Edited version of private advice

Authorisation Number: 1052367123457

Date of advice: 27 February 2025

Ruling

Subject: In-specie transfer of commercial property

Question 1

Is the in-specie transfer of commercial property to a beneficiary member as a death benefit payment a taxable supply and subject to GST?

Answer 1

Yes.

Question 2

If GST is applicable, is the GST amount equal to 1/11 of the deemed consideration or 10% of the deemed consideration?

Answer 2

The fund will be liable for 10% of the value of the commercial property supplied.

The scheme commences on:

The date is issue of this notice of private ruling.

Relevant facts and circumstances

The deceased was a member of the Fund until their death.

At the date of their death, the trustees held a valid binding death benefit nomination, nominating their Legal Personal Representative, Person 1.

The decision was made to partially pay the death benefits to Person 1 by way of an in-specie transfer of one of the commercial properties owned by the fund.

The fund is registered for GST, pays GST Instalments quarterly and lodges a GST Return on an annual basis.

The property title was transferred. The market valuation obtained for the purposes of the transfer nominated a value of $XXX.

The recipient is not registered for GST and the property was vacant at the time of transfer.

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 9-70

A New Tax System (Goods and Services Tax) Act 1999 Division 72

Reasons for decision

Section 9-5 provides that 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 to the indirect tax zone (Australia); and

(d)           you are registered or required to be registered for GST.

However, the supply will not be a taxable supply to the extent the supply is GST-free or input taxed.

Goods and Services Tax Determination GSTD 2009/1 Goods and services tax: is a supply by way of an in specie distribution of an asset that is applied in an enterprise carried on by a discretionary trust to a beneficiary of the trust made 'in the course or furtherance of' the trust's enterprise? (GSTD 2009/1) is relevant to your issue.

4.             An issue that arises is whether the in specie distribution of the asset is a 'taxable supply' within the meaning of section 9-5. One of the requirements for a supply to be a taxable supply is that 'the supply is made in the course or furtherance of an enterprise that you carry on'.

[...]

9.             The application of an asset in an enterprise establishes the necessary connection between the supply of the asset and the relevant enterprise. The fact that the supply in question was made by way of an in specie distribution rather than by sale does not alter the analysis. Entities can dispose of assets in a number of ways. The method of itself is not relevant to whether the supply is in the course or furtherance of the enterprise.

10.          It is not relevant to consider the use or intended use of the asset by the recipient of the supply or any other party who later receives it (although this will of course affect whether those entities are entitled to an input tax credit for their acquisition of the asset). That a supply is made for the private purposes of the recipient cannot affect whether the supply is made in the course or furtherance of the supplier's enterprise. The burden of GST would never fall on anyone if the fact that a supply was made for the private purposes of the recipient prevented the supply from being made in the course or furtherance of the supplier's enterprise. Such an outcome would be contrary to the purpose of the GST system to impose a tax on final private consumption.

11.          Also, the GST Act does not require that the asset must be applied primarily or principally in carrying on the enterprise for the supply of the asset to be in the course or furtherance of an enterprise. Accordingly, a connection between the supply of the asset and the enterprise carried on by an entity exists even if, at the time of the supply, the asset is applied in carrying on the enterprise to a minor or secondary extent.

12.          However, a supply that has no discernible relationship and hence no connection, with an entity's enterprise cannot be a taxable supply even if the asset is applied by the entity in carrying on an enterprise. The Commissioner considers that it will be an exceptional circumstance for a supply of an asset that is applied in the supplier's enterprise not to have a connection with the enterprise. One example of this circumstance has been identified and is discussed at paragraph 42 of Goods and Services Tax Ruling GSTR 2003/6 Goods and services tax: transfers of enterprise assets as a result of property distributions under the Family Law Act 1975 or in similar circumstances. In most circumstances, however, the application of an asset in an enterprise will establish the necessary connection between the supply of the asset and the relevant enterprise.

13.          Therefore, except in those limited circumstances, a supply by way of an in specie distribution of an asset that is applied in the enterprise carried on by the discretionary trust is a supply made in the course or furtherance of that enterprise.

A self-managed super fund is a form of trust. As such, GSTD 2009/1 provides the Commissioner's view in relation to in specie transfers of assets to a beneficiary.

As the distribution is made in the course or furtherance of the fund's enterprise, we need to consider Division 72 and supplies to associates.

72-5 Taxable supplies without consideration

(1)           The fact that a supply to your associate is without consideration, does not stop the supply being a taxable supply if:

a.            your associate is not registered or required to be registered; or

b.            you associate acquires the thing supplied otherwise than solely for a creditable purpose.

The recipient is an associate of the fund because Person 1 is a beneficiary. Given Person 1 is not registered for GST, s72-5(a) applies to make the supply of the property taxable.

Section 72-10 states that if a supply to your associate without consideration is a taxable supply, its value is the GST exclusive market value of the supply.

The market value of the property transferred by the fund was $XXX,XXX.

Section 9-70 states that the amount of GST on a taxable supply is 10% of the value of the taxable supply.