Edited version of private advice

Authorisation Number: 1052311522824

Date of advice: 27 September 2024

Ruling

Subject: GST - residential premises

Question 1

Is the supply of a residential premises by you to a special disability trust an input taxed supply pursuant to section 40-70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The supply will be a taxable supply.

Question 2

Are there any GST concessions when transferring assets to a special disability trust which has been set up for a disabled child?

Answer

No.

This ruling applies for the following period:

ddmmyyyy to ddmmyyyy

The scheme commenced on:

ddmmyyyy

Relevant facts and circumstances

Entity 1 (you) is a related party to Entity 2.

Entity 2 was set up to generate rental income to assist with Beneficiary medical expenses.

You built an apartment on land and had claimed input tax credit. The apartment was completed a few months ago and had sold most of the residential units in the building.

The unit that the supplier is supplying was completed a few months ago, thus a brand-new unit (new residential premises).

You are registered for GST.

You wish to transfer property ('Property') to Entity 2.

The Property was never lived in nor previously sold.

The Property will be leased out upon the transfer of the Property to Entity 2.

The current valuation of the Property is $XXX.

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 40-70

A New tax System (Goods and Services Tax) Act 1999 section 40-75(1)(a)

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

Income Tax Assessment Act 1936 section 318

Income Tax Assessment Act 1997 section 995-1

Does IVA apply to this private ruling?

No.

Reasons for decision

Taxable supply

Pursuant to section 9-5 of the GST Act, 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. However, the supply is not a taxable supply to the extent that it is GST free or input taxed.

One condition that must be met for a supply to be taxable is that the supply is made for consideration. In your case, you intend to transfer the Property to the Entity 2 without consideration.

Although a supply is not made for consideration, a supply made by a 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. Therefore, it needs to be determined whether the beneficiary of Entity 2 is your associate.

Supply without consideration to an associate

The term 'associate' is defined under subsection 195-1 of the GST Act. Per subsection 195-1 of the GST Act, the term takes it meaning from section 318 of the Income Tax Assessment Act 1936 (ITAA). This section of the ITAA provides a list of what the legislation considers to be associates of a trust:

(a)          an entity that benefits under the trust,

(b)          if a natural person benefits under the trust - any entity that, if the natural person were the primary entity, would be an associate of that natural person because of sub-section (1) or because of this sub-section.

Section 318(3)(a) of the ITAA states that an associate of a trust is any entity that benefits under the trust. In this instance, XXX is a beneficiary for Entity 1. As XXX is a natural person, we need to determine if there are any entities associated with XXX subject to section 318(3)(b). Section 318(1) of the ITAA provides a list of what the legislation considers to be associates of natural persons. XXX is the beneficiary of Entity 2. XXX is associated with XXX as they are their child (section 318(1)(a) of the ITAA). Therefore, the two trusts are associates for the purposes of section 318 of the ITAA.

However, pursuant to section 72-5(1)(b) of the GST Act, the fact that a supply to your associate (recipient) is without consideration, does not stop the supply being a taxable supply if your associate acquires the thing supplied otherwise than solely for a creditable purpose. Creditable purpose is defined under section 11-5(1) of the GST Act, you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, section 11-5(2) provides that you do not acquire the thing for a creditable purpose to the extent that the acquisition related to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

Based on the submitted information, the Property that will be supplied to the Entity 2 is a new residential premises. Entity 2 will lease the Property to generate income once the transfer of the Property is completed. It is reasonable to assume that the acquisition of the Property by your associate, Entity 2, is not for a creditable purpose as the supply of residential premises by way of lease will be input taxed. As a result, the supply of the Property from you to the Entity 2 is a taxable supply.

Section 72-10 of the GST Act states that the value of your supply is the GST exclusive market value. Section 195-1 of the of the GST Act provides that GST exclusive market value in relation to a supply or acquisition other than a luxury car is 10/11 of the GST inclusive market value of the supply or acquisition. GST inclusive market value of consideration in connection with a supply or a thing or a supply or acquisition of a thing means the market value of the consideration or thing, without any discount for any amount of GST or luxury car tax payable on the supply. Based on the independent valuation provided, the market value for the Property is $XXX inclusive of GST. The GST payable would be $XXX.

There are no provisions under Division 38 of the GST Act that is applicable with respect to the transfer of assets to a special disability trust which has been set up for a disabled child.