Edited version of private advice

Authorisation Number: 1052240667170

Date of advice: 12 April 2024

Ruling

Subject: GST - statutory trustees and sale of property

Question 1

Are the Statutory Trustees (Trustees) for the sale of the property at location address X (Property) carrying on an enterprise as defined in section 9-20 of the A New Tax System Goods and Services Tax Act 1999 (GST Act)?

Answer

Yes, the Trustees are carrying on an enterprise.

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, where the GST turnover meets the registration threshold of $75,000, the Trustee is required to be registered for GST.

Question 4

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

Answer

Yes. To the extent that the Property is not an input taxed residential premises it will meet the requirement of a taxable supply.

This ruling applies for the following period:

1 July 20YY to 30 June 20YY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

The Trustees were appointed trustees for sale of a property at X (Property), under Section 66G of the Conveyancing Act 1919 (NSW).

The Trustees were appointed under a court order issued by the Equity Division Supreme Court NSW (Court Order).

The court made the following orders:

•      Pursuant to s66G of the Conveyancing Act 1919 (NSW), appoint The Trustees as trustees for the sale of the Property.

•      The property is vested in the Trustees subject to any incumbrances affecting the entirety of the Property, but free from incumbrances, if any, affecting any undivided share or shares in the Property, to be held by the Trustees upon the statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act 1919 (NSW).

•      On completion of the sale of the Property pursuant to Order 2, the Trustees distribute the proceeds in the following manner:

a.            In payment of all rates, taxes and insurances and other outgoings on the Property;

b.            In payment of the other costs of sale including, but not limited to legal costs, advertising costs and agent's commission;

c.             In payment of the Trustees' fees for time in attendance up to completion of the sale on an indemnity basis;

d.            In payment of the expenses incurred by the Trustees for the purpose of bringing the Property up to a reasonable condition that would facilitate the sale;

e.            In payment of the plaintiff's costs of the proceedings on the indemnity basis; and

f.              The balance one-half each to the plaintiff and the defendant

Prior to the Property vesting in the Trustees, the previous owners had used the Property for farming business, however it has been vacant for a number of years since the death of one of the previous owners.

At the time the Property was vested in the Trustees, it consisted of a residential premises and other structures and/or buildings as outlined in the advertising materials used in the sale of the Property. Relevantly the Property included the existing residential premises together with facilities used to support farming activities.

The Property comprised of approximately XXXX hectares.

The Trustees are not currently registered for GST, nor do they have a tax file number or an Australian Business Number.

The Property has remained vacant since the Property was vested in the Trustees and there have been no farming operations conducted on the Property since that time.

No income has been derived by the Trustees since the Property was vested in them, nor is it expected that any income will be derived prior to the sale of the Property.

The Trustees sold the Property at auction.

The Property was sold for the sale price of $XXXX excluding GST.

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 9-80

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

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

Reasons for decision

Question 1 and 2

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).

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 (MT 2006/1) considers the meaning of the terms 'entity' and 'enterprise' for the purposes of the GST Act.

Paragraphs 159 and 234 of MT 2006/1 state:

159. Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

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 to 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.

The issue 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 are carrying on an enterprise was considered by White J in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 (Toyama).

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 hold the Property for sale as prescribed by section 66G of the Conveyancing Act 1999. This activity is carried on in the form of business by the Trustees. Consistent with the view in MT 2006/1 we consider the Trustees are carrying on an enterprise in conducting their duties and obligations as Trustees appointed by the Court Order for the sale of the Property. It follows that the sale of the Property is also made in the course or furtherance of this enterprise as it is the reason for which the Trustees are appointed.

Question 3

Section 23-5 provides the requirements for who is required to be registered and states:

You are required to be registered under this Act if:

(a) you are *carrying on an *enterprise; and

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

Note: It is the entity that carries on the enterprise that is required to be registered (and not the enterprise).

(*Denotes a term defined in section 195-1 of the GST Act)

As set out in our response to 1 and 2 above, the Trustees are carrying on an enterprise and satisfy the requirements of 23-5(a). Therefore, what remains to be determined is whether 23-5(b) is met.

The term 'GST turnover' has the meaning given by section 195-1 which provides that GST turnover in relation to meeting a turnover threshold has the meaning given by subsection 188-10(1) and in relation to not exceeding a turnover threshold has the meaning given by subsection 188-10(2).

Subsection 188-10(1) when read together with paragraph 188-10(3)(b), provides that you have a GST turnover that meets the registration turnover threshold if:

a)            your current GST turnover is at or above the registration turnover threshold and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold; or

b)            your projected GST turnover is at or above the registration turnover threshold.

The registration turnover threshold that applies to the Trustee is $75,000.

'Current GST turnover' is defined in subsection 188-15(1) as the sum of the values of all of your supplies made in a particular month and the preceding 11 months other than:

a)            supplies that are input taxed

b)            supplies that are not for consideration

c)            supplies that are not made in connection with an enterprise that you carry on.

'Projected GST turnover' is defined in subsection 188-20(1) as the sum of the values of all of your supplies made in a particular month and the following 11 months other than:

a)            supplies that are input taxed

b)            supplies that are not for consideration

c)            supplies that are not made in connection with an enterprise that you carry on.

Section 188-25 requires you to disregard the following when calculating your projected GST turnover:

a)            any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and

b)            any supply made, or likely to be made, by you solely as a consequence of:

                                    (i)ceasing to carry on an enterprise; or

                                   (ii)substantially and permanently reducing the size or scale of an enterprise.

This issue of GST turnover is considered in 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).

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 explains 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 to explain 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.

In this case the Trustee was appointed under the Court Order for the purpose of effecting the sale of the Property. We do not consider the Trustees' sale of the Property to be a 'transfer of ownership of a capital asset'.

Paragraph 188-25(b) provides that in determining your 'projected GST turnover' you do not include supplies made solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

Paragraphs 38 to 41 of GSTR 2001/7 discuss the meaning of the term 'solely as a consequence'. Paragraph 41 of GSTR 2001/7 states that for the purposes of section 188-25 a supply is made, or is likely to be made, 'solely as a consequence' where the supply is made only as a result of the ceasing of an enterprise or the substantial and permanent reduction in size or scale of an enterprise.

In this case, the Trustee's supply of the Property is not a result or consequence of ceasing (or substantially and permanently reducing) the size of their enterprise. As such we consider the Trustee's sale of the Property does not meet the requirements of 188-25 of the GST Act.

It follows that where the consideration from the sale of the Property, to the extent it does not relate to a supply that is input taxed, meets the GST registration turnover threshold of $75,000, the Trustees are required to be registered for GST under section 23-5 of the GST Act.

Question 4 considers whether the supply of the Property is input taxed.

Question 4

You make a taxable supply if you meet the requirements of section 9-5 of the GST Act, which states:

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.

In this case the supply of the Property by the Trustee satisfies the requirements of paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act. Further the supply of the Property is not a GST-free supply. Therefore, what remains to be determined is whether the sale of the property is input taxed.

A sale of residential premises may be input taxed under section 40-65 of the GST Act, which states:

1)            A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

2)            However, the sale is not input taxed to the extent that the *residential premises are:

a)    *commercial residential premises; or

b)    *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Goods and Services Tax Ruling GSTR 2012/5: Goods and services tax: residential premises (GSTR 2012/5) states at paragraph 6:

6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

Further paragraph 46, 47, 91 and 92 of GSTR 2012/5 discusses land supplied with a building and/or vacant land and state:

Land supplied with a building

46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

Vacant land

47. Vacant land is not capable of being occupied as a residence or for residential accommodation as it does not provide shelter and basic living facilities. Vacant land is not residential premises.

Land supplied with a building

91. The GST Act does not restrict the area of land that can be included in residential premises. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is enjoyed in conjunction with the residential building. Just because land is used privately does not mean that the land necessarily has the physical characteristics to indicate that the land is to be enjoyed in conjunction with the residential building.

Vacant land

92. Vacant land cannot be residential premises. In Vidler v. Federal Commissioner of Taxation, Sundberg, Bennett and Nicholas JJ stated that 'vacant land is not land that is capable of being occupied as a residence or for residential accommodation'. This is because vacant land, of itself, does not provide shelter and basic living facilities, and cannot, therefore, be occupied as a residence or for residential accommodation.

In this case the residential premises on the Property are not commercial residential premises. As such, the residential premises will meet the requirements of being input taxed. However, the remaining areas of the Property are not considered to meet the requirements of residential premises. Relevantly, the remaining physical characteristics of the Property are buildings or infrastructure such as sheds, fencing, cattle yards, grain storage silos and stock and domestic water wells that would not be considered to be enjoyed in conjunction with the residential building.

We therefore consider that the supply of the Property is only partly a supply of residential premises (input taxed) and the remaining part is not considered input taxed. On this basis, to the extent that the property is not an input taxed supply, the requirements for making a taxable supply will be satisfied.

Additional Information regarding apportionment

Section 9-80 provides that, where a supply is partly taxable and partly input taxed, the value of the supply is to be apportioned between the taxable and non-taxable (that is, input taxed) parts of the supply.

A supply which contains both taxable and non-taxable parts is referred to as a mixed supply.

Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) provides guidelines on how to apportion consideration that includes taxable and non-taxable parts and provides methods and examples that may be used to apportion the consideration for a mixed supply.

Paragraphs 26 and 27 of GSTR 2001/8 provide that any reasonable method can be used to apportion the consideration for a mixed supply. Furthermore, the method used must be supportable in the particular circumstances and you should keep records that explain the method used and you should keep records that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply.