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Edited version of private advice
Authorisation Number: 1051549304835
Date of advice: 17 July 2019
Ruling
Subject: Self-managed superannuation fund
Relevant facts and circumstances
· You are a complying self-managed superannuation fund.
· You are currently in pension mode and have paid the minimum pension for a particular financial year.
· You own a commercial property (property) which is currently leased to a third party tenant.
· Due to certain circumstances, you have decided to transfer the property to the members of the fund as an in-specie distribution.
· These members to whom you will be making this in-specie distribution are registered for GST and will be using the property for a creditable purpose in an enterprise that they are carrying on.
Relevant legislative provisions
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
GST is payable on taxable supplies.
A taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 as follows:
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 the indirect tax zone; 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.
(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)
The Commissioner's view in regards to in-specie distributions made by a discretionary family trust (distribution for a creditable purpose) is explained in ATO Interpretative Decision ATO ID 2001/503 as follows.
The existence of a 'supply' itself is an essential element in determining whether the distribution is a taxable supply under section 9-5 of the GST Act.
'Supply' is defined in subsection 9-10(1) of the GST Act to include any form of supply whatsoever. In this case, the distribution by the entity is the supply.
'Consideration' is defined in paragraph 9-15(1)(a) of the GST Act to include any payment, or any act or forbearance, in connection with a supply of anything. In some trust arrangements, beneficiaries have indefeasible rights to the trust property.
In the case of a discretionary trust, a beneficiary does not have a vested interest in either the income or the assets of the trust. The beneficiary merely has their right to demand that the trustee administers the trust according to the trust deed. As such, when the trustee makes a distribution, the beneficiary has no rights to surrender and gives no consideration.
Although, the supply is not being made for consideration, a distribution made by a discretionary trust may still be a taxable supply where Division 72 of the GST Act applies. Division 72 removes the requirement for consideration from section 9-5 of the GST Act in certain circumstances where the recipient is an associate.
Section 72-5 of the GST Act provides that a supply to an associate for no consideration will be a taxable supply if the associate is not registered or required to be registered, or the associate acquires the thing supplied otherwise than solely for a creditable purpose.
The term associate which is defined in section 318 of the Income Tax Assessment Act 1936 includes a beneficiary and the trustee of a trust.
In this case, the entity is making an in specie distribution to a beneficiary that is registered for GST and the distribution is used solely for a creditable purpose. Therefore, section 72-5 of the GST Act is not applicable.
As section 72-5 of the GST Act is not applicable, the requirement for consideration under paragraph 9-5(a) of the GST Act is not satisfied. Therefore, the entity is not making a taxable supply under section 9-5 of the GST Act when it makes an in specie distribution to a beneficiary that is registered and the distribution is used solely for a creditable purpose.
Given that a superannuation fund is considered as a special trust, it is the Commissioners' view that these principles can be applied to your case. Accordingly, given that the beneficiary will be using the in-specie distribution that you make for a creditable purpose, the making of the in-specie distribution is not a taxable supply. Therefore, you are not required to pay GST on the making of this in-specie distribution.