In December 2011 the ATO published more than 50 private rulings dealing with GST.

Some of the more interesting rulings are discussed below, dealing with bare trusts and refunds.

GST and charitable property trusts – Ruling no 1011991811094

• this private ruling request was made by a State Trustee (being an unincorporated association that acts as the State arm of the organisation) -the functions of the State Trustee included providing trustee services to local branches in regard to real property.  In such circumstances, charitable property trusts were established for the benefit of local branches whereby the State Trustee, or a specific purpose corporate trustee, acts as trustee
• the facts relevant to the arrangements can be stated as follows:

1. the State Trustee enters into contracts to acquire real property as trustee to hold the property for the public charitable purposes of the local branch
2. the terms of the trust usually oblige the State Trustee to act on the direction of the local branch (the controller)
3. the State Trustee is normally passive in the trust arrangement with the costs and management of the real property being met and carried out by the local branch

• the issue sought to be addressed in the ruling was whether the relevant entity for the purposes of GST was the State Trustee or the beneficiaries (with the State Trustee acting as bare trustee).  In finding that the State Trustee was not acting as a bare trustee, the ATO accepted that the terms of the trust deed required the State Trustee to deal with the property in accordance with the instructions of the local branch, the trust deed conferred considerable powers on the State Trustee to act independently of the local branch and, in certain circumstances, was required to act in accordance with the direction of the State Executive.
• In taking this view, the ATO relied on GSTR 2008/3 dealing with bare trusts,and referred to the following paragraphs:

• Without having an opportunity to review the terms of the trust deed, but having regard to the terms of the trust deed outlined in the private ruling, I have some concerns with the ATO view.
• The judicial approach to “bare trust” focuses on the absence of any duties of management on the trustee and the ability of the beneficiary to compel the trustee to transfer the trust estate to them: see Christie v Ovington (1975) 1 Ch D 279 at 281; Morgan v Swansea Urban Sanitary Authority (1878) 9 Ch D 582 at 585; Schalit v Nadler [1933] 2 KB 79; Herdegen v FCT (1988) 84 ALR 271 at 282. The “powers” of the State Trustee relied on by the ATO (which include powers to sell, lease and mortgage the property) could arguably be seen to be administrative mechanisms whereby the directions of the local branch can be given effect to, rather than facilitating the lawful independent action of the State Trustee.
• While it is true that, taken literally, some of the powers relied on by the ATO may give the State Trustee the “power”, or the capacity, to act independently of the local branch (for example in selling the property) – one must always consider whether such a power would be a lawful act of the trustee.  As noted at paragraph 12 of GSTR 2008/3, “the key point is that the trustee only acts at the direction of the beneficiary in respect of the relevant dealings win the trust property and has no independent role in respect of the trust property” – in this ruling application, one may have cause to question whether the State Trustee did have the lawful capacity to undertake an independent role in respect of the trust property.

• the issues in this private ruling application were whether the supply of online content by an overseas company (OSCo) to Australian consumers was subject to GST free, and if not, whether the ATO would pay the GST refund to OSCo in light of s 105-65 of Schedule 1 to the TAA – the private ruling found that the services were not subject to GST, but that no refund would be paid because the discretion in s 105-65
• in support of the refund application, given that the Australian consumers were not registered for GST and the consumers had not been reimbursed for the overpaid GST, the matters relied on included:

1. the RRP for the price was the same, regardless of whether the customers were located in territories that imposed GST/VAT;
2. the GST/VAT was not factored into the RRP
3. OSCo sets its RRP and then recognises its revenue after any applicable GST or VAT was deducted
4. the consumer pays the RRP, whether or not GST applies to the transaction, and does not bear the cost of the GST
5. giving a refund to costumers would be a windfall gain to an ‘undeserving consumer’ as referred to by the Tribunal in Luxottica Retail Australia Pty Ltd v Commissioner of Taxation [2010] AATA 22

• In finding that the refund should not be paid, the first point to note is that the ATO characterised the discretion in s 105-65 as effectively relieving the Commissioner from any obligation to refund the overpaid GST, but nevertheless  giving the Commissioner a residual discretion to pay the refund.  That approach appears to be contrary with the recently stated view of the President of the Tribunal (sitting with Senior Member O’Loughlin), that the discretion  is to “not pay” the refund: see MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd and Commissioner of Taxation [2011] AATA 769 at [65] and National Jet Systems Pty Ltd and Commissioner of Taxation [2010] AATA 766 at [79].
• The second point to note is that the private ruling gives an insight into the limited circumstances in which the ATO will allow refunds to be paid, where the transactions involve consumers who are not registered for GST – in this regard, the presumption is that the cost of GST is a foreseeable cost that is passed on as part of the cost recovery and pricing structure of the supplier and it would appear that only in very limited circumstances will a supplier be able to satisfy the Commissioner that the overpaid GST has not been passed on.

LIST OF RULINGS

Taxable supply

• GST and out of court settlements – settlement of claim by third party against sale of property between vendor and purchaser – whether GST payable on settlement sum paid to purchaser of property by third party claimant
• Application of GST to subsidy payments, reimbursements and administration fees – GST treatment of payments between Entity A (a State government agency) and Entity B (a Commonwealth government agency) for the delivery of subsidies to eligible applicants under Commonwealth scheme
• GST and charitable property trusts – whether State Trustee liable for GST re transactions in relation to transactions in relation to the trust property where acting for the benefit of local branches – whether acting as bare trustee
• GST and warranty repair services – whether payments from non-resident manufacturer to Australian distributor for warranty repair services carried out in Australia under warranty given by non-resident manufacturer subject to GST
• GST and reimbursement of expenses – whether GST payable on reimbursement received by A from B for expenses incurred by A as agent for B
• GST and software support services – whether the supply of software support services to Australian customers on behalf of overseas company subject to GST
• GST and a share of profits – whether profit share paid to entity subject to GST

Creditable acquisitions

• GST and apportionment – whether revised apportionment methodology fair and reasonable for claiming input tax credits under s 11 of the GST Act – revised methodology based on staff activity reports and sectored revenue method
• GST and entitlement to input tax credits on the sale of property – whether entity entitled to claim credits in relation to the acquisition of property partially vacant land and partially subject to residential lease where intention to develop property for sale
• GST and entitlement to input tax credits – whether entity making creditable acquisitions in respect of purchases made as part of open option customer loyalty program – whether recipient of a supply
• GST and entitlement to input tax credits – Rebate Water Conservation Scheme – whether entity makes a creditable acquisition by providing rebates under water conservation scheme

Consideration

• GST and fees for breach of standpipe hire conditions – whether fees received by Statutory State owned corporation within Division 81 or consideration for a supply – whether fees consideration for a GST-free supply of water or for separate supply of administrative services
• GST status of national park fees – whether fees consideration for a supply or exempt under Division 81
• GST and contributions for loan instalments or repayments of a borrowing – whether payment of loan instalments or repayments consideration for taxable supply

GST free supplies

• Are you making a GST-free supply of X implants (a drug or medicinal preparation) – whether supply of experimental drug to medical practitioners GST free under s 38-50 of the GST Act – whether GST-free as supply to individual for private or domestic use or consumption
• GST and supply of a defibrillator as a medical aid and appliance – whether supply of defibrillator GST under s 38-45 of the GST Act
• GST and supply of a medical aid or appliance – whether supply of ‘specific purpose products’ designed for rehabilitation and care of patients GST-free under s 38-45(1) of the GST Act – whether an ‘accessory’ to specified machine in table in Schedule 3 to the GST Regulations
• GST and supply of a GST-free going concern – whether purchase of business without the premises a going concern – whether entitled to input tax credits – whether the premises one of the things necessary for the continued operation of the Business
• GST and food product – whether supply of a bread product GST free under s 38-2 of the GST Act
• GST and food – whether supply of food flavouring and sweetening agent GST free as ingredient for food or taxable
• GST and supply of overseas accommodation – whether GST payable on supply of overseas accommodation and booking services to overseas entities

Real Property

• GST and the sale of properties – whether the sale of farming properties by unregistered owners subject to GST
• GST and the sale of interests in co-owned commercial property – whether sale of interests of three co-owners to fourth co-owner subject to GST
• GST and sale of property – whether sale of commercial property by unregistered vendor subject to GST
• GST and sale of residential premises – whether sale of property subject to residential lease GST free as a going concern
• GST and sale of residential property – whether sale of vacant land by unregistered owner subject to GST – whether carrying on enterprise – annual turnover
• GST and one-off lump sum body corporate levy payment by developer – whether supplies made in return for one-off lump sum body corporate levy payments by developer to individual lot owners subject to GST – whether individual lot owners make supplies in return for the payments
• GST and sale of vacant land – whether GST payable on sale of vacant land – whether carrying on enterprise
• GST and forfeited deposits – whether entity entitled to refund of GST paid on the receipt of a forfeited deposit – implications of decision in Qantas Airways

GST refunds

• GST – supplies of online content and GST refund – whether supply of online content GST-free- whether Commissioner should exercise discretion in s 105-65 of Schedule 1 to the TAA and pay GST refund
• GST and refund of overpayment – whether Commissioner will exercise discretion in s 105-65 of Schedule 1 to TAA and pay refund of overpayment prior to A reimbursing the overpayment to B – where B did not claim input tax credits
• GST and refund of incorrectly overpaid GST – whether the Commissioner will refund overpaid GST due to miscalculation on gambling supplies

Incapacitated entities

• GST and entitlement to Reduced Input Tax Credits (RITC) by Incapacitated Entities – whether debt collection services acquired during receivership constituted a reduced credit acquisition (RCA) – whether arranging services acquired during receivership constituted a RCA
• GST and sale of property by mortgagee in possession – whether mortgagee in possession subject to GST on sale of property which was the principal place of residence of unregistered mortgagor

Enterprise

• Date of effect of GST registration – whether date of registration to be the date specified in application or earlier date which required to be registered for GST
• GST and enterprise – whether unit trust carrying on an enterprise and required to be registered – whether ‘passive conduit vehicle’ to hold shares for third party and to ‘pass through’ loans

Other

• GST and accounting methods – whether can account for GST on a cash basis with effect from a certain date
• GST and importation of coinage – whether importation of silver coins subject to GST
• GST and importation of precious metal – whether GST payable on importation of precious metals
• GST and Recipient created tax invoice – whether entity can issue RCTI in respect of the taxable supplies of reconditioned equipments
• GST and loyalty program awards – whether there are any GST implications for sole trader when receiving or redeeming reward points under credit card reward scheme
• GST and ceasing to account on a cash basis – whether entity can change method of accounting for GST from cash to non-cash effective 1 July 2011
• GST and security deposits – whether deposit received from customer a security deposit for GST purposes