Edited version of your written advice

Authorisation Number: 1051181981407

Date of advice: 24 January 2017

Ruling

Subject: GST and the sale of real property by Court Appointed Trustees

Question 1

Are you, the Trustee for the Taxpayers, in their capacity as Statutory Trustees for sale pursuant to section 66G of the Conveyancing Act 1919 (NSW) (Conveyancing Act) with respect to three specific properties situated at specified locations (the Properties), carrying on an “enterprise” as that term is defined in section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Question 2

Is the sale of the Properties by you, as Trustee for the Taxpayers, in their capacity as Statutory Trustees for sale pursuant to section 66G of the Conveyancing Act with respect to the Properties, a supply “… made in the course or furtherance of an enterprise you carry on …” for the purposes of paragraph 9-5(b) of the GST Act?

Answer

No.

Question 3

Are you, as Trustee for the Taxpayers, in their capacity as Statutory Trustees for sale pursuant to section 66G of the Conveyancing Act with respect to the Properties, “required to be registered” as that term is defined in section 23-5 of the GST Act, and for the purposes of paragraph 9-5(d) of the GST Act?

Answer

No.

Question 4

Are you as Trustee for the Taxpayers, in their capacity as Statutory Trustees for sale pursuant to section 66G of the Conveyancing Act with respect to the Properties, making a “taxable supply” as that term is defined in section 9-5 of the GST Act, upon the sale of the Properties, with the result that GST is payable pursuant to subsection 7-1(1) of the GST Act?

Answer

No.

Question 5

Are you as Trustee for the Taxpayers, in their capacity as Statutory Trustees for sale pursuant to section 66G of the Conveyancing Act with respect to the Properties, entitled to input tax credits (GST credits) equal to the GST paid (or payable) on the goods and/or services acquired by you in the course of the Taxpayers' trusteeship?

Answer

No.

Relevant facts and circumstances

● The Taxpayers were appointed as Statutory Trustees for sale pursuant to section 66G of the Conveyancing Act pursuant to Court Orders made by reference to an Amended Summons.

● You have submitted a copy of the Court Orders and the Amended Summons. The Court Orders name Taxpayer 1 as the first plaintiff and Taxpayer 2 as the first defendant.

● In particular, the Taxpayers were appointed Statutory Trustees for sale, in relation to the Properties. You have submitted copies of the current title search for the Properties.

● The Taxpayers hold the Properties as Statutory Trustees for sale, with the former registered proprietors of the property (Taxpayer 1 and Taxpayer 2); the ultimate Beneficiaries (Beneficiaries) in equal shares with respect to the balance of the proceeds of sale of the Properties after certain prescribed payments are made from these proceeds.

● You understand that the Beneficiaries were registered for Goods and Services Tax as a partnership. You have submitted a copy of the ABN search for the partnership.

The nature of the Properties

● Property 1 consists of a number of commercial shop premises. One of the premises is occupied by a lessee. Although the lease on that shop has expired, the tenant is currently holding over (i.e. there is a month-by-month arrangement). The Taxpayers understand that the tenant of that property pays rent, including a GST gross up component (that is, the landlord is liable for GST on the rental payment received from the tenant).

● The other two shop premises which constitute Property 1 contain a café which one of the Beneficiaries owns (or has a significant interest in), and also an eating area/storage area. The Taxpayers understand that no rent was paid in relation to those two shops. These two shops are to be sold with vacant possession.

● Property 2 is registered as a boarding house with the Council. You have submitted a copy of Council Certificate of Inspection/Registration (Place of Shared Accommodation - Boarding House) dated … for Property 2. The Taxpayers understand that the Beneficiaries were subject to GST with respect to the leasing of the boarding house premises, on the basis that they meet the definition of “commercial residential premises”, and in particular paragraph (a) of the definition of that term contained in section 195-1 of the GST Act, as including “a hotel, motel, inn, hostel or boarding house…”.

● In summary, the Taxpayers understand that the Beneficiaries were registered for GST on the basis that they were carrying on an enterprise in conducting leasing activities with respect to the Properties and they would have been subject to GST on the supply of the Properties either:

● by way of lease; or

● by way of sale (if, and when that were to occur).

● Pursuant to the Court Orders:

● exchange with respect to contracts for sale of land of Property 1 occurred on a specified date. You have submitted a copy of the front page of the contract; and

● exchange in relation to contract for sale of land on Property 2 occurred on a specified date. You have submitted a copy of the front page of the contract.

● The sale price of each of the lots constituting Property 1 and Property 2 is in excess of $75,000 (that is, in excess of the GST registration turnover threshold).

● You have registered for GST. You have submitted a copy of your ABN registration details.

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 9-20,

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15 and

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20..

Reasons for decision

In these reasons for decision;

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

● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Question 1

Summary

You are not carrying on an enterprise with respect to the Properties.

Question 2

Summary

The sale of the Properties is not a supply made in the course or furtherance of an enterprise that you carry on.

Question 3

Summary

You are not required to be registered with respect to the Properties.

Question 4

Summary

Your sale of the Properties is not a taxable supply and therefore no GST is payable on the sale.

Question 5

Summary

You are not entitled to GST credits for acquisitions of goods/services you make for the purpose of selling the Properties. However, you are entitled to GST credits for creditable acquisitions made for the purpose of providing your professional 'Trustee' services.

Detailed reasoning

You are liable for goods and services tax (GST) on any taxable supply that you make.

Under section 9-5 of the GST Act you make a taxable supply if:

● you make the supply for consideration

● the supply is made in the course or furtherance of an enterprise that you carry on

● the supply is connected with Australia, and

● you are registered or required to be registered.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

In your situation, the relevant factor is whether you are supplying the Properties in the course or furtherance of your enterprise, which on the facts of the case consists of your activities of providing professional 'Trustee' services pursuant to the Court Orders.

Is the sale of the Properties in the course or furtherance of your enterprise?

Section 9-20 of the GST Act provides, among other things, that an enterprise is an activity or series of activities done:

● in the form of a business or

● in the form of an adventure or concern in the nature of trade.

Our view on the meaning of the term 'enterprise' is explained in detail in 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 which is available at www.ato.gov.au

As per paragraph 159 of MT 2006/1, whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis. An adventure or concern in the nature of trade includes an isolated transaction or one-off transaction that does not amount to a business but which has the characteristics of a business deal (that is the activities are done under a profit-making scheme).

In your case, you are disposing of the Properties which have been vested in the Taxpayers as Statutory Trustees pursuant to the Court Orders for the specific purpose of sale. The Taxpayers were appointed in this capacity because of their professional occupation. In accordance with the Court Orders, you will sell the Properties and make prescribed payments, including the costs of the Taxpayers' professional services as Statutory Trustees, from the proceeds of sale before remitting the balance to the Beneficiaries.

Giving due consideration to your situation from the facts submitted to us, we do not consider that your activities of disposing of the Properties constitute an enterprise for GST purposes, mainly because:

● The Taxpayers, as Statutory Trustees, are not in the business of selling real property; and

● The sale of the Properties is not in the form of an adventure or concern in the nature of trade because you are not disposing of the Properties for profit-making. As Trustee for the Taxpayers (in their capacity as Statutory Trustees), you are merely acting in accordance with the Court Orders to dispose of the Properties and distribute the balance of the proceeds (after making certain prescribed payments) to the Beneficiaries. In your situation, the supply of the Properties does not have a sufficient nexus with your activities of providing professional 'Trustee' services. The overriding essential character of the transaction is that the Taxpayers are following the Court Orders to dispose of the Properties due to the personal circumstances of the Beneficiaries as parties to a dispute in the Court proceeding. The Properties are not being disposed of due to business or trade circumstances.

GST registration

Under section 23-5 of the GST Act you are required to be registered if:

(a) you are carrying on an enterprise; and

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

As we consider that you are not carrying on an enterprise of selling the Properties, you are therefore not required to be registered for GST with respect to the Properties since requirement (a) above is not be satisfied.

Taxable supply and creditable acquisition

As discussed above, in selling the Properties, you are not making a supply in the course or furtherance of an enterprise that you carry on. Accordingly, you are not making a taxable supply as you do not meet all the requirements of section 9-5.

Furthermore, you are entitled to GST credits for your creditable acquisitions. Under section 11-5 of the GST Act, you make a creditable acquisition if: 

● you acquire anything solely or partly for a creditable purpose

● the supply of the thing to you was a taxable supply

● you provide, or are liable to provide, consideration for the supply, and

● you are registered or required to be registered.  

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise but not to the extent that you acquire it for making input taxed supplies or for a private or domestic purpose.

As your activities of disposing of the Properties do not constitute an enterprise, goods/services you acquire for the purpose of selling the Properties are not for a creditable purpose. Accordingly, you are not making creditable acquisitions in respect of such goods/services and therefore you are not entitled to GST credits for these acquisitions.

Further information

Your enterprise consists of the Taxpayer's professional activities in their capacity as Court Appointed Statutory Trustees for the sale of the property. You have registered for GST in respect of this enterprise. Consequently, your supply of professional 'Trustee' services is taxable and you are liable for GST on the fees you receive for your services. You are also entitled to GST credits for any creditable acquisitions you make for the purpose of providing these services.