Edited version of private advice

Authorisation Number: 1051669027168

Date of advice: 5 May 2020

Ruling

Subject: Sale of a property by statutory trustees

Question 1

Are the Trustees in their capacity as statutory trustees for the sale of the property carrying on an enterprise as defined in section 9-20 of the GST Act?

Answer

Yes.

Question 2

Is the sale of the property by the Trustees a supply made in the course or furtherance of an enterprise that the Trustee carries on for the purpose of section 9-5(b) of the GST Act?

Answer

Yes.

Question 3

Are the Trustees in their capacity as statutory trustees required to be registered for GST pursuant to section 23-5 of the GST Act?

Answer

Yes.

Question 4

Is the sale of the property by the Trustees a taxable supply under section 9-5 of the GST Act?

Answer

Yes

The scheme commences on:

Xx xx xxxx

Relevant facts and circumstances

The property was a resort comprising of numerous apartments.

The property was the subject of a long term lease for nominal consideration to entity A.

On a certain date the members of entity A passed a number of resolutions at an extraordinary general meeting to facilitate the sale of the property and the subsequent distribution of the sale proceeds.

On a certain date the Court passed Orders (Court Orders) appointing entity B as statutory trustees to sell the property, attend to other matters and distribute the funds.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Subsection 9-20(2)

Section 9-40

Section 23-5

Section 188-15

Section 188-20

Section 188-25

Conveyancing Act 1919 (NSW) section 66G

Real Property Act 1900 (NSW) section 138 (3)

Reasons for decision

Question 1

Are the Trustees in their capacity as statutory trustees for the sale of the property carrying on an enterprise as defined in section 9-20 of the GST Act?

Answer

Yes.

Reasons for decision

Carrying on an enterprise

The term 'enterprise' is defined in section 9-20 and includes an activity, or series of activities, done in the form of a business. The phrase 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise (section 195-1).

The question of whether a party, or parties, appointed pursuant to section 66G of the Conveyancing Act 1919 (NSW ) as Statutory Trustees for the sale of property was considered by White J in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 (Toyama). On this issue, the facts in Toyama are similar to the facts in this case.

In Toyama, White J at [68] noted that the 'enterprise which the trustees carried on was the series of activities required to be undertaken pursuant to their appointment as trustees for sale. The sale of the property, being the very thing they were appointed to do, was in furtherance of that enterprise'.

White J at [69] added that 'the activity, or series of activities, which they carried on, was done in the form of business. The words "in the form of" have the effect of extending the meaning of enterprise beyond entities carrying on a business, to encompass activities that have the appearance or characteristics of business activities'.

White J at [72] stated:

72. 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.

In this case, the trustees were appointed by the Court:

·         to effect the sale of the Property;

·         to be vested with authority to retain a real estate agent and any other necessary third parties to prepare, market and sell the property;

·         be authorised to charge for their services plus GST and disbursements;

·         distribute the net proceeds of sale.

Further, the Court ordered that:

·         the property be vested in the trustees;

·         the trustees have all the powers of the lessor under the lease of the land to the first plaintiff

In the course of their duties the trustees did all of the above.

To reiterate, in Toyama, White J established at [66] that:

·         the supply of the property in question was made by the trustees as the property was vested in them by the order made pursuant to s 66G of the Conveyancing Act;

·         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 of the property when sold in their role as Statutory Trustees; and

at [67] that;

·         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.

We consider the comments of White J in Toyama have similar application in this case. As such, we consider the trustees are carrying on an enterprise for GST purposes in conducting their duties and obligations as trustees appointed by the Court for the sale of the property.

MT 2006/1

Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of the terms 'entity' and 'enterprise' for the purposes of the GST Act.

For an entity to be carrying on an enterprise, it is necessary to identify one activity or a series of activities that amount to an enterprise.

The concept of 'an adventure or concern in the nature of trade' has arisen in the context of Australian and United Kingdom revenue law and is not defined for the purposes of the GST Act. Trade commonly means operations of a commercial character where goods or services are provided to customers for reward. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business. Isolated transactions fall into this category.

Paragraphs 262 - 269 of MT 2006/1 discuss isolated transactions and sales of real property. In particular paragraph 266 states:

266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

In this case, the trustees were appointed to sell the property. The property has been vested in the trustees by an Order of the Court for the specific purpose of sale. The trustees were appointed in this capacity because of their professional qualifications. In accordance with the Court Order, the trustees will sell the property, pay all costs and expenses associated with the ownership of the property; and remit the net income from the sale to the co-owners in line with their respective shares. This Order also provides for the trustees to charge for their services; all these activities have a commercial character.

In applying the principles of MT 2006/1 to the circumstances we consider that in doing the thing that the trustees were appointed to do (see above) they are disposing of the property. We consider this supply is made in the course or furtherance of an enterprise the trustees carry on.

Question 2

Is the sale of the property by the Trustees a supply made in the course or furtherance of an enterprise that the Trustee carries on for the purpose of subsection 9-5(b) of the GST Act?

Answer

Yes.

Reasons for decision

See answer to question 1.

Question 3

3. Are the Trustees in their capacity as statutory trustees required to be registered for GST pursuant to section 23-5 of the GST Act?

Answer

Yes.

Reasons for decision

Section 23-5 provides that 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 or $150,000 for non-profit bodies).

In this case it has already been established that the trustees are carrying on an enterprise.

Current GST turnover' is defined in section 188-15 as the sum of the values of all of your supplies made in a particular month and the preceding 11 months.

'Projected GST turnover' is defined in section 188-20 as the sum of the values of all of your supplies made in a particular month and the following 11 months.

However, in the calculations of both 'current GST turnover' and 'projected GST turnover', the value of supplies that are 'input taxed' are disregarded.

Section 188-25 provides that when calculating your projected GST turnover the following supplies are disregarded:

● transfers of ownership of a capital asset; or

● supplies solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

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) discusses the above turnover issues.

The meaning of 'capital assets' is discussed in paragraphs 31 to 36 of GSTR 2001/7. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise and are often referred to as 'structural assets'.

Paragraph 33 of GSTR 2001/7 provides that 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). Paragraph 35 continues stating that if the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction.

Paragraph 36 provides that an asset held by an entity over a period may change its character from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply.

In this case the trustees were appointed for the sale of the land by the Supreme Court of NSW.

The court further ordered that:

·         under section 138 (3) of the Real Property Act 1900 (NSW) that the Registrar-General cancels all the sub-folios for the land and issues a new single certificate of title for the land recording the trustees as the registered proprietors;

·         the land be vested in the trustees and be held by the trustees upon the statutory trust for sale pursuant to Division 6 of Part 4 of the Conveyancing Act 1999 (NSW);

In this case, the sole purpose for holding the property is for sale as prescribed for by section 66G of the Conveyancing Act 1999.

Goods and services tax ruling (GSTR 2012/6) considers how section 9-5, Subdivision 40-B, and Subdivision 40-C of the GST Act apply to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

GSTR 2012/6 provides at paragraph 6 that among other things the definition of 'commercial residential premises' in section 195-1 includes a hotel, motel, inn, hostel or boarding house; or anything similar to commercial residential premises.

A search on the internet shows that the property is categorised as 1 hotel, motel, pub and leisure property.

Paragraph 8 of GSTR 2012/6 has been reproduced below:

8. A supply by way of sale or lease of commercial residential premises is a taxable supply. A supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises is also a taxable supply.

In this case we do not consider the trustees supply of the property to be the transfer of ownership of a capital asset and as such it is not excluded from calculations of projected GST turnover by virtue of paragraph 188-25(a).

As stated above what is being looked at is the supply of a commercial residential property (resort) by the trustees who were appointed and whose sole purpose is to hold the property for sale in the course of an enterprise they carry on and as prescribed by section 66G of the Conveyancing Act 1999.

Further, as stated above the sale of commercial residential premises/resort is taxable. Therefore, whoever sold the property if not registered for GST would have been required to be registered under section 23-5 as their GST turnover would be over the registration turnover threshold.

Question 4

Is the sale of the property by the Trustees a taxable supply under section 9-5 of the GST Act?

Answer

Yes.

Reasons for decision

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides that 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 the indirect tax zone; and you are registered, or required to be registered for GST.

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

In this case the trustees will make the supply for consideration; the supply will be made in the course or furtherance of an enterprise the trustees carry on; the supply is connected with the indirect tax zone; and the trustees will be required to be registered for GST.

Also given the facts of this case the supply of the property will be neither input taxed nor GST-free.

Therefore, the sale of the property by the Trustees will be a taxable supply under section 9-5 of the GST Act.