Edited version of your private ruling

Authorisation Number: 1012474914280

Ruling

Subject: GST and supply of real property by court appointed Trustees

Question

Are you, as court appointed Trustees A and B for the sale of the specified property (the Property), required to pay GST on the sale of the Property?

Answer

Yes

Relevant facts and circumstances

Entity A as trustee for the A Family Trust and Entity B as trustee for the B Family Trust each own a specified interest holding in the Property, as tenants in common. The Property is located in Australia.

A liquidator had been appointed over entity A for non payment of a government duty on the Property and the liquidator of Entity A was the plaintiff in this court case. You were appointed by Court Order over the Property of Entity A and Entity B each as trustee of their family trust respectively. You registered for GST and reported the GST on the sale of the Property.

The Court order includes that the Plaintiff would be justified in selling the Property, that the Property be vested in you the Trustees to be held by you upon statutory trust for sale. In carrying out the statutory trust for sale you shall have the following powers:

a. to conduct the sale and to sell the Land either by public auction or by private contract on such terms as the Trustee may see fit;

b. to fix a reserve or a minimum price;

c. to collect the sale proceeds;

d. to settle the particulars and conditions of sale;

e. to fix the remuneration to be allowed to any auctioneer, real estate agent or other person.

A specified clause of the Court order provides that the Trustees are required to distribute the sale proceeds of the Property in the following manner:

a. in payment and discharge of all mortgages and other encumbrances registered on the title of the Property;

b. in payment of the Trustees commission and costs for time in attendance up to completion of the sale;

c. in payment of the other costs of sale including, but not limited to legal costs, advertising costs and agents commission

d. in payment of expanses incurred by the Trustees for the purpose of bringing the Property up to a condition which would facilitate sale;

e. in payment of all rates, taxes and insurance and other outgoings on the Property

f. in the payment of the plaintiffs costs of the proceedings;

g. in payment of the balance in the following shares to each of the plaintiff and the defendant:

i. Plaintiff: x/10ths

ii. Defendant: y/10ths

You sold the property on xxmmyyy for $X.XX. You advised that the property was vacant land at the time of sale.

You also advised that:

§ there were a number of related entities

§ the trusts operated as a tax law partnership

§ you did not know:

o which entity including yourselves was required to report the sale

o whether the correct entity had earned income or

o which entity was required to be registered for GST and would be making a taxable supply.

The records on the Australian Business Register website www.abr.business.gov.au show that Family Trust A & Family Trust B is registered as a partnership entity with an active Australian Business Number (ABN). The records also show no current or historical GST registrations.

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 23-5,

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

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

On ddmmyyyy, you were appointed Trustees for sale of the Property that was vested in you under the Court order. The Property was owned by Entity A and B in their capacities as trustees of their respective family trusts.

Under section 58-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 for GST.

The terms 'representative' and 'incapacitated entity' are defined in section195-1 of the GST Act.

Representative

A representative means:

(a) a trustee in bankruptcy; or

(b) a liquidator; or

(c) a receiver; or

(ca) a controller (within the meaning of section 9 of the Corporations Act 2001); or

(d) an administrator appointed to an entity under Division 2 of Part 5.3A of the Corporations Act 2001; or

(e) a person appointed, or authorised, under an Australian law to manage the affairs of an entity because it is unable to pay all its debts as and when they become due and payable; or

(f) an administrator of a deed of company arrangement executed by the entity.

Based on your factual situation you meet the 'role' set out in (e).

That is you were appointed under an Australian law to manage the affairs of an entity in relation to a particular property in relation to a situation when it was unable to pay all its debts as and when they became due.

We therefore consider that you are a representative for the purposes of Division 58 of the GST Act.

Partnership and Co owners

Family Trust A & Family Trust B respectively owned X/Y interest respectively in the Property as tenants in common.

Goods and Services Tax Ruling GSTR 2003/13 Goods and services tax: general law partnerships (GSTR 2003/13) explains how the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to transactions involving general law partnerships

Paragraphs 9 to 11 of GSTR 2003/13 provide that a partnership is defined in section 195-1 of the GST Act by reference to the definition of a partnership in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). That definition states:

9. partnership means:

(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.

10. The first limb of paragraph (a) of the definition refers to 'an association of persons (other than a company or 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.

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

Paragraph 11 provides that an association of persons in receipt of ordinary income is a tax law partnership. You advised that the two trusts operated as a tax law partnership.

Where there is a tax law partnership it is possible for either the partnership to conduct the enterprise or the co owners to conduct the enterprise.

Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6) explains how the GST Act applies to transactions involving tax law partnerships. It provides a number of factors that can be used to determine whether the enterprise is being carried on by the tax law partnership or by each co-owner in their own right.

In your case there is inadequate information to determine whether it is the co owners individually or the partnership undertaking the enterprise.

Therefore we will consider whether either structure is required to be registered for GST.

GST Registration

Section 23-5 of the GST Act requires an entity to be registered for GST if it is carrying on an enterprise and if its GST turnover meets the registration threshold. Our records indicate that both the partnership and the individual co owners in either case would have been required to be registered if not already registered for GST.

Incapacitated Entity

The term 'incapacitated entity' is defined as including an entity that has a representative.

From the information supplied you have been appointed as trustees for the sale of the Property of Entity A and Entity B who hold that property as trustees for their respective trusts. Where entities jointly own property and are in receipt of income from that property a partnership exists for GST purposes. For GST purposes both the partnership and the co owners are entities. Therefore both the partnership and the co owners are incapacitated entities as they have a representative appointed over them.

GST registration and liability of representative

Section 58-20 of the GST Act provides that 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 for GST. In addition section 58-10 of the GST Act includes that a representative is liable to pay any GST that the incapacitated entity would, but for this section, be liable to pay on a taxable supply, to the extent that the making of the supply to which the GST relates is within the scope of the representatives responsibility or authority for managing the incapacitated entity's affairs.

In your case we consider that the supply of the Property was within the scope of your responsibility and therefore you were required to be registered for GST and pay the GST on the supply of the Property.

You were already registered for GST and had reported the supply under your own joint name as trustees of the Property.

The normal practice in the ATO is for the Commissioner to allow a representative of an incapacitated entity to use the incapacitated entity's existing ABN for transactions conducted in its capacity as the representative of the incapacitated entity.

As stated earlier, due to insufficient information, we are unable to determine which entity/entities is/are the correct entity. Therefore, this administrative procedure cannot be applied with certainty.

However, as you have registered for GST as required by section 58-20 of the GST Act and paid the GST on the supply of the Property under 58-10 of the GST Act, we consider you have met your GST obligation in relation to the sale of the Property.