ATO ID 2010/196: GST and agricultural managed investment scheme - supply of forestry services
Date of decision: 26 October 2010
Business line: Indirect Tax

Issue
Are payments made by participants in a forestry managed investment scheme consideration for:

Decision
The payments made are consideration for a taxable supply of forestry services under Division 9 of the GST Act.

Facts
The scheme: Investors become participants in the scheme by entering into the scheme constitution and associated agreements with the responsible entity. The constitution provides the responsible entity of the scheme is to be appointed as manager of the scheme ('the manager'). The scheme agreements relevantly provide that: The management fees and the lease payments are the only payments made by the participant.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Section 195-1 of the GST Act defines 'consideration' for a supply or acquisition as meaning any consideration, within the meaning given by sections 9-15 and 9-17 of the GST Act, in connection with the supply or acquisition. In particular, subsection 9-15(1) of the GST Act defines 'consideration' as including: Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (paragraphs 49, 64-72), Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (paragraphs 15-16) and Goods and Services Tax Ruling GSTR 2009 / 3 Goods and services tax : cancellation fees (paragraphs 98-99) explain the Commissioner's views on determining whether there is a sufficient connection between a payment and a supply. In determining whether there is a sufficient connection, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description which parties give to the arrangement, but by looking at all of the transactions entered into, and the circumstances in which the transactions are made. As stated in the facts, the clauses of scheme agreements specifically provide that the participant is granted a lease over a particular parcel of land that includes (amongst other things) the right to enter the land and establish, maintain and harvest a crop of trees; and that the participant may appoint the manager as an independent contractor to provide forestry services in relation to that land. The agreements also provide that in consideration of the manager agreeing to carry out such services, the participant agrees to pay to the manager the management fee. The terms of the constitution and other scheme agreements therefore indicate the supply of the forestry services is for consideration. Further, having regard to the circumstances in which the transaction is made, we consider the true character of the transaction is one of a supply of forestry services to a holder of a lease over forestry land for a fee. Therefore, we conclude there is sufficient connection between the supply of the forestry services and the management fee, such that the fee is consideration for the supply of services for the GST. Given the other requirements of section 9-5 of the GST Act are satisfied, we conclude the manager makes a taxable supply of the forestry services to the grower.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 Division 9 section 9-5 section 9-15 subsection 9-15(1) section 9-17 section 195-1
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2001/6 | Goods and Services Tax Ruling GSTR 2009/3 | Goods and Services Tax Ruling GSTR 2012/2
Related ATO interpretative decisions: ATO ID 2010/129 | ATO ID 2010/197 | ATO ID 2010/198 | ATO ID 2010/199
Subject references: Goods and services tax Taxable supply Input taxed supplies