Private ruling: GST and in specie contributions to a self-managed superannuation fund
Date of advice: 13 August 2018
Published: October 2018

Ruling: Q1: Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you make an in specie contribution of commercial property to the trustee of a self-managed superannuation fund? | A1: No.

Relevant facts and circumstances: ● You own a commercial property and carry on an enterprise of leasing the commercial property. ● You have leased the commercial property to your related entity which operates a motel and you receive lease payments from the entity. ● You are registered for goods and services tax (GST). ● You intend to make an in specie contribution to your self-managed superannuation fund (SMSF) by transferring part of the property. ● The SMSF will not provide any monetary consideration to you for the commercial property. ● The SMSF will lease its part of the property to the entity that operates the motel and will receive lease payments. ● You will be the sole member of the SMSF which will function under a corporate trustee. The ● SMSF will be registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 – section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 – section 72-5

Reasons for decision: Summary: Section 9-5 of the GST Act provides that you make a taxable supply if you make the supply for consideration; the supply is made in the course or furtherance of an enterprise that you carry on; the supply is connected with the Indirect Tax Zone; and you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. To satisfy the first requirement in section 9-5 of the GST Act, an entity must make a supply for consideration. Paragraph 47 of Goods and Services Tax Ruling GSTR 2001/6 provides that there needs to be a supply, a payment and the necessary relationship between the supply and the payment. The transfer of part of the commercial property by you to the SMSF is a supply, however it needs to be determined if there is any consideration for this supply. Subsection 9-15(1) of the GST Act provides that consideration includes any payment, or any act or forbearance, in connection with, in response to or for the inducement of a supply of anything. Although, the SMSF does not provide any monetary consideration for part of the commercial property, a payment is not limited to a payment of money. It includes a payment in a non-monetary or in an in kind form (paragraph 12 of GSTR 2001/6). Paragraphs 15 and 16 of GSTR 2001/6 indicate that by providing non-monetary consideration for a supply, an entity is in turn making a supply. As such, if the SMSF is making a supply in response to the contribution of part of the commercial property it may constitute non-monetary consideration for the supply of the commercial property. In the case of a SMSF, members or beneficiaries of the fund obtain their rights or prospective rights in relation to the fund by way of the trust deed that creates the fund. As such, the deed provides the interest in the superannuation fund and from that point onwards the member has acquired an ongoing interest in the SMSF, which is a financial supply. Whilst the contribution of the commercial premises may result in an increased level of assets being held in the superannuation fund the contribution does not result in the trustee of the superannuation fund providing a further interest to the entity. Therefore, the only supply the trustee of the superannuation fund has made is the initial supply of the interest on the superannuation fund. This supply of the initial interest in the fund by the trustee is not a supply made in response, in connection with or for the inducement of the entity’s contribution of the commercial property. Accordingly, the superannuation fund does not provide consideration for the supply of the commercial property. However, under section 72-5 of the GST Act the fact that a supply is made to an associate without consideration does not stop the supply being 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 purposes. Associate is defined in section 195-1 of the GST Act as having the meaning given in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). In relation to a natural person, the term associate is defined in section 318 of the ITAA 1936 to include a trustee of a trust where the person benefits under the trust. The entity, a sole trader, is a beneficiary of the superannuation fund (a trust) and as such, is an entity that benefits under the superannuation fund. Therefore, the entity and the trustee of the superannuation fund are associates. In this case, the SMSF will be registered for GST and will be leasing the portion of the commercial property which will be a taxable supply under section 9-5 of the GST Act. Therefore, the SMSF will be acquiring the portion of the commercial property for a creditable purpose and neither of the requirements of section 72-5 of the GST Act will be satisfied. As explained above, the SMSF will not be providing consideration for the in specie contribution made by you and the supply of part of the commercial property does not satisfy section 9-5 of the GST Act. Therefore, you are not making a taxable supply when you make an in specie contribution of commercial property to the SMSF.