ATO Interpretative Decision
ATO ID 2001/505
Goods and Services Tax
GST and an in specie distribution by a discretionary family trust (beneficiary not registered)FOI status: may be released
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With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a discretionary family trust, making a taxable supply pursuant to sections 9-5 and 72-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it makes an in specie distribution to a beneficiary of the trust that is not registered, or required to be registered for goods and services tax (GST)?
Decision
Yes, the entity is making a taxable supply pursuant to sections 9-5 and 72-5 of the GST Act when it makes an in specie distribution to a beneficiary that is not registered, or required to be registered for GST.
Facts
The entity is a discretionary family trust. The entity makes an in specie distribution to a beneficiary of the trust that is not registered, or required to be registered. An in specie distribution means a distribution in kind of goods or natural produce instead of money.
The distribution is not covered by Division 38 of the GST Act or by Division 40 of the GST Act. The trustee of the entity is registered for GST. The distribution is made in the course or furtherance of the enterprise carried on by the entity in Australia.
Reasons for Decision
Under section 9-5 of the GST Act, an entity makes a taxable supply if:
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- it makes a supply for consideration; and
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- the supply is made in the course or furtherance of an enterprise that it carries on; and
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- the supply is connected with Australia; and
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- it is registered, or required to be registered.
The existence of a 'supply' itself is an essential element in determining whether the distribution is a taxable supply under section 9-5 of the GST Act.
'Supply' is defined in subsection 9-10(1) of the GST Act to include any form of supply whatsoever. In this case, the distribution by the entity is the supply.
'Consideration' is defined in paragraph 9-15(1)(a) of the GST Act to include any payment, or any act or forbearance, in connection with a supply of anything. In some trust arrangements, beneficiaries have indefeasible rights to the trust property.
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.
Although, the supply is not being made for consideration, a distribution made by a discretionary trust may still be a taxable supply where Division 72 of the GST Act applies. Division 72 removes the requirement for consideration from section 9-5 of the GST Act in certain circumstances where the recipient is an associate.
Section 72-5 of the GST Act provides that a supply to an associate for no consideration will be a taxable supply if the associate is not registered or required to be registered, or the associate acquires the thing supplied otherwise than solely for a creditable purpose.
The term associate which is defined in section 318 of the Income Tax Assessment Act 1936 includes a beneficiary and the trustee of a trust.
In this case, the entity is making an in specie distribution to a beneficiary that is not registered or required to be registered. Therefore, the supply meets the requirements of section 72-5 of the GST Act.
The trustee for the entity is registered for GST and the distribution is a 'supply' that fulfils all of the requirements of section 9-5 and section 72-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it makes an in specie distribution to a beneficiary that is not registered, or required to be registered for GST.
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
subsection 9-10(1)
paragraph 9-15(1)(a)
Division 38
Division 40
Division 72
section 72-5
section 318 Related ATO Interpretative Decisions
ATO ID 2001/503
ATO ID 2001/504
Keywords
Goods & services tax
GST associates
GST consideration
Taxable supply
ISSN: 1445-2782
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