the trustee as a financial services licensee is required to comply with the conditions of its licence and financial services laws (as defined).

Under both the Trust Deed and SIS provisions, a trustee of a superannuation fund cannot charge a fee for anything other than as permitted under the governing rules of the superannuation fund for services provided by the trustee (i.e. trustee services).

Both the quantum of fees charged to Members and the fees paid to Distributors by the entity is a commercial decision for the entity.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 9-20,

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

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

Reasons for decision

A supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows:

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.

(* denotes terms that are defined in section 195-1 of the GST Act)

In order for the first requirement of section 9-5 of the GST Act to be satisfied the following three conditions must be satisfied:

§ there must be a supply,

§ there must be consideration,

§ the supply must be made for consideration (in other words, there must be a sufficient nexus between the supply and consideration.

Supply

A supply is defined in section 9-10 of the GST Act as follows:

"A supply is any form of supply whatsoever.

In this case the entity in its own capacity makes a supply of trustee services to the Fund. The issue here is determining whether the provision of the advice in question is a service that is directly supplied by the Distributor to the member or whether the service is included in the trustee service that is supplied by the entity to the Fund or whether the service is supplied directly to the member by the entity.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) outlines the Commissioner's views on 'supplies'. Part 3 of GSTR 2006/9 relevantly states the following:

Part 3: Supply in the context of a tripartite arrangement

Analysing a tripartite arrangement

114. In a two party transaction, a thing supplied to an entity is typically also provided to that entity.

115. In more complex arrangements involving more than two entities, which the Commissioner refers to as tripartite arrangements, analysis may reveal:

§ a supply made to one entity but provided to another entity;

§ two or more supplies made; or

§ a supply made and provided to one entity and consideration paid by a third party.

Furthermore, paragraph 118 of GSTR 2006/9 uses the following example to illustrate a tripartite arrangement.

Grandma's flowers

118. The scenario of Grandma's flowers illustrates some of the tripartite propositions.

A enters into a contract with B for B to provide goods to C. A is an individual, B is a florist, the goods are flowers, and C is A's grandmother

In relation to this example, proposition 11 of GSTR 2006/9 states:

Proposition 11: the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply

119. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.

120. In Grandma's flowers there is no contractual relationship between A and C. Also, there is no contractual relationship between B and C. B simply provides flowers to C on A's behalf.

121. If you take a contractual approach in analysing the arrangement in Grandma's flowers, then the only contractual relationship is between A and B. Under this contract B makes a supply of flowers to A and consideration is paid by A to B. That supply is provided by B to C

There are two documents that need to be examined in relation to the advice being supplied by the Distributors, namely:

1. the agreement between the entity and the Distributors,

2. the Trust Deed between the entity and the Fund.

1. The agreement between the entity and the Distributors

Under the services agreement, the Distributors are appointed to supply certain services, one of which is promoting and marketing the Products to various parties including the members. As we have been advised, the advisory service in question is limited to providing general advice to a member about joining the Fund, which is merely an introductory service.

2. Trust Deed between entity and the Fund

Under the Terms of the Trust Deed, the Trustee has complete management and control of the Fund as if it were a natural person, including promoting and marketing.

When considering the interaction between the above agreement and the Trust Deed and the fact that there is no separate agreement between the members and the Distributors (and/or their representatives), we agree that there is a contractual relationship between the entity and the Distributors in relation to the advisory services being supplied by the Distributors and therefore a supply is being made by the Distributors to the entity.

What needs to be determined next is whether the advisory service can be considered as part of the trustee services being supplied by the entity to the Fund or whether it is a supply which is independent of the trustee services, that is, it is directly supplied to the members of the Fund by the entity. In this regard, the character of the supply needs to be analysed. We have been advised that under SIS provisions, a trustee is prohibited from supplying specific advisory services to a fund and/or the member and that any advice that a trustee provides should be general in nature which should be supplied as part of the trustee services.

GSTR 2006/9 states the following in relation to the recipient of a supply:

15. You make an acquisition if you are the recipient of a supply. That is, the supply is made to you. In most transactions concerning GST the recipient of a supply is the entity that is also provided with that supply. In contrast, some supplies are made to the recipient, but provided to another entity. Arguably, such provisions are also supplies. However, these are not relevant because there is no contractual or reciprocal relationship between the supplier and the entity being provided with the supply. An entity must have made an acquisition of a thing to satisfy the requirements of section 11-10. It is not sufficient that an entity has merely been provided with the supply. Also, an entity does not make an acquisition merely by paying for a supply.

Therefore, given that the advice being provided is merely general advice (which is an introductory service provided as part of the entity's trustee services) that every member that joins the Fund has to receive and the advisory service is not at the option of the members, that is, it is not an 'opt-in' service, we agree that the provision of advice is part of the trustee service supplied by the entity to the Fund.

Whilst there are three parties involved in relation to the advisory services, the arrangement here is not analogous to the supply of the flowers in the example provided in paragraph 121 of GSTR 2006/9. This is because the advisory services made by the Distributors are made pursuant to a contractual agreement between the entity and the Distributors and the services are also provided to the entity. The advice consists of simply informing a prospective member of their possible choices of investments in the Fund as part of the introductory service which is not specific advice tailored to a member's individual circumstances. Therefore, the 'beneficiary' of such general advice being provided is the entity rather than the member of the Fund.

Consideration

Consideration is defined in section 9-15 as follows:

Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.

The entity is entitled to be remunerated under the Trust Deed for its services to the Fund. The amount of consideration that the entity charges for the supply of trustee services to the Fund is governed by the Trust Deed and is a commercial decision. The entity has advised that from an accounting perspective, the ASF component amount has been recognised as income that the entity has earned in providing trustee services. For income tax purposes, the ASF has been recognised as taxable income that the entity derives in its personal capacity relating to the provision of trustee services. Thus, based on these facts and also the fact that under SIS rules, a trustee cannot charge for anything other than trustee services and provide any advisory services other than general advice, we agree that the ASF component forms part of the trustee service fees. In other words, the entity makes the supply of trustee services to the Fund, for consideration that includes an ASF component amount.

The rest of the requirements of section 9-5 of the GST Act

Section 9-20 of the GST Act provides the definition of enterprise for GST purposes. The supply of the trustee services by the entity to the Fund, in accordance with the terms of the Trust Deed, is a supply made in the course and furtherance of an enterprise that it carries on.

Pursuant to subsection 9-25(5) of the GST Act, the supply of the trustee services is connected with Australia as the services are performed in Australia. Moreover, the supply is neither GST-free nor input taxed under the provisions of the GST Act.

As such, all the requirements of a taxable supply under section 9-5 of the GST Act are satisfied. Consequently, the entity is making a taxable supply of trustee services to the Fund where the consideration for the services includes an ASF amount.

Acquisitions

Section 11-20 of the GST Act provides that entities that are registered for GST are entitled to claim input tax credits for creditable acquisitions that they make.

Section 11-5 of the GST Act states:

You make a creditable acquisition if

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide *consideration for the supply; and

(d) you are registered or required to be registered.

Subsection 184-1(2) of the GST Act provides that the trustee of a trust or of a superannuation fund is taken to be an entity consisting of the person who is the trustee, or the persons who are the trustees, at any given time.

Subsection 184-1(3) of the GST Act provides that a legal person can have a number of different capacities in which the person does things and in each of those capacities, the person is taken to be a different entity.

In this case, the entity acts in two different capacities for GST purposes:

1. in its capacity as trustee of the Fund (being a separate entity for GST purposes); and

2. in its own corporate capacity, making supplies of trustee services to the trust.

An entity makes a creditable acquisition if it makes an acquisition solely or partly for a creditable purpose and the other requirements of section 11-5 of the GST Act is met.

Therefore, for the purposes of paragraph 11-5(a) of the GST Act, the entity must determine whether the acquisitions it makes are:

§ acquisitions of the trust entity for which it is trustee; or

§ acquisitions made in its own corporate capacity.

The entity has advised that the question for the purpose of this ruling request is in respect of its acquisition of the distribution services from the Distributors, acting in its personal capacity rather than in its capacity as trustee of the Fund. The entity has also advised that the fee paid to Distributors for the distribution services is a commercial decision for the entity.

The entity has further advised that the fees (including an ASF component amount) that it pays to Distributors for distribution services are recognised from an accounting perspective as an expense of the entity in its personal capacity. For income tax purposes, these fees (including an ASF component amount) are treated as deductible expenses of the entity, also in its own capacity.

The entity is registered for GST in its own personal capacity. Based on the facts presented, the supply of the distribution services by the Distributors satisfies all the requirements of section 9-5 of the GST Act for a taxable supply. The supply of the distribution services is a taxable supply to the entity. The entity is liable to pay fees (including an ASF component amount) to the Distributors in consideration for the supply of distribution services to the entity.

The relevant issue for consideration is whether the acquisitions of distribution services by the entity in its personal capacity are for a 'creditable purpose'.

Section 11-15 of the GST Act defines the meaning of 'creditable purpose' as follows:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.

Section 9-20 of the GST Act sets out the meaning of enterprise in reference to an activity or series of activities that is done in the form of a business, an adventure or concern in the nature of trade or the regular or continuous leasing, licensing or granting of an interest in property. It also includes, amongst other things, an activity or series of activities done by a trustee of a trust or complying superannuation fund, a charitable institution or charitable fund.

Subsection 11-15(1) of the GST Act requires that the entity acquires a thing in carrying on its enterprise. The acquisition must be made in the course of the activities that constitute the enterprise. An acquisition is made 'in carrying on your enterprise' if it is made for the purposes of that enterprise, but not if it is made for some other purpose.

Consequently, it is necessary to identify the activity or series of activities that constitute the enterprise to determine whether the acquisition is acquired in carrying on that enterprise.

The first step in determining the creditable purpose of an acquisition is therefore to establish a sufficient connection between the acquisition and the enterprise, such that it can be said that the acquisition was made 'in carrying on your enterprise'.

However, even if it is established that an acquisition is made in carrying on an enterprise under subsection 11-15(2) of the GST Act, paragraph 11-15(2)(a) will preclude it from being for a creditable purpose to the extent that it 'relates to' making input taxed supplies (such as financial supplies) or is of a private or domestic nature. The words 'relates to' in paragraph 11-15(2)(a) of the GST Act are wide in scope and an acquisition can either directly or indirectly relate to a supply. The result of this is that no entitlement to input tax credits would arise for such an acquisition.

In this case, as advised in the facts, the entity in its personal capacity has acquired the distribution services from the Distributors in order to provide trustee services to the Fund, as required under the Trust Deed. Therefore, we are of the view that these services are acquired by entity in the course of carrying on its enterprise.

The acquisition of the distribution services by the entity, in its own corporate capacity, relates to its supply of trustee services to the Fund. The provision of trustee services to the Fund is a taxable supply. As such, the acquisition does not relate to making supplies that would be input taxed. Moreover, the acquisition of distribution services by the entity is not of a private or domestic nature. Consequently, the acquisition is solely for a creditable purpose for the purposes of section 11-15 of the GST Act and paragraph 11-(5)(a) of the GST Act is satisfied.

As all the requirements under section 11-5 of the GST Act are satisfied, the acquisition is a creditable acquisition. The entity (in its personal capacity) is making a wholly creditable acquisition for the purposes of section 11-5 of the GST Act when it acquires financial product distribution services from a financial product distributor for consideration which includes an ASF component.