Edited version of private advice

Authorisation Number: 1051917517359

Date of advice: 5 November 2021

Ruling

Subject: GST and the sale of property

Question

Will the Trustees for Trust A (the Trust) make a taxable supply of the Property pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the Property is sold to a third party?

Answer

Yes

This ruling applies for the following period:

1 November 20XX - 30 October 20XX

The scheme commences on:

13 September 20XX

Relevant facts and circumstances

Trust A (the Trust) was formed by Deed of Settlement on XXYYYY with a view to purchasing a property as a place of Christian worship.

The Trust registered for GST from 1 July 2000.

The Trustis registered with the Australian Charities and Not-for-profits Commission (ACNC) from XXYYYY.

The Trust does not have deductible gift recipient status.

On XXYYYY the Trust purchased the Property.

The Property was built in YYYY and was used as a Church until YYYY. It was subsequently annexed to the Parish School as a hall or for classrooms.

In XXYYYY the group of Christians for whom it was intended began services there.

The entire site has been continuously used exclusively for religious services. The Trust has never charged for the use of the Property and all utilities and maintenance are met by the congregation's offerings and specific gifts. The congregation are not formally organised as a legal entity and have no formal ecclesiastical associations. They take no name.

Recently the Trust received an unsolicited proposal to sell the entire Property to another Christian group. They are not at present formally incorporated and the Trust is not aware who the actual purchaser might be.

The Trust is given to understand that the intended Purchaser will use the Property for church services and for associated pastoral and social activities.

The proposed Purchaser is now seeking advice regarding the formation of an appropriate legal entity in view of the transfer and presumably registering with ACNC as an exempt religious entity, possibly also registering for GST.

The purchase price of the Property will not be less than 50% of the GST inclusive market value of the supply. A government valuation of $X has been placed on the Property, however a real estate agent has suggested that the market value of the Property is in excess of $X.

You have also provided a copy of the Trust's Deed of Settlement.

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 subsection 184-1

A New Tax System (Goods and services Tax) Act 1999 section 195-1

Reasons for decision

The GST Act provides that you must pay the GST payable on any taxable supply that you make.

Under section 9-5, 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)   you make the supply for consideration; 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.

Section 195-1 states that if a provision of the GST Act uses the expression 'you', it applies to entities generally, unless its application is expressly limited.

In this case, the legal owner of the Property is the Trust.

The definition of' 'taxable supply' concerns itself with supplies made in the course of an enterprise. It is the entity which conducts that enterprise that makes the relevant supply.

Subsection 184-1(1) treats a trust as an entity. Subsection 184-1(2) goes on to note that the trustee of a trust is taken to be an entity consisting of the person who is the trustee at any given time.

Subsection 184-1(3) confirms that a legal person can have a number of different capacities in which the person does things and in each of those capacities the person is taken to be a different entity.

The Trustwill make a taxable supply of the Property to a third-party purchaser where all the requirements specified in section 9-5 are satisfied.

Division 38 and 40 provide for certain supplies to be GST-free and input taxed respectively. Where a supply is GST-free or input taxed, GST will not be payable on the sale.

You have confirmed that the supply of the Property will not be for a purchase price which is less than 50% of the GST inclusive market value of the supply.

We therefore consider that Division 38 and 40 do not apply to the sale of the Property. This means, where all the requirements specified in paragraphs 9-5(a), (b), (c) and (d) are satisfied, GST will be payable on the supply of the Property.

In this case, the Property is being sold for consideration and is located in Australia, that is, paragraphs 9-5(a) and (c) are satisfied.

Paragraph 9-5(b) requires that the supply is made in the course or furtherance of an enterprise that the entity carries on.

Paragraph 9-20(1)(e) provides that an enterprise includes an activity, or a series of activities, done by a charity.

The Trustis registered with the Australian Charities and Not-for-profits Commission (ACNC) from XXYYY and is therefore carrying on an enterprise for GST purposes.

For the sale of the Property to be made in the course or furtherance of your enterprise, the sale of the Property must have a connection to your enterprise. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states:

'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361

Paragraph 30 of Goods and Services Tax Ruling GSTR 2004/8 Goods and services tax: When does an entity have a decreasing adjustment under Division 132 (GSTR 2004/8) identifies the following characteristics of a thing which indicates that the sale of a thing has a connection with your enterprise:

•         at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes);

•         at the time of sale it was applied in carrying on your enterprise to at least some extent; and

•         it is sold as a transaction of your enterprise.

Paragraph 31 of GSTR 2004/8 provides further factors that tend to indicate that a sale is a transaction of the enterprise, including:

•         the proceeds of sale are deposited into an enterprise bank account

In this case, the Property will be sold by the Trust in the course of its enterprise and therefore paragraph 9-5(b) is satisfied.

GST will be payable on the sale of the Property if the remaining requirement specified in paragraph 9-5(d) is also satisfied.

Paragraph 9-5(d) requires that an entity is registered for GST or required to be registered for GST.

In this case, the Trust is registered for GST.

As all the requirements of section 9-5 are met, the sale of the Property to a third-party purchaser will be a taxable supply by the Trust.