Edited version of your private ruling

Authorisation Number: 1012510126493

Ruling

Subject: GST and grape growing investment scheme

Question 1

Is your acquisition of vineyard rental, as a grower in a managed investment scheme, a creditable acquisition?

Answer

Yes, it is a creditable acquisition.

Question 2

Should the payment made to you, as a unit holder in a managed investment scheme, by the responsible entity have GST applied to it?

Answer

No, as cash distributions from a trust are not subject to GST.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

You are registered for GST.

The investment project

You invested in an investment project ('the project').

The project allowed participants to collectively develop a large vineyard on a property. Participants, through a property trust, would beneficially own the land with an independent trustee monitoring the project on their behalf.

The vineyard was to be professionally managed and the grapes were to be sold to a wine manufacturer.

The structure of the project

The structure of the project was changed as follows:

· Company A was trustee of the vineyard property trust;

· The participants were Growers and Unit Holders;

· Company B was the purchaser of the grapes;

· Company C was manager (now responsible entity ('RE'));

· Company D was sub-contracted by Company C to provide vineyard management and development services; and

· Company E was sub-contracted by Company C to provide administration and supervision services.

The project has since been converted into a managed investment scheme ('MIS').

Land ownership

The prospectus provided that the participants to the project may individually hold their Grower's interests with either themselves, or an associated entity, such as a spouse, superannuation fund or company, owning the land and water rights through units in the property trust.

The prospectus provided those Growers or their associated entities owned all the income units in the property trust in proportion to their ownership of their Grower's interests. The property trust would have Company A as trustee and would own the vineyard land, the water allocations, the pumps and the shedding, as well as pipes to bring the water to the vineyard.

The prospectus provided that a 'unit' was an 'undivided proportionate beneficial interest' in the vineyard land. Units were issued under the trust deed, which governed the rights and obligations of the Unit Holders.

The prospectus also provided that a 'Grower's Interest' was an interest in the Vineyard Lease, the Management Agreement and the Grape Purchase Agreement in respect of one portion of the Vineyard.

Grower leases

The prospectus provided that, as owner of the property under the property trust, Company A would enter into a lease agreement with each Grower in relation to its vineyard allotments of plantable vineyard land. The lease was to be executed by Company A on behalf of each Grower and the Grower was bound by the lease when it was issued with a Grower's interest.

The prospectus provided that the annual rent was to be increased by a set percentage each year. The prospectus also provided that each Grower must also pay all charges associated with the use of the vineyard allotments and the Grower's property under the lease. Failure to pay these charges would lead to termination of the lease. The prospectus provided that the rent would be distributed by Company A as profit to the Unit Holders.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 9-5; 11-5; 11-15; 11-20; and 11-25.

Reasons for decision

Question 1

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') provides that you are entitled to the input tax credit for any creditable acquisition you make. Section 11-25 of the GST Act provides that the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired.

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.

* Denotes a term defined in section 195-1 of the GST Act.

So, it must be determined whether you make a creditable acquisition when you acquire vineyard rental from the RE as a Grower.

Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

In your case, the vineyard rental is acquired in your capacity as a Grower in a MIS. You are carrying on an enterprise of viticulture as part of your involvement in the MIS. You acquire the vineyard rental as part of your involvement in a viticulture MIS. So, your acquisition is for a creditable purpose. Additionally, you provide consideration for the supply, as you are required to pay an agreed amount of rent per annum, and you are registered for GST.

It must now be determined whether the supply of the vineyard rental to you is a taxable supply.

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.

In your case, as a Grower, you are charged GST from the RE on vineyard rental. The vineyard rental is a taxable supply because:

· the lease between you and the RE is for consideration, as you are required to pay an agreed amount of rent per annum;

· the RE's supply of rent to you as a Grower is made in the course of the RE's enterprise;

· the RE's supply of rent to you is connected with Australia, as the vineyard is located in Australia; and

· the RE is registered for GST.

There is no provision in the GST Act that operates to make the RE's supply of vineyard rental to you GST-free or input taxed.

As the RE's supply to you of rent meets the requirements of section 9-5 of the GST Act, it is a taxable supply. Therefore, all the requirements of section 11-5 of the GST Act are also met.

Hence, the RE is required to pay GST to the ATO on their supply of vineyard rental to you. You are able to claim input tax credits equal to the amount of GST payable on the supply of the vineyard rental to you.

Question 2

As explained above, the requirements of a taxable supply are stated in section 9-5 of the GST Act.

The payment you receive from the RE as a Unit Holder is a trust distribution, as you are a Unit Holder in a property trust. For GST to apply to this payment, you must be making a taxable supply to the RE. You have not provided any evidence of any taxable supply you make to the RE in your capacity as a Unit Holder in the property trust. In addition, the distributions are not considered to be separate taxable supplies made by the RE to Unit Holders.

As a Unit Holder, you merely receive a distribution from a property trust to which you are entitled under the Trust Deed. Item D17 of Schedule 2 to Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions provides that cash distributions from a trust are not subject to GST. Consequently, the payment to you as a Unit Holder in the property trust from the RE does not have any GST consequences.