The ATO has released two rulings which provide guidance on the GST implications of certain property transactions made through trust.
Taxation Ruling GSTR 2008/3 provides guidance in relation to the GST implications for the trustee and beneficiary in a bare trust arrangement. The ruling provides that where a property is held on bare trust and is later sold or leased to a third party, it is the entity carrying on the enterprise that makes the taxable supply and is thus subject to GST. Hence, where the trustee acquires a property that is held for a beneficiary that is carrying on an enterprise, there will be GST implications for the beneficiary rather than the trustee upon the acquisition, sale or lease of the property. The Ruling provides numerous examples, of which have been summarised in Appendix A below.
The ruling only applies to bare trusts or similar trusts where the trustee has limited active duties and acts solely at the direction of the beneficiary or beneficiaries. Hence, at the time of setting up a trust, it is important to carefully decide on an appropriate trust arrangement with regard to the possible GST implications that could arise.
Draft Determination GSTD 2008/D2 discusses whether an in specie distribution (i.e. supply of trust property other than money) of an asset by a discretionary trust to a beneficiary would be a taxable supply in accordance with section 9-5 of the GST Act. The draft determination states that an in-specie distribution of an asset that is applied or intended to be applied in an enterprise carried on by a discretionary trust to a beneficiary is made in the course of furtherance of the trust's enterprise and is thus a taxable supply. The draft determination adopts a broad meaning of the phrase 'in the course or furtherance of' to ensure it encompasses supplies made in connection with the enterprise. Hence, when considering making an in-specie distribution of an asset from a discretionary trust to a beneficiary, due consideration should be given to the GST consequences that will arise.
Appendix A – GST Implications for Bare Trusts
| Scenario | GST implications for Trustee of Bare Trust | GST implications for Beneficiaries of Bare Trust |
| Acquisition of land B acquires land from a third party in the course of its enterprise by causing T to obtain legal title to the land on behalf of B |
No implications | Makes a creditable acquisition |
| Leasing of property to third parties B decides to lease the property to a third party. T executes the lease agreements as the legal owner at the direction of B | No implications | If the property is commercial premises –
make a taxable supply If the property is residential premises – makes an input taxed supply |
| Sale to third parties B makes a sale of property to a third party. T executes the transfer documents that transfer title to the premises to third party buyers |
No implications | If the property is commercial premises –
make a taxable supply If the property is residential premises – makes an input taxed supply |
| Transfer of trust property to beneficiary and subsequent sale by beneficiary | The transfer will not be considered a sale as
there is no consideration for the transfer. No implications |
Does not make a creditable acquisition upon
transfer from the trustee. Makes a taxable supply upon subsequent transfer. If the property is new residential premises, when B subsequently sells the property to a third party, this would represent the first sale and hence sale of new residential premises (taxable supply) |
| Change of trustee Where an asset is held on base trust is an asset to be used in an enterprise of the beneficiary and this arrangement is to continue with the new trustee |
Not a taxable supply for the old trustee and not a creditable acquisition for the new trustee | No implications |
| Change of Beneficiary The beneficiary of a bare trust disposes of its beneficial interest in the trust property in favour of an entity whose interest will be held on bare trust by the same trustee |
No implications | Old beneficiary makes a taxable supply and the new beneficiary makes a creditable acquisition |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
