In July 2012 the ATO published on its Register over 70 private rulings dealing with GST.

Two rulings stood out as justifying some discussion, one dealing with bare trusts and the other with refunds of GST and the Commissioner’s discretion in s 105-65 of the TAA.

Ruling No 1012169974256 – bare trusts

An interesting ruling dealt with the issue of bare trusts in the context of real property.  The views of the ATO on bare trusts are found in GSTR 2008/3 and Ruling No. 1012169974256 provides a helpful application of those views.

The facts outlined in the ruling were as follows:

• a SMSF owned residential land which was leased plus listed securities.  The SMSF voluntarily registered for GST
• the trustees of the SMSF determined to acquire commercial property for rental, but the rental would be less than $75,000 per year
• prior to the acquisition, a separate trust would be created to hold legal ownership of the commercial property on behalf of the SMSF as sole beneficiary until such time as the SMSF had repaid the loan used to acquire the property.  Once the loan was paid off, the property would be transferred to the SMSF
• the SMSF would conduct all the transactions relating to the property, including the borrowing and the leasing, plus pay all the rates and outgoings on the property.

In the ruling, the applicant asked the following questions:

• is it the trust or the beneficiary that is carrying on the enterprise
• when the trust purchases commercial property which is subject to a lease, should the trust or the beneficiary be registered in order to satisfy the ‘going concern’ exemption
• when legal ownership transfers from the trust to the beneficiary, is it a taxable supply

The ruling answers the questions as follows:

• the beneficiary is carrying on the enterprise and can voluntary register for GST
• the beneficiary should be registered in order to satisfy the going concern exemption
• the transfer from the trustee to the beneficiary is not a taxable supply

The basis for the view is that the trustee is a bare trust and it effectively ignored for GST purposes.

Ruling No.1012171312428 – refunds of GST

A consistent area of controversy is the Commissioner’s application of the discretion in s 105-65 in Schedule 1 to the TAA as to whether or not to pay GST refunds.  In Ruling No.1012171312428 the determination of the Commissioner not to exercise the discretion where a charity overpaid GST illustrates the arguably harsh impact of this provision, and also the difficulties faced by taxpayers in recovering refunds of GST.

The applicant was a Public Benevolent Institution which sold tickets to the public for certain events.  Until 2011 the applicant charged GST on the tickets but then was advised that the tickets were GST-free under s 38-250 of the GST Act as the ticket price was less than 75% of the cost to the supplier.

The Commissioner refused to exercise the discretion to refund the GST because the applicant had not demonstrated that it had borne the cost of the GST in relation to the supplies made, rather the GST had been “passed on” to the customers (who were not registered or required to be registered).  The Ruling provides an insight into the way the Commissioner appears to be applying the discretion, and the following points were made in the context of the application:

• the underlying premise of the GST is that GST is payable by suppliers but is ultimately borne by consumers.  Therefore in normal circumstances the GST is passed on to the end consumer such that the supplier who remits the tax is not bearing the cost of the tax
• at the time of making the supplies, the applicant was not aware of the GST-free concession and GST was understood to be a cost to the applicant.  Also, simply because some tickets have been sold at less than cost, it does not necessarily follow that the price that was charged did not include GST
• the ATO does not accept that pricing to a market price (or using other pricing mechanisms such as fixed prices, price points etc) means that the supplier has necessarily borne the cost of the GST at the time of pricing or thereafter
• there is a presumption that the cost of any GST liability is a foreseeable cost that will be passed on as part of the cost recovery and pricing structure of the supplier.
• while for ‘not for profit’ entities there may not be a general presumption that entities set prices to recover costs, each case must be assessed on its merits and it is appropriate to approach the question with reference to the supplier’s conduct in setting prices based on its knowledge and belief at the time that GST was a cost (even if it is later determined that GST was not payable)
• the applicant increased its prices each year in line with increasing running costs and the ATO considered that the applicant’s aim was to meet its costs as far as possible
• while the terms of the sale were that the price was GST inclusive, it is reasonable to conclude that the customers would form the opinion that the amount they paid included GST
• the ATO considered that there was a GST component in the price advertised to customers and the cost of the GST had been passed on to customers.

The above analysis illustrates the difficulties faced by taxpayers in showing that they have not “passed on” the GST to customers.  Even, as in this case, the supplier is selling the tickets at a loss.

LIST OF RULINGS

Taxable Supply

• GST and Energy Efficient Certificates – whether the GST liability for the supply of devices to households is equal to 1/11th of the GST-inclusive market value of the consideration received, being the right to create a specified number of Energy Efficient certificates
• GST payable on the supply of solar systems – whether the GST liability for the supply of solar systems equals 1/11th of the price charged for the system, constituted by the monetary component and the non-monetary component (being the GST-inclusive market value of the rights to create a specified number of renewable energy certificates (RECs)
• GST and membership fees – whether fees payable by members for use of club sporting facilities exempt from GST or taxable
• GST and the supply of Pool safety certificates in Queensland – whether the supply of pool safety certificates a taxable supply
• GST and retirement village and aged care – whether project management services taxable, whether supply of general services and personal services GST-free or taxable, wether supply of accommodation input taxed, whether entitled to recover input tax credits on acquisitions
• GST and supplies of property – whether the sale of property is a taxable supply under Division 105 or Division 9 of the GST Act
• GST and medical report provided to insurer – whether GST payable on fees charged by orthopaedic surgeon to insurer for providing medical opinions
• GST and overseas loyalty program transactions – whether GST payable on supplies made by Australian entity under an overseas loyalty program whereby goods are provided to Australian members at Australian addresses
• GST and supply of rights – whether payments received by a not for profit organisation in respect of assistance to people with medical bills and travel and accommodation is consideration for a taxable supply
• GST and supply of overseas accommodation – whether GST payable on the supply by online booking agency of overseas accommodation to customers
• GST and insolvency issues – whether GST payable on payments to be received in discharge of receiver’s indemnity, whether the assignment by receivers of indemnity an input taxed financial supply
• GST and retransfer scheme – whether an entity makes a supply when assets, employee instrument and liabilities are transferred to the individual council’s businesses pursuant to retransfer notice
• GST and agency – whether has GST liability where charge and collect amounts through e-lodgment platform which relate to fees due and payable by subscribers to State authorities

Input taxed supplies

• GST and assignment of rental income – whether fees paid by a trust to a not for profit entity established to encourage large-scale investment in affordable housing will be input taxed pursuant to s 40-5 of the GST Act and sub regulation 40-5.09(3) of the GST Regulations
• GST and sale of retirement village – whether sale of retirement village an input taxed supply under s 40-65 of the GST Act where all the ILUs in the Village have been held for greater than 5 years from the first occupancy, whether a taxable supply where the ILUs have been held for less than 5 years

Creditable acquisitions

• GST and sale of rent roll – whether purchase of rent-roll enterprise a creditable acquisition or the sale of a going concern
• GST and input tax credits – whether non-resident applicant entitled to input tax credits for the acquisition of rights to access an international IP network from an Australian supplier
• GST and acquisition of business assets – whether entitled to input tax credits on purchase of business assets, whether a going concern
• GST and settlement payments – whether receivers entitled to claim an input tax credit for the acquisition of retention of title goods pursuant to para 58-10(1)(b) of the GST Act, whether receivers have an increasing adjustment in respect of the earlier supply of the ROI goods to the liquidated entity
• GST and renewable energy certificates (RECs) – wether making a creditable acquisition when you pay the installer an amount on behalf of the home owner who assigns to you the right to create RECs
• GST and entitlements to input tax credits (Individual Support Packages) – whether government entity making creditable acquisitions under arrangements to provide individually attached funding to people with a disability

GST-free supplies

• GST and education course – whether supply of course to students enrolled with a specified Registered Training Organisation GST-free – whether travel costs of trainer consideration for GST-free supply of education course
• GST and health services – whether supply of health services to employees of private organisation taxable – whether supply of health services to patients of rehabilitation service taxable
• GST and export of goods – whether sale of machines bought at online auction by non-resident GST-free as export
• GST classification of a food item – whether supply of frozen film product that has a desert filling is GST free
• GST-free medical aids and appliances – whether the supply of a product that turns a particular appliance off is GST-free as the supply of a medical aid or appliance
• GST and the sale of business as a going concern – whether sale of retailing business the supply of a going concern
• GST and nominal supplies – whether supply of workshops by charitable institution GST-free under s 38-250 of the GST Act
• GST and fruit products – whether supply of fruit products is GST-free

Real Property

• GST and the supply of residential premises – whether the supply of property with a residence with development approval a taxable supply
• GST and sale of farmland – whether the sale of X Station by receivers and managers GST-free under s 38-480 of the gST Act
• GST and supplies of accommodation and management services – whether the applicant makes taxable supplies of commercial residential premises – whether supplies of management services to Owners constitutes taxable supplies
• GST and carrying on an enterprise – whether applicant carrying on an enterprise where subdivided land
• GST and the sale of farm land – whether the sale of farm land is GST-free, whether partnership can cancel GST registration prior to settlement
• GST and enterprise – whether trustee or beneficiary carrying on enterprise, whether bare trust, whether transfer from trustee to beneficiary a taxable supply
• GST and sale of vacant land together with assignment of development consent – whether sale of interest in vacant land with development consent a taxable supply, whether carrying on an enterprise
• GST and supply of real property – whether required to be registered for sale of property comprising separate lots and existing building as a single contract, whether required to be registered if sell as separate lots.
• GST and acquisition of a going concern – whether acquisition of residential unit used in a leased enterprise in a resort is an acquisition of a going concern
• GST and sale of a property – whether the sale of commercial property by superannuation fund which was previously leased but now vacant is a taxable supply or a going concern
• GST and acquisition of property – whether entitled to input tax credits for purchase of vacant property used for commercial purposes
• GST and a taxable supply of property – whether the purchase of vacant land zoned medium density housing is a creditable acquisition
• GST and sale of a property – whether sale of commercial property which is vacant but is being advertised for lease is taxable or a going concern
• GST and the development and supply of real property – whether supplies of vacant subdivided lots taxable supplies, whether making creditable acquisitions for those made under Development Agreement with a developer
• GST and a supply of a going concern – whether applicant supplying a going concern to non-resident company in relation to the sale of commercial property in Australia, whether parties agreed in writing that the supply was of a going concern
• GST and the development of vacant land – whether supplies by developer to owner of land under Development Agreement are taxable supplies, whether acquisitions made in performing project activities creditable acquisitions
• GST and supply of a going concern – whether a sale of going concern where sale of business and sale of property occur simultaneously
• GST and sale of vacant land together with assignment of development consent – whether applicant carrying on an enterprise where selling vacant land after proposed joint venture with neighbour to develop land into units failed, whether mere realisation of a capital asset, whether development enterprise actually commenced
• GST and building program – whether charitable institution entitled to input tax credits for costs of selling church asset, whether entitled to input tax credits for costs of constructing residential premises (one for sale and one of accommodation of minister), whether can apply margin scheme
• GST and supply of going concern – whether the sale of land subject to a lease a going concern
• GST and acquisition of real property – whether entitled to input tax credit for purchase of real property, whether a going concern, whether vendor has commenced carrying on enterprise of property development
• GST and the supply of real property – whether the supply of real property with development application in place a taxable supply, whether making mixed supply where part of the land contains a residence
• GST and the sale of residential property – whether the sale of a share in deceased’s residential property by executors will be subject to GST
• GST and going concern – whether the sale y property from A to B subject to existing lease the supply of a going concern
• GST and supply of a call option – whether supplier of an interest in call option to acquire commercial property required to register for GST
• GST and sale of property – whether making a taxable supply when selling land with leased residential premises
• GST and commercial residential premises – whether supply of residential premises for short-term stays the supply of commercial residential premises
• GST and decreasing adjustment – whether entitled to a decreasing adjustment in respect of additional consideration required to be pay under gross-up clause in accordance with s 133(5)(1) of the GST Act

Tax law partnerships/Joint ventures

• GST and tax law partnership – whether parties in a joint venture should be registered as joint venture or as a tax law partnership – where a tax law partnership exists, whether each individual in the partnership can be registered in their own right
• GST and supplies and acquisitions – whether the supply of X% interest in Property by A to B satisfies the requirements of subdivision 38-J of the GST Act – whether granting of Option by A to B to purchase interest GST-free under paragraph 9-30(1)(b) of the GST Act – whether supply of Management services by a a taxable supply
• GST and supply of a going concern – whether supply of a participating interest in a Joint Operating Agreement the supply of a going concern

Refunds of GST

• Entitlement to refund of overpaid GST – whether the Commissioner will refund GST paid in relation to supply of tickets by Public Benevolent Institution where tickets GST-free under s 28-250 as less than 75% of the consideration paid, whether GST passed on to consumers
• GST and amending activity statements – whether entitled to amend activity statements for a period so as to obtain a refund of reported GST
• Entitlement to refunds of GST – whether Commissioner will exercise discretion to refund GST, whether GST absorbed by supplier, whether Commissioner will accept apportionment methodology for establishing whether supplies GST-free or taxable going forward

Other

• GST and non-profit sub-entities – whether can treat branches as non-profit sub-entities pursuant to Division 63 of the GST Act if register for GST
• GST and tax, fees and charges – whether fee charged by government agency for a report taxable, out of scope or a mixed supply
• GST and enterprise – whether applicant’s activities constitute an enterprise
• GST and registration – whether professional writer required to register
• GST and Australian government fees and charges – whether charges by a State government agency excluded from GST by Division 81 of the GST Act
• GST and status of your proposed consolidated licence fee – whether fees charged by Commonwealth body not consideration for a taxable supply pursuant to Division 81 of the GST Act