Edited version of private advice

Authorisation Number: 1052313347010

Date of advice: 04 October 2024

Ruling

Subject: In-specie transfer of commercial property

Question 1

Will the in-specie transfer of a commercial property from the trustee of a superannuation fund to a member of the fund, be treated as a GST free sale of a Going Concern under section 38-325 of the GST Act?

Answer

No

Question 2

Will the in-specie transfer of the commercial property from a superannuation fund to a member of the fund, be treated as a taxable supply under section 72-5 of the GST Act?

Answer

No

This ruling applies for the following period:

The year ending 30 June 2025

The scheme commenced on:

1 July 2024

Relevant facts and circumstances

You are registered for GST.

You are carrying on an enterprise of leasing the commercial property.

You derive rent from the commercial property. This rent is treated as a taxable supply under section 9-5 of the (GST Act).

You are the trustee of a superannuation fund; The XXXX Superannuation Fund (the Fund). The Fund has a sole member, XXXX (member).

As the member has reached preservation age, the Fund is currently paying its member ongoing pension payments.

The trust deed of the Fund allows for the payments of pensions, lump sum amounts and in-specie transfers of property so long as the provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act) are met.

In the year ending 30 June 2025, the fund will make an in-specie distribution of the commercial property, to its member.

The commercial lease will still be in operation at the date of the transfer and the member intends to keep deriving rent in his personal capacity.

The member registered for GST in MM 2023 and will be registered at the date of the in-specie transfer of the commercial property.

After the in-specie transfer of the commercial property, the Fund will continue to pay its member a pension from residual amounts left in the Fund.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

A New Tax System (Goods and Services Tax) Act 1999 section 72-5

A New Tax System (Goods and Services Tax) Act 1999 section 72-25

Reasons for decision

Question 1

Under section 9-5 of the GST Act, an entity makes a taxable supply where the supply:

          (i)                is made for consideration

          (ii)                is made in the course or furtherance of an enterprise being carried on

          (iii)                is connected with the indirect tax zone, and

          (iv)                is made by a supplier who is 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.

Section 38-325 of the GST Act states that a supply of a going concern will be GST-free if:

(a)           the supply is for consideration and

(b)           the recipient is registered or required to be registered for GST, and

(c)           the supplier and the recipient have agreed in writing that the supply is of a going concern.

For a supply to be a taxable supply under section 9-5 or a GST-free sale of a going concern under section 38-325, there is a common requirement for the supply to be made for consideration.

Consideration is defined within section 9-15 of the GST Act. It can include:

(a)           any payment, or any act or forbearance, in connection with a supply of anything, and

(b)           any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

When the member receives the in-specie transfer from the fund, there is no payment made to the fund. Rather, the in-specie transfer of the commercial property is a distribution allowed under the trust deed of the Fund in paying its member a pension benefit.

The in-specie transfer of the commercial property also does not involve any act of forbearance by the member. At the discretion of the trustee, the member may be paid, in accordance with the trust deed and the provisions of the SIS Act, a pension, lump sum payments or in-specie transfers of property. There is no legal right of the member being foregone in exchange for the in-specie transfer being made.

ATO Interpretive Decision ATO ID 2001/505 relates to a situation where a discretionary trust has made an in-specie transfer of property to a beneficiary of the trust. Regarding whether there is consideration given when a trust makes a distribution, it states:

In the case of a discretionary trust, a beneficiary does not have a vested interest in either the income or the assets of the trust. The beneficiary merely has their right to demand that the trustee administers the trust according to the trust deed. As such, when the trustee makes a distribution, the beneficiary has no rights to surrender and gives no consideration.

The facts of the Fund making the in-specie transfer to its member are analogous with ATO ID 2001/505. The member gives no consideration as the transfer is made at the discretion of the trustee of the Fund in accordance with the trust deed and provisions of the SIS Act. There is no forbearance or inducement required for the trustee to exercise the discretion.

Thus, as the supply of the in-specie transfer of the commercial property has not been made for consideration, it cannot be a taxable supply under section 9-5 of the GST Act or a GST free sale of a going concern under section 38-325 of the GST Act.

Question 2

Division 72 of the GST Act ensures that a supplies to, or an acquisitions from, an associate without consideration are brought within the GST system, and that supplies to your associates for inadequate consideration are properly valued for GST purposes.

Section 72-5 of the GST Act states that the fact that a supply to an associate is without consideration, does not stop the supply from being a taxable supply if:

(a)           your associate is not registered or required to be registered, or

(b)           your associate acquires the thing supplied otherwise than solely for a creditable purpose.

Section 72-5 has effect despite paragraph 9-5(a) of the GST Act which would otherwise require a taxable supply to be made for consideration.

However, section 72-5 of the GST Act will not apply to the in-specie transfer of the commercial property from the Fund to its member as:

(a)           the associate of the Fund to whom the supply is made, the member, is registered for GST, and;

(b)           the associate acquires the commercial property solely for a creditable purpose, as there is intent to continue deriving commercial rent, a taxable supply, from the commercial property.

Section 72-25 of the GST Act states that that the fact a supply to or from your associate is without consideration does not stop the supply from being any of the following for the purposes of the GST law:

•                     a GST-free supply

•                     an input taxed supply

•                     a financial supply

However, the applicability of section 72-25 is limited to where there has been a supply without consideration deemed to be a taxable supply under Division 72 and section 72-25 ensures the characteristics of the supplies does not change under Division 72.

As there has been no taxable supply under section 72-5, there is no need for section 72-25 to maintain a GST-free, input taxed or financial supply characteristic of the supply.