Edited version of your written advice

Authorisation Number: 1012664017390

Ruling

Subject: Is the supply GST free

Question:

Is the supply of services by an Australian company (you) to the Trustee for a Trust (Trust)
GST-free, where you also act in the capacity as the trustee for the Trust and the beneficiary is a non-resident entity?

Answer:

No. The supply of services by you (in your own right) to the Trust is a taxable supply.

Relevant facts:

An Australian company ('you') is an Australian resident company that is registered for goods and services tax (GST).

You and a non-resident company ('NRCo') entered into an investment management agreement (Agreement) for a period of time.

A Trust was established to facilitate the investment of the funds received from NRCo under the Agreement. You act as trustee of the Trust, and NRCo is the beneficiary. The Trust is registered for GST. The Trust carries on an enterprise in Australia relating to shares and derivatives trading. The funds were held in Australian financial institutions, equities were acquired and derivatives were traded through resident share brokers. Investments were made predominantly in instruments listed on Australian exchanges.

You advised that in accordance with the Agreement, you are responsible for:

- Undertaking the day to day management of the Trust's investments.

- Providing consolidated reporting and performance reports of the Trust.

- Sourcing the Trust's investments, monitoring positions for shares and derivatives trading.

- Trading derivatives under the terms of the Agreement.

The scale of the commercial investments was AUD$X. The Trust was assessed on the income derived on trading profits of the Trust, and the after tax trading profits and interest income were reinvested back into the Trust.

You maintained the records, files, data and business operations for the Trust at your own premises in Australia.

You (in your own capacity) charged the Trust GST on the services that you provided to the Trust, notwithstanding that the beneficiary of the Trust was a non-resident company (being NRCo).

You claimed reduced input tax credits on the provision of services.

You contend that the supply of the services to the Trust is a taxable supply. You treated the supply as taxable on the basis that:

- The Trust was an Australian resident trust, where the trustee (being you in that capacity) carried on the trust's activities in Australia.

- The business of the Trust was and has taken place over a substantial period of time in Australia.

- The supply under the Agreement was in respect of the Australian presence of the Trust and effective use of the supply takes place in the trading activities of the Trust in Australia.

- The trustee is also an Australian resident, and the central management and control of the Trust was in Australia at all times.

NRCo contends that the supply of the services by you to the Trust is GST-free.

A copy of the Agreement is provided, and provides (amongst other things) that:

- The Investment Mandate sets out the investment aims agreed with NRCo; the strategies that the investment manager will use; the basis for the investment manager's remuneration; and forms part of the deed between the investment manager and NRCo.

- The aim of the investor in requesting the investment manager to manage the portfolio is that the investor wishes to receive certain returns and benefits.

- The investment manager implements a multi strategy approach investing and trading securities on a range of financial markets. The strategy will invest predominantly in instruments listed on the Australian Securities Exchange.

- The investment manager's fee is outlined.

A copy of the deed (Deed) is provided, and provides (amongst other things) that:

- You are the trustee; and the beneficiary is NRCo.

- The trustee has held and continues to hold the trust property as bare trustee on trust for the beneficiary and the beneficial interest of the beneficiary to the trust property shall be vested in the beneficiary absolutely.

- Outlines in detail the various trustee's powers of investment and other dealings.

You state that the Agreement schedules the services to be provided and the mechanism for the determination of the fees charged. The Deed for the Trust acknowledges the formalisation of the Trust, you as the trustee, and outlines the terms of the trust.

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 38-190

A New Tax System (Goods and Services Tax) Act 1999, Section 184-1

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), 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.

Supplier and recipient of the supply

We consider the entities involved in the transaction to determine the supplier and recipient of the supply of the services.

An entity is defined in section 184-1 of the GST Act to include (but not limited to) an individual, a corporation sole, a partnership and a trust.

Every legal person is an entity in their own right and can have different roles and capacities (that is, can be part of another entity).

Subsection 184-1(1) of the GST Act treats a trust as an entity. Subsection 184-1(2) of the GST Act 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) of the GST Act 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. These provisions do not create two separate entities for GST purposes (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. These principles are discussed in Miscellaneous Taxation Ruling MT 2006/1 and Goods and Services Tax Ruling GSTR 2008/3.

Accordingly, the Trust is an entity for GST purposes, and you (acting in your own right) are supplying services to the Trust (trustee of the trust). You, in your own right, are the supplier, and the recipient of the supply is the Trust (trustee of the trust).

Bare trust arrangement

The Deed provides that the 'trustee has held and continues to hold the trust property as bare trustee on trust for the beneficiary and the beneficial interest of the beneficiary to the trust property shall be vested in the beneficiary absolutely'. We consider whether you are a trustee of a bare trust for GST purposes.

GSTR 2008/3 discusses bare trusts for GST purposes and provides that if there is a bare trust arrangement in place that we look through the bare trust to the beneficiary. That is, the beneficiary (and not the trust) is carrying on the enterprise and making the supplies and acquisitions. GSTR 2008/3 states:

30. 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.

…

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.

38. On the other hand, a beneficiary of a bare trust may carry on an enterprise involving an asset held on trust for the beneficiary by the bare trustee...

Goods and Services Tax Ruling GSTR 2002/2 also provides that a 'bare trust' is:

A trust that merely holds property on trust for a beneficiary, with the trustee having no duty (as to the trust property) other than to convey the property according to the instructions of the beneficial owner...

The facts indicate that the Trust carries on an enterprise in Australia relating to shares and derivatives trading. You (in the capacity as the trustee) are responsible for undertaking the day to day management of the Trust's investments, including providing performance reports of the Trust, sourcing the Trust's investments, monitoring positions for trading, and trading the shares and derivatives (via brokers) on the exchanges. The Agreement provides that the trustee/investment manager manage the portfolio and implement a multi strategy approach investing and trading securities on a range of financial markets. The Deed also outlines the various Trustee's powers of investment and other dealings.

In your case, the Trustee of the Trust has active duties and the Trustee's activities for the Trust are not passive in nature (nor are minor duties). Accordingly, we do not consider that there is a bare trust arrangement for GST purposes in accordance with GSTR 2008/3, and the supply is made and provided to the Trust (and not the beneficiary).

Your supply of the services to the Trust satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because the supply is for consideration, the supply is made in the course of your business, the supply is connected with Australia (as the services are done, or provided through your business, in Australia) and you are registered for GST. Hence, the supply of your services to the Trust is taxable unless it is GST-free or input taxed. Your supply of services is not input taxed. We need to determine whether the supply satisfies the GST-free provisions.

GST-free supply

Section 38-190 of the GST Act specifies the circumstances where the supply of things other than goods or real property for consumption outside Australia is GST-free. Of relevance to the supply of services to the Trust is item 3 in the table in subsection 38-190(1) of the GST Act (Item 3).

Under Item 3 a supply is GST-free where it is:

a supply:

(a) that is made to a *recipient who is not in Australia when the thing supplied is done; and

(b) the effective use or enjoyment of which takes place outside Australia;

other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

(* denotes a defined term under section 195-1 of the GST Act)

Firstly, for the supply to be GST-free under Item 3 there is a condition that the recipient must not be in Australia in relation to the supply when it is done.

Goods and Services Tax Ruling GSTR 2004/7 discusses when a non-resident or other recipient of a supply is not in Australia when the thing supplied is done. GSTR 2004/7 states:

172. Accordingly, in our view, a trust is a resident of Australia if at least one of its trustees is a resident of Australia or the trust's central management and control is located in Australia (whether the central management and control of the trust is also located elsewhere). Conversely, a trust is a non-resident if its central management and control is not located in Australia and none of its trustees are residents of Australia.

Accordingly, you (in your own right) supply the services to the Trust, which is an Australian resident entity because the trustee is a resident of Australia and the Trust's central management and control is in Australia. Note that item 2 in the table of subsection 38-190(1) of the GST Act is not applicable as it only applies to supplies made to a non-resident entity.

GSTR 2004/7 also states:

Trust in Australia in relation to the supply (item 3)

77. A trust (irrespective of its residency status as determined in accordance with this Ruling) is in Australia if a trustee of that trust, acting in its capacity as trustee, carries on business (or in the case of a trustee that does not carry on business, carries on the trust's activities) in Australia:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) through an agent at a fixed and definite place for a sufficiently substantial period of time.

78. A trust is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence of that trust. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the trust is in Australia in relation to the supply, except where the only involvement is minor.

The facts indicate that you and NRCo entered into the Agreement and Deed. The Trust was established to facilitate the investment of the funds received from NRCo. You act as trustee of the Trust, and NRCo is the beneficiary. The Trust carries on an enterprise in Australia relating to shares and derivatives trading. The funds were held in Australian financial institutions, equities were acquired and derivatives were traded through resident share brokers. Investments were made predominantly in instruments listed on Australian exchanges.

The Trust is an Australian resident trust, where the trustee (being you in that capacity) carried on the Trust's activities in Australia; the business of the Trust was and has taken place over a substantial period of time in Australia; the supply under the Agreement was in respect of the Australian presence of the Trust and effective use of the supply takes place in the trading activities of the Trust in Australia; the trustee (being you in that capacity) is an Australian resident and the central management and control of the Trust was in Australia at all times.

Accordingly, the requirement that the recipient is not in Australia when the thing supplied is done in paragraph (a) of item 3 is not satisfied, and therefore the supply of the services to the Trust is not GST-free.

For completeness, for the purpose of paragraph (b) of item 3, it is necessary to determine which entity has the actual use or enjoyment of the supply. The recipient of a supply is the entity to which the supply is made. A supply that is made to a recipient may be provided to another entity. In such case, the entity that actually uses or enjoys the supply is that other entity (the providee).

Where it is determined that a supply is provided to an entity in Australia, and another entity outside Australia may benefit from that supply this does not alter the outcome that the supply is provided to an entity in Australia and thus the effective use or enjoyment of the supply does not take place outside Australia (Goods and Services Tax Ruling GSTR 2007/2).

As discussed above, the supply of the services is made and provided to the Trust (and not the beneficiary). The providee is the Trust in Australia, and therefore the effective use or enjoyment of the supply does not take place outside Australia. Hence, the requirement in paragraph (b) of item 3 is not satisfied.

Accordingly, the supply of services by you (in your own right) to the Trust is not covered by item 3 and is not GST-free. The supply is not GST-free under any other provisions of the GST legislation, and therefore is a taxable supply under section 9-5 of the GST Act.