Edited version of private advice

Authorisation Number: 1051763117349

Date of advice: 05 October 2020

Ruling

Subject: GST-free supplies of trustee services

Question 1

Does the entity make a supply of trustee services to the settlor under section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 when it fulfils its obligations under the Trust Deed?

Answer 1

No, for GST purposes, the supply of services is provided to the Trust.

Question 2

Is the supply of trustee services made by the entity under the Trust Deed GST-free under item 2 of the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?

Answer 2

No, as the Trust is not a non-resident, the supply made by the entity is not GST-free.

Question 3

Is the supply of trustee services made by the entity under the Trust Deed GST-free impacted by subsection 38-190(3) of the A New Tax System (Goods and Services Tax) Act 1999?

Answer 3

No.

Relevant facts and circumstances

The entity is an Australian entity.

The settlor has engaged the entity to hold the Trust Fund on trust for the benefit of an Australian resident entity (beneficiary) as well as the settlor.

The settlor is a non-resident entity that has no staff, office or branch based in Australia. The settlor is not registered for GST and is not required to be registered for GST in Australia.

Under the Trust Deed, in its capacity as the trustee, the entity invests the trust funds, in accordance with specific investment guidelines. The guidelines require the trust funds to be invested in low risk securities, including Australian bank accounts and Australian Government Coupon Bonds. The settlor is entitled to the net income of the trust at the end of each financial year.

The entity is required to take directions from the settlor, or the appointed manager pursuant to the Trust Deed regarding the investment of the assets held in the trust fund.

The entity is also required to take directions from the settlor, generally relating to any distributions payable from the trust.

The Trust Deed provides that the settlor is liable to pay the remuneration for the trustee services provided by settlor.

The settlor is entitled to any remaining trust funds upon termination of the trust.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190

Reasons for decision

Subsection 9-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 defines a supply as 'any form of supply whatsoever' and includes a supply of services. The Trust Deed generally provides the entity with all of the powers 'conferred on trustees generally by law or equity as if the Trustee were the sole beneficial owner of the Trust Fund assets'. The Trust Deed specifies a range of obligations on the entity as trustee including buying and selling investments; holding assets and documentation; appointing agents, brokers and others to advise on investments; pay distributions; and reporting. The activities undertaken by the entity as trustee of the Trust are supplies under the GST Act.

A trust may be described as an enforceable obligation which rests on a person (the trustee) as owner of some specific property (the trust property) to deal with that property for the benefit of a certain person (the beneficiary) or persons, or for the advancement of certain purposes. At law, a trust is not a legal person but is a collection of rights, duties and powers. However, as explained at paragraph 71 of the Miscellaneous Taxation Ruling, The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1), a trust is deemed to be an entity under subsection 184-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This means that a trust is able to make supplies and acquisitions for GST purposes.

The term 'recipient' is defined by section 195-1 of the GST Act as 'in relation to a supply, ... the entity to which the supply was made'. The Goods and Services Tax Ruling, Goods and services tax: supplies (GSTR 2006/9) provides some commentary on the recipient of a supply and, at paragraph, 55 states:

55. The supplier and the recipient have to be different entities because an entity cannot make a supply to itself. Also, the recipient has to be identified, as you cannot make a supply to the world at large...

Proposition 11 in GSTR 2006/9 is that 'the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply' and paragraph 199 states:

119. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.

The Trust Deed is the agreement which provides the legal relationship between the parties. The Trust Deed requires the entity act as trustee of the trust with all of the 'powers conferred on trustees generally by law or equity as if the Trustee were the sole beneficial owner of the Trust Fund assets'. As there is no separate agreement for the entity to provide services to the settlor, the Trust Deed is the agreement which must be used to determine if the services provided by the entity are provided to the settlor.

Although it may seem like a trustee is providing services to the beneficiary or the settlor of a trust, the trustee is bound by the Trust Deed and trust law generally. That is, the trustee is not directed by the beneficiary or settlor where that direction is not provided for by the trust deed (or allowed by common law). Although the beneficiaries may benefit from the actions of the trustee, the trustee is not providing the services of acting as trustee to the beneficiary directly. The trustee is merely fulfilling its obligations under the trust deed. For GST purposes, the trust is an entity capable of making acquisitions and supplies and the trustee is considered to be providing its services to the trust.

Proposition 14 of GSTR 2006/9 is that a third party may pay for a supply but not be the recipient of the supply which reflects subsection 9-15(2) of the GST Act which provides that the payment does not have to come from the recipient of the supply. The Trust Deed provides that the entity is entitled to charge and be paid all usual professional or other charges for services performed by the trustee in relation to this Deed including a fee for acting as trustee. Even though the Trust Deed provides that the settlor is required to pay the remuneration of the entity, it also states that the entity may recover its fees from the trust fund if the settlor has not paid the remuneration within a specified timeframe. The payment of the entity is for acting as trustee of the trust and the fact that the remuneration is intended to be paid by the settlor does not mean that the services of acting as trustee are provided to the settlor. The output of the supply of trustee services by the entity is the Trust.

The general position explained in the Goods and Services Tax Ruling, Goods and services tax: dealings in real property by bare trusts (GSTR 2008/3) is that assets that are held in a bare trust are in effect assets acquired (and eventually supplied) by the beneficiary. Paragraph 37 of GSTR 2008/3 explains that a bare trust is passive in nature:

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.

The Trust is not a bare trust. The Trust is not merely a mechanism to hold an asset on behalf of the beneficiaries. The funds provided are invested in accordance with the Trust Deed as directed by the appointed manager. The directions to buy and sell investments in addition to the directions to pay distributions from the Trust Fund in accordance with the Trust Deed differentiate the Trust from a bare trust as provided in GSTR 2008/3.

For GST purposes, the entity is making a supply of trustee services to the entity that is the Trust.

Section 38-190 of the GST Act provides that certain supplies that are for consumption outside of Australia are GST-free. Item 2 of the table in subsection 38-190(1) of the GST Act provides that a supply is GST-free if:

·         it is made to a non-resident who is not in the indirect tax zone when the thing supplied is done, and:

·         the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

A supply is made to a non-resident for the purposes of item 2 and paragraph (b) of item 4 if the supply is made to an entity that is a person who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). A trust is a non-resident for the purposes of the ITAA 1936 if it has no trustee that is a resident of Australia as defined in subsection 6(1) of the ITAA 1936 and the central management and control of which is not located in Australia. As the entity is a resident of Australia, the Trust is not a non-resident and consequently, supplies made to the trust are not GST-free under section 38-190 of the GST Act. As the supply is not GST-free, subsection 38-190(3) of the GST Act (which only relates to supplies that would be GST-free under subsection 38-190(1) of the GST Act) has not application.