Edited version of your written advice

Authorisation Number: 1013002005248

Date of advice: 26 April 2016

Ruling

Subject: Court appointed trustees and the sale of property

Question

Are you, as Statutory Trustees for the sale of the Properties, required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 when the properties are sold?

Answer

No

Relevant facts and circumstances

You (the Statutory Trustees) were appointed as Statutory Trustees for the sale of real property pursuant to the Court Orders.

Prior to the court orders the properties were owned by various parties as tenants in common (together 'The Owners')

The owners were not registered for GST jointly in relation to these properties.

Property A is subject to a residential tenancy, where a notice to terminate has been given with possession to be delivered on ddmmyyyy. The rent is in arrears and you have not received any rent.

Property B is vacant uncleared land which is not subject to lease or license.

Pursuant to the Court Orders, the properties vested in you for the purposes of sale.

Pursuant to paragraph 2 of the Court Orders, you may sell the properties by such method as you deem appropriate in the circumstances including, but not limited to, sale by auction or by private treaty.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

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

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Reasons for decision

In this ruling,

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

You were appointed as Statutory Trustees for the sale of the Properties. The Properties vested in you, to be held by you upon Statutory Trust to be sold. Any funds received post appointment will be distributed in accordance with the Court Orders.

We need to consider in what capacity you will sell the Properties and whether you are carrying on an enterprise and required to be registered, in that capacity in relation to the Properties.

Division 184 explains the meaning of entity which includes inter alia, a trust as set out in paragraph 184-1(1)(g).

In relation to trusts, subsection 184(2) states:

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(3) further explains that a legal person can have a number of different capacities in which the person does things. In each of those capacities, the person can be taken to be a different entity.

When you, as Statutory Trustees, perform activities in accordance with the Court Orders, you are acting in a different capacity to yourselves as individuals and are taken to be a different entity.

In accordance with the Court Orders, you, as Statutory Trustees, have a wide scope in relation to your powers to sell the Properties, including:-

• determining whether to obtain a valuation

• determining the method of sale (auction or fixed treaty)

• determining the reserve price

• expending monies on the Properties in preparation for sale.

In your capacity as Statutory Trustees of the Lots, you will arrange the sale of the Properties and transfer the titles in accordance with the requirements of the Court Orders. Therefore, you will deal with the Lots in your capacity as Statutory Trustees for the Properties.

Enterprise

Prior to your appointment as Statutory Trustees, Property A was used by the Owners to conduct a leasing enterprise. However, Property B was not used in any enterprise.

The Owners were not registered or required to be registered for GST as the only turnover was the input taxed supplies made from the leasing of Property A.

The reasoning in Toyama Pty Ltd v Landmark Building Developments Pty Ltd NSWSC 83 (Toyama) is relevant in so far as it considers whether the court appointment of a trustee to take the place of someone involved in activities which previously amounted to carrying on an enterprise would alter the characterisation of those activities.

In Toyama, Justice White held that the Trustees appointed by the court in that case carried on an enterprise, being a series of activities done in the form of a business, required to be undertaken pursuant to their appointment as Trustees for Sale of the relevant property.

The following paragraphs from the judgement in Toyama are relevant in considering whether the principles in Toyama have application to your role as Statutory Trustees, in selling the Trust Property:

• Paragraph 66 of Toyama states that the trustees:

'entered into the contract for the sale of the property and conveyed the title to it. The trustees are the entities who made the supply.'

• Paragraph 67 of Toyama states:

'The trustees carried on an enterprise within the meaning of the Act, being a series of activities done in the form of a business. They were appointed as trustees by the Court because of their professional qualifications as solicitors. Although the orders appointing them do not currently provide for their remuneration, Landmark accepts that they will be entitled to proper remuneration for the work they have done. That work includes retaining real estate agents, solicitors, counsel and accountants; giving instructions for the marketing of the property; liaising with Toyama and Landmark; preparing the contract of sale; arranging for the marketing and public auction of the development site; and selling of the site. These activities have a commercial character.'

• Paragraph 73 of Toyama states:

'When the enterprise carried on by the trustees is regarded as a whole, it can be seen that it involves a series of acts done by the trustees. These included the engaging of consultants, the marketing of the property, the obtaining of judicial advice and the sale of the property.'

• Paragraph 76 of Toyama states:

…Whilst I accept that the trustees were engaged in a separate activity from the joint venturers, Landmark and Toyama, it was nonetheless a related activity. The trustees were appointed to wind up the venture on which Toyama and Landmark had engaged when they fell out. In my view, the mere appointment of a trustee to take the place of someone involved in activities which amounted to the carrying on of an enterprise, would not alter the characterisation of those activities. Clearly the activities conducted by the joint venturers, Toyama and Landmark, were activities in the nature of a business done for profit. The activities of the trustees, although a different enterprise, because carried on by different entities, had a business or commercial character because they brought the activities of the joint venturers to fruition. Moreover, the trustees were themselves acting in business, as professional persons who would charge fees for the work done in selling the site for the profit of the joint venturers.

As stated above, the reasoning in Toyama is relevant in so far as it considers whether the court appointment of a trustee to take the place of someone involved in activities which previously amounted to carrying on an enterprise would alter the characterisation of those activities.

For example, in [73] of Toyama White J states '…the property sold was not owned by an individual and used as a residence, but a disused house on a development site having development consent. … The sale of the development site was a commercial transaction'.

Further at [76], White J notes the mere appointment of a trustee to take the place of someone involved in activities would not alter the characterisation of those activities. The activities of the trustees, although a different enterprise, had a business or commercial character because they brought the activities of the joint venturers to fruition. That is, it is relevant to consider the surrounding purposes of the property in question - for example, whether the property was held for commercial development purposes or say domestic purposes.

You were appointed as Statutory Trustees by the Court to perform activities resulting in the sale of the Properties, one of which was held for a leasing enterprise conducted by the Owners.

The activities conducted by you, in your capacity as Statutory Trustees of the Properties, are on par with Toyama in that those activities were made in the course of a leasing enterprise carried on by you in relation to the Properties.

Registration

You are not registered for GST. Therefore it needs to be determined whether you are required to be registered.

As provided in section 23-5 of the GST Act, you are required to be registered if:

• you are carrying on an enterprise, and

• your GST turnover meets the registration turnover threshold (currently $75,000).

Under section 188-10 of the GST Act your GST turnover is calculated with reference to your current GST turnover and your projected GST turnover.

As provided in subsection 188-10(2) of the GST Act, your GST turnover does not exceed a particular threshold if:

• your current GST turnover is at or below the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is above the turnover threshold, or

• your projected GST turnover is at or below the turnover threshold.

Before the sale (settlement) of the properties, your current GST turnover will be below the turnover threshold. However, if your projected GST turnover exceeds the registration turnover threshold, you will be required to be registered.

Paragraph 188-25(a) of the GST Act provides that in working out your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours.

The meaning of capital assets is not defined by the GST Act. However Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) considers the meaning of 'capital asset' for the purposes of section 188-25 of the GST Act.  Paragraph 31 of GSTR 2001/7 states the term 'capital assets generally refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits.' Paragraph 32 of GSTR 2001/7 also states 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, that are retained by you to produce income.

Paragraph 33 of GSTR 2001/7 further states that capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations' and 'an asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a capital asset for the purposes of paragraph 188-25(a) of the GST Act.'

We consider that the Properties being sold are in the nature of capital or investment assets. Accordingly, the proceeds of the sale of the Properties will not be included in your projected GST turnover.

It follows that your GST turnover will not meet the registration turnover threshold and you are not required to be registered for GST.