Edited version of your private ruling

Authorisation Number: 1012507549120

Ruling

Subject: GST on a rental property related to a bankrupt estate

Issue 1

Question 1

Is the Deceased liable for any unpaid GST on the rent received on the property until the date of the appointment of the Trustee in bankruptcy?

Answer

No, the Deceased is not liable for any unpaid GST on the rent received on the property.

Question 2

Is the Trustee in bankruptcy liable for the GST on the rental received on the property on and from his appointment?

Answer

No, the Trustee in bankruptcy is not liable for the GST on the rental received on the property on and from his appointment.

Question 3

Who is liable for GST (if any) upon the sale of the property?

Answer

The Trustee Company is liable for GST (if any) upon the sale of the property

Issue 2

Question 1

Does the 'Operating Expenses' clause in the lease between the Trustee Company and the tenant in relation to the property constitute a 'review opportunity' under the A New Tax System (Goods and Services Tax Transition Act) 1999 ('GST Transition Act')?

Answer

No, the 'Operating Expenses' clause in the lease between the Trustee Company and the tenant in relation to the property does not constitute a 'review opportunity' under the GST Transition Act .

Issue 3

Question 1

If the Trustee in bankruptcy were to disclaim his interest in the property pursuant to section 133 of the Bankruptcy Act 1966 ('Bankruptcy Act') at some time after his appointment, would he be liable for GST paid or payable at the time of his

GST liability with respect to the leasing enterprise rests with the Trustee Company. If the Trustee in bankruptcy disclaims his interest in the property at some time after his appointment he is not liable for GST with respect to the transactions of the leasing enterprise.

Note however that if the Trustee in bankruptcy disclaims his interest, an adjustment event 'may' occur. For example, in the case where the deceased estate may have claimed input tax credits in respect of acquisitions that it is liable to make a payment for but has not yet made. In such circumstances, the Trustee in bankruptcy is liable for GST paid or payable at the time of his disclaimer under Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) and he must notify the Commissioner under section 58-60 of the GST Act.

Relevant facts and circumstances

Bankruptcy action

The Deceased's estate went into administration. A Trustee in bankruptcy was appointed to administer the deceased estate and has done so since 20xx. Pursuant to section 249 of the Bankruptcy Act, the divisible property of the Deceased's estate vested in the Trustee in bankruptcy from the date of the appointment.

Among the divisible property to be vested in the Trustee in bankruptcy was a property.

Trust deed for property

Pursuant to a declaration of trust ('trust deed'), a Trustee Company held a commercial property on trust for the Deceased. The Deceased was the sole beneficiary of the trust. The Deceased financed the Trustee Company to purchase the property.

The Trustee Company has nominal net assets. Pursuant to a direction by the Deceased to the Trustee Company contained in a supplemental deed ('supplemental deed'), a commercial building was erected on the property. The supplemental deed contains the following directions from the Deceased, as beneficiary of the trust, to the Trustee Company:

The Beneficiary wishes to direct the Trustee to take certain actions and enter into certain transactions in relation to the Property, including to borrow money …, to use the borrowed money to construct a building ('Building') on the property, to grant a lease ('Lease') of the Property to [a tenant] and to give security over the Building, the Property, the Lease, the proceeds of the Lease and all the assets and undertaking of the Trustee ('Assets') in favour of the Lender …

Relevantly, the supplemental deed also directs the Trustee Company to enter into and negotiate any amendment or alteration to all of the documents described in the schedule in the supplemental deed; and 'take all such other actions and enter into all such other documents as may be considered necessary or desirable by the Trustee to facilitate entry into and completion of the Transaction…'.

The lease

The lease on the property ('lease') was for a period of 25 years beginning in 1992. The tenant is the sole occupant of the commercial building.

Clause XX of the lease provides that the annual rent will be reviewed each year. The annual rent is calculated with reference to a formula that uses the consumer price index ('CPI') as a factor in its calculation.

Clause YY of the lease provides that the tenant must pay all 'Operating Expenses' for which the tenant receives an invoice or reimburse the Trustee Company within 28 days if the Trustee Company pays the expense. The term 'Operating Expenses' is defined to include:

all rates, taxes, (excluding income tax, capital gains tax and other taxes of a like nature), charges, assessments, duties, impositions, levies, surcharges and fees at any time and from time to time payable to any Authority in respect of the Building and/or the Land or any part thereof and/or the Lessor's ownership and operation thereof or in respect of receipts of rent and other moneys under this Lease (including without limitation any bank debits tax and financial institutions duty;)

The parties to the lease have not agreed to any change in consideration under the lease, other than the annual CPI rental increases provided for. As the contract was drafted before the advent of GST, no provision for GST was included.

In a subsequent year, the Deceased's solicitor wrote to the tenant advising of the GST component of their rental obligations. The tenant's solicitor responded by informing that the tenant was not obligated to pay GST until certain conditions had been met.

After further correspondence was exchanged between the parties, the Deceased, acting for the Trustee Company, sent an offer to the representatives of the tenant outlining an offer in accordance with section 15K of the GST Transition Act to 'change the consideration payable under the lease for the supply of the property to [the tenant] by increasing the rent by 10% to take into account GST' and varying the terms of the lease to accommodate the issuance of tax invoices and future GST payments. The offer was open for a period of 30 days from that date.

In a later subsequent year, a representative for the tenant responded informing that the tenant accepted the offer 'in principle subject to the review and finalisation of a lease variation.' However, no GST component was ever included in the rent.

Your contentions

You contend that:

· The trust between the Trustee Company and the Deceased is a bare trust, as the Trustee Company does not have active duties to perform other than the transfer of the property at the beneficiary's direction;

· It is the beneficiary (the Deceased), and not the Trustee Company, that is carrying on the enterprise for GST purposes;

· A 'review opportunity' arose under section 13 of the GST Transition Act due to the definition of 'Operating Expenses' in the lease;

· The Trustee in bankruptcy is liable for GST from the date of his appointment for rent received and upon sale of the property; and

· The Trustee in bankruptcy can, at any time, disclaim his beneficial ownership of the property and, were he to do this, he would not be liable for GST that arises out of that asset since his appointment. Furthermore, if GST has been paid in relation to the Trustee in bankruptcy's supplies in relation to the property, and he disclaims his interest, a refund of GST paid would be required.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Sections 9-5, 9-20, 9-40, 23-5, 58-10, 58-60, 184-1, 188-10 and 188-15; A New Tax System (Goods and Services Tax Transition Act) 1999 Sections 13, 15C, 15J, 15K; and Taxation Administration Act 1953 Section 286-75 of Schedule 1.

Reasons for decision

Issue 1 Question 1

Summary

No, the Deceased is not liable for any unpaid GST on the rent received on the property because a trust over the property is in existence.

Detailed reasoning

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply you make.

Section 9-5 of the GST Act states:

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 a term that is defined in section 195-1 of the GST Act.

The term 'enterprise' is defined in section 9-20 of the GST Act to mean:

(1) An enterprise is an activity, or series of activities, done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade;

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property;…

Subsection 184-1(1) of the GST Act treats a trust as an entity. Subsection 184-1(2) goes on to note that the trustee of a trust is taken to be an entity consisting of the person who is the trustee at any given time. Subsection 184-1(3) confirms 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.

Goods and Services Tax Ruling GSTR 2008/3 Goods and services tax: dealings in real property by bare trusts ('GSTR 2008/3') provides that these provisions do not create two separate entities for GST purposes (that is, the trust and the trustee), but rather the relevant entity is the trust, with the trustee standing as that entity when a legal person is required. However, it is necessary to distinguish between the entity that is the trustee acting in that capacity and that entity acting in its own right, which are treated as separate entities for GST purposes.

With regard to circumstances involving real property held on bare trust, paragraph 30 of GSTR 2008/3 states:

In applying the GST law to a dealing in real property held on a bare trust, the question arises as to which entity makes the relevant taxable supply or creditable acquisition as the case may be - the trustee or the beneficiary.

Paragraph 37 of GSTR 2008/3 states:

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.
…

Paragraph 38 of GSTR 2008/3 provides that it is the beneficiary of a bare trust that may carry on an enterprise involving an asset held on trust for the beneficiary by the bare trustee.

Paragraph 40 of GSTR 2008/3 states:

The definition of 'taxable supply' concerns itself with supplies made in the course of an enterprise. It is the entity which conducts that enterprise that makes the relevant supply. In other words, if T [the Trustee] transfers legal title to the property to a third party at the direction of B [the Beneficiary], it is B that causes the supply to be made in the course of its enterprise and is liable for GST, if the other requirements for a taxable supply in section 9-5 are met.

In your case, pursuant to a declaration of trust, the Trustee Company holds the property on trust for the Deceased. The trust deed shows that the Deceased shall supply all monies whatsoever required for the acquisition of the property, the Trustee Company declares that they hold the beneficial interest in the property upon trust for the Deceased and shall comply with all directions of the Deceased in relation to the property, and that the Deceased will, at all times, indemnify the Trustee Company against all liabilities whatsoever which the Trustee Company may incur in relation to the acquisition of the said property. This indicates that a bare trust was in existence.

However, in the supplemental deed, the Deceased directed the Trustee Company to borrow money, to construct a building, to grant a lease, and to do all such other actions as may be considered necessary or desirable by the Trustee Company. This indicates that the Trustee Company was not merely acting on the instructions of the Deceased, but was required to exercise judgment, as the scope of the activities that the Trustee Company was directed to perform was very broad. The activities of the Trustee Company were not passive in nature; the Trustee Company's activities required active involvement in the construction of a building, the related agreements surrounding that construction, and the facilitation of a lease. We consider that the activities of the Trustee Company went beyond the minor active duties of a bare trust.

Accordingly, it is not the Deceased that makes the supply of commercial rental property to the tenant; it is the Trustee Company that makes the supply in its capacity as trustee of the trust. We therefore disagree with your contentions that the Trustee Company is a bare trustee and that the Trustee Company has no active duties to perform other than to transfer the property at the beneficiary's discretion.

As it is the Trustee Company that makes the supply of rental property to the tenant, it is the Trustee Company, as opposed to the beneficiary, that is carrying on an enterprise of leasing. We therefore disagree with your contention that it is the beneficiary, and not the Trustee Company, that is carrying on the enterprise for GST purposes. For these reasons, the Deceased is not liable for any unpaid GST on the rent received on the property.

For completeness, it must be determined whether the Trustee Company is making taxable supplies. Thus, the requirements in section 9-5 of the GST Act will now be considered. The Trustee Company makes the supply for consideration because it receives rent from the tenant; the supply is made in the course of the Trustee Company's leasing enterprise; and the supply is connected with Australia because the leased property is in Australia.

As the Trustee Company is not registered for GST, it must be determined whether the Trustee Company is required to be registered for GST.

Section 23-5 of the GST Act states:

You are required to be registered under this Act if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

The registration turnover threshold is $75,000 per annum.

Paragraph 23-5(a) of the GST Act is satisfied as the Trustee Company carries on the leasing enterprise. The next step is to determine whether paragraph 23-5(b) of the GST Act will be satisfied.

Whether a GST turnover meets the GST registration turnover threshold is determined in accordance with subsection 188-10(1) of the GST Act, which states:

You have a GST turnover that meets a particular *turnover threshold if:

(a) your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

Current GST turnover is defined in subsection 188-15(1) of the GST Act. It provides that your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

· supplies that are input taxed

· supplies that are not made for consideration

· supplies that are not made in connection with an enterprise that you carry on.

Similarly, projected GST turnover is defined in subsection 188-20(1) of the GST Act. It provides that that your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

· supplies that are input taxed

· supplies that are not made for consideration

· supplies that are not made in connection with an enterprise that you carry on.

As the Trustee Company is still receiving rent from the tenant, and the annual rent at the commencement date was $XX, which has been increased with subsequent rental reviews, it is clear that the Trustee Company's GST turnover meets the registration turnover threshold.

Thus, the Trustee Company is required to be registered for GST. The supplies it makes are taxable supplies as all of the requirements in section 9-5 of the GST Act are fulfilled. According to section 9-40 of the GST Act, the Trustee Company is required to pay GST on its taxable supplies. The Trustee Company must pay GST on its supply of commercial rental property subject to the provisions in the GST Transition Act, discussed in Issue 2, Question 1.

Issue 1 Question 2

Summary

The Trustee in bankruptcy is not liable for the GST on the rental received on the property on and from his appointment, as it is the Trustee Company that makes the taxable supplies.

Detailed reasoning

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply you make.

As representative of the Deceased, appointed under the Bankruptcy Act, the Trustee in bankruptcy is required to administer the Deceased's estate with regard to Division 58 of the GST Act. Section 58-10 of the GST Act states:

(1) A *representative of an *incapacitated entity:

(a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation; and

(b) is entitled to any input tax credit that the incapacitated entity would, but for this section or section 48-45, be entitled to for a *creditable acquisition or a *creditable importation; and

(c) has any *adjustment that the incapacitated entity would, but for this section or section 48-50, have;

to the extent that the making of the supply, importation or acquisition to which the GST, input tax credit or adjustment relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

As it is not the Deceased that is making the taxable supply of commercial rental premises, but the Trustee Company, the Trustee in bankruptcy is not liable for the GST payable on the supply of the commercial rental property. We therefore disagree with your contention that the Trustee in bankruptcy is liable for GST from the date of his appointment for rent received.

However, in accordance with section 58-10 of the GST Act, the Trustee in bankruptcy remains liable to pay the GST that the Deceased would be liable to pay on any taxable supplies that the Deceased's estate may make subsequent to the Trustee in bankruptcy's appointment, to the extent that the making of the supply to which the GST relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Issue 1 Question 3

Summary

The Trustee Company is liable for GST (if any) upon the sale of the property.

Detailed reasoning

Section 9-5 of the GST Act states:

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.

If the property is sold, it needs to be determined what entity makes the taxable supply of the property.

Following from the reasoning in Issue 1, Question 1 above, it is the Trustee Company that makes the taxable supply of the property if and when it is sold.

Paragraph 140 of Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides that carrying on an enterprise includes doing anything in the course of the termination of that enterprise. An enterprise terminates when the activities related to that enterprise cease. Ordinarily, that occurs when all assets are disposed of or converted to another purpose and all obligations are satisfied. Thus, the supply is made in the course of the Trustee Company's leasing enterprise, as the property is an asset used in that enterprise that would be disposed of during the enterprise's termination. We therefore disagree with your contention that the Trustee in bankruptcy is liable for GST upon sale of the property.

Thus, the Trustee Company is liable for GST upon sale of the property, to the extent that the supply is not GST-free or input taxed.

Issue 2 Question 1

Summary

The 'Operating Expenses' clause in the lease between the Trustee Company and the tenant does not constitute a 'review opportunity' under the GST Transition Act.

Detailed reasoning

Under the general transitional rule applying to arrangements spanning 1 July 2000, GST is only payable on a supply to the extent that it is made on or after that date. An agreement may provide for a supply to be made for a period that begins before 1 July 2000 and ends on or after that date. In these cases, the supply is taken to be made continuously and uniformly throughout the period.

However, there are exceptions to this general transitional rule. Special rules in section 13 of the GST Transition Act may apply to make a supply, when it is specifically identified in a written agreement, GST-free until the earlier of 1 July 2005 or when a review opportunity arises.

Section 13 of the GST Transition Act states:

(1) This section applies if:

(a) a written agreement specifically identifies a supply and identifies the consideration in money, or a way of working out the consideration in money, for the supply; and

(b) the agreement was made before the day on which this Act received the Royal Assent.

(2) The supply is GST-free to the extent that it is made before the earlier of the following:

(a) 1 July 2005;

(b) if a review opportunity arises on or after the day of Royal Assent - when that opportunity arises.

The agreement between the Trustee Company and the tenant is one to which Section 13 of the GST Transition Act applies because the lease:

· is in writing;

· specifically identifies the supply of the property subject to the lease;

· identifies the consideration for the supply for the first year of the lease;

· identifies a way of working out the consideration in money for subsequent years; and

· was made before 8 July 1999.

It must now be determined whether a review opportunity arose on or after 8 July 1999.

'Review opportunity' is defined in subsection 13(5) of the GST Transition Act as an opportunity that arises under the agreement:

(a) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to change the consideration directly or indirectly because of the imposition of GST; or

(b) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to conduct, on or after 1 July 2000, a general review, renegotiation or alteration of the consideration; or

(c) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to conduct, before 1 July 2000, a general review, renegotiation or alteration of the consideration that takes account of the imposition of the GST.

There are two clauses under the lease between the Trustee Company and the tenant that may potentially give rise to review opportunities. The relevant clauses are those referrable to the definitions of the terms 'Operating Expenses' and the annual rent review. Although you have only asked about the 'Operating Expenses' clause, both potential review opportunities will be considered for completeness.

'Operating Expenses'

Goods and Services Tax Ruling GSTR 2000/16 Goods and services tax: transitional arrangements - GST-free supplies under existing agreements (GSTR 2000/16) considers the extent to which a supply made on or after 1 July 2000, which is identified in an agreement made before 8 July 1999, will be GST-free under section 13 of the GST Transition Act. Although withdrawn as of 15 May 2013, GSTR 2000/16 continues to apply to schemes to which it applied that had begun to be carried out before its withdrawal.

Paragraph 167 of GSTR 2000/16 provides that in the case of a commercial lease, a clause allowing the recovery of taxes will only be a review opportunity if it allows the consideration for the supply under the lease to change because of the imposition of GST on the supply of the premises.

The wording of such clauses varies substantially from lease to lease. Paragraph 168 of GSTR 2000/16 provides that most clauses of this type relate only to the lessor's operating expenses and will not allow GST to be recovered in relation to rent. Paragraph 169 of GSTR 2000/16 provides that a clause using the formula of taxes imposed on, or payable by, a supplier 'in respect of' the premises demised under a lease will not, as a general rule, operate to enable a supplier to recover from a recipient GST payable on the supply of the premises.

Paragraph 173 of GSTR 2000/16 states:

Our view is that a clause would have to contemplate a tax in respect of the supply of the premises, and not just a tax in respect of the premises.

You contend that the definition of the term 'Operating Expenses' operates as to be a review opportunity because it is defined to include all rates, taxes, charges, assessments and fees at any time payable to any authority in respect of the building and/or the land and the lessor's ownership and operation thereof.

In our view, the definition of 'Operating Expenses' in the lease agreement between the Trustee Company and the tenant is not a review opportunity because it does not contemplate a tax on the supply of the premises; it only contemplates a tax in respect of the premises. GST is a tax on the supply of goods and services; it is not a tax on goods and services, or a tax in respect of premises or other property. The lease agreement does not clearly evidence an intention by the parties to cover a tax in the nature of a goods and services tax.

Hence, we disagree with your contention that the definition of 'Operating Expenses' gives rise to a review opportunity under section 13 of the GST Transition Act.

Annual rent review

Clause XX of the lease provides a formula for calculating the annual rent payable with reference to a formula that uses the CPI as a factor in its calculation.

Paragraph 155 of GSTR 2000/16 provides that where there is a fixed adjustment to the consideration on the basis of an indicator such as the CPI, the change may be partially referable to the impact of the imposition of the GST. However, paragraph 156 provides that even if part of the CPI increase may be attributable to the GST, the change is not because of the imposition of GST on the supply but a range of economic factors. Paragraph 157 provides that a change to the CPI is not necessarily related to the supply identified in the agreement.

As the annual rent review formula in the lease is based on the CPI, it does not constitute a review opportunity under section 13 of the GST Transition Act.

As a review opportunity does not arise under the lease, the supply of property remains GST-free until 1 July 2005. On and from 1 July 2005, the Trustee Company is required to pay GST on its taxable supply, as determined in Issue 1, Question 1 above. However, Division 2 of the GST Transition Act is also relevant, as the lease is an agreement also spanning 1 July 2005.

Section 15C of the GST Transition Act states:

(1) To the extent that a taxable supply is made on or after the applicable day for the supply under subsection (2), the GST on the supply is payable by the recipient of the supply, and is not payable by the supplier, if:

(a) the supply is specifically identified by an agreement:

(i) that is of the kind referred to in subsection 13(1); and

(ii) that does not provide that the consideration for the supply is not to be changed to take account of GST or similar value added tax imposed on the supply; and

(b) had the supply been made immediately before 1 July 2005, it would have been GST-free under section 13; and

(c) either:

(i) the recipient notifies the supplier in writing that the recipient elects to pay the GST on the supply; or

(ii) the recipient has failed to accept an arbitrated offer by the supplier to change the consideration for supplies that are made on or after 1 July 2005 and that are specifically identified by the agreement.

(2) The applicable day for the supply is:

(a) if subparagraph (1)(c)(i) applies:

(i) the day on which the recipient notifies the supplier as mentioned in that subparagraph; or

(ii) 1 July 2005;

whichever is later; or

(b) if subparagraph (1)(c)(ii) applies:

(i) the day on which the recipient fails to accept an arbitrated offer as mentioned in that subparagraph; or

(ii) 1 July 2005;

whichever is later.

(3) Subsection (1) does not apply if:

(a) before either of the events referred to in paragraph (1)(c) happens, the supplier and the recipient agree (whether or not an arbitrated offer is made) to change the consideration for supplies that are made on or after 1 July 2005 and that are specifically identified by the agreement; or

(b) subsection 13(3) applies to the supply.

…

Section 15J of the GST Transition Act sets out the requirements to be satisfied before an offer to change the consideration for supplies made on or after 1 July 2005 that are specifically identified by an agreement of a kind referred to in subsection 13(1), is regarded as an arbitrated offer.

The first step in making an arbitrated offer is that an initial offer must be made. Section 15K provides:

(1) The initial offer:

(a) must be in writing; and

(b) must set out a change to the consideration for the supplies; and

(c) must state the period (the initial offer period) for which the offer remains open.

(2) The initial offer period must be a period of at least 28 days after the supplier gives the initial offer to the recipient.

In your case, paragraph 15C(1)(a) of the GST Transition Act is satisfied as the supply of commercial property under the lease is a supply specifically identified by an agreement of a kind referred to in subsection 13(1) of the GST Transition Act; and such an agreement does not provide that the consideration for the supply is not to be changed to take account of GST on the supply. Paragraph 15C(1)(b) of the GST Transition Act is also satisfied because, as determined above, the supply is GST-free up until 1 July 2005.

The Deceased, acting for the Trustee Company, made an initial offer under section 15K of the GST Transition Act, which the tenant accepted later. This was outside the initial offer period of 30 days. However, the Trustee Company did not begin arbitration in accordance with section 15L of the GST Transition Act. Accordingly, on the understanding that the recipient did not notify the supplier in writing that the recipient elects to pay the GST on the supply, paragraph 15C(1)(c) of the GST Transition Act is not satisfied and the supplier, the Trustee Company, remains liable for GST based on the consideration under the lease agreement on and from 1 July 2005.

Issue 3 Question 1

Summary

The Trustee in bankruptcy can disclaim his interest in the Deceased's property pursuant to section 133 of the Bankruptcy Act at some time after his appointment.

As determined above, GST liability with respect to the leasing enterprise rests with the Trustee Company. If the Trustee in bankruptcy disclaims his interest in the property at some time after his appointment he is not liable for GST with respect to the transactions of the leasing enterprise.

Note however that if the Trustee in bankruptcy disclaims his interest, an adjustment event 'may' occur. For example, in the case where the deceased estate may have claimed input tax credits in respect of acquisitions that it is liable to make a payment for but has not yet made. In such circumstances, the Trustee in bankruptcy is liable for GST paid or payable at the time of his disclaimer under Division 58 of the GST Act and he must notify the Commissioner under section 58-60 of the GST Act.

Detailed reasoning

Section 58-60 of the GST Act states:

(1) A *representative of an *incapacitated entity must notify the Commissioner, in the *approved form, of an amount of GST for which the entity is liable, or an *increasing adjustment that the entity has, if:

(a) the representative becomes aware, or could reasonably be expected to have become aware, of the amount of GST, or the adjustment; and

(b) the amount of GST, or the adjustment, has not been taken into account in any *GST return that has been given to the Commissioner; and

(c) the Commissioner has not been previously notified of the amount of GST, or the adjustment, under this section.

An increasing adjustment may arise because the deceased estate may have claimed input tax credits in respect of acquisitions that it is liable to make a payment for but has not yet made. In such circumstances, the Trustee in bankruptcy must notify the Commissioner of the adjustment to ensure that the adjustment remains with the incapacitated entity.

Likewise, under section 58-60 of the GST Act, the Trustee in bankruptcy must notify the Commissioner of an amount of GST for which the deceased estate is liable for as a result of the disclaimer under section 133 of the Bankruptcy Act.

Subsection 58-60(2) of the GST Act provides that the notification must be given to the Commissioner before the day on which the representative declares a dividend to unsecured creditors of the incapacitated entity.

The notification requirement under section 58-60 of the GST Act does not determine whether a representative has a GST liability or an increasing adjustment. Section 58-10 of the GST Act is the provision that stipulates the circumstances under which a representative is liable for any GST, entitled to any input tax credit or has any adjustment. If the representative is not liable for the GST liability or increasing adjustment under section 58-10 of the GST Act, then the representative is still not liable for such amounts whether or not the representative notifies the Commissioner of the GST liability or increasing adjustment. However, if a representative does not comply with subsection 58-60(1) of the GST Act an administrative penalty may arise under section 286-75 of Schedule 1 to the Taxation Administration Act 1953.

In your case, as the Trustee Company holds the property, and we have determined in Issue 1, Question 1 that a bare trust is not in existence, the Trustee in bankruptcy's disclaimer of its interest in the property will not operate to effect the GST in regard to supplies made by the Trustee Company under the Trustee Company's leasing enterprise.

Note however, the Trustee in bankruptcy's disclaimer may operate to effect the GST in regard to supplies concerning the property owned by the Deceased. Hence, the Trustee in bankruptcy's disclaimer under section 133 of the Bankruptcy Act may be an adjustment event under Division 19 of the GST Act, and the Trustee in bankruptcy's responsibilities under Division 58 of the GST Act must be considered if and when the disclaimer occurs.