Private ruling: GST and the supply of a portion of a specified crop
Published: June 2012

Ruling: A1: No. | Q1: Are you, as authorized agent for the Growers, making a creditable acquisition in accepting the obligations to be performed by Company B under the Agreement? | A2: No.

Relevant facts and circumstances: Company A registered for GST and was appointed the Responsible Entity (RE) of a Managed Investment Scheme (MIS). Company A was also the RE for a number of other projects. Company A also acted as the authorised agent, representative and attorney of the Growers of the MIS. You, the Liquidators of Company A, advised that the majority of, but not all of the Growers were registered for GST. When the term 'Growers' is used in this ruling it includes the Growers of the specified Project in the MIS. The specified Project was initially operated on land owned by Company C and licensed to the Growers under a joint venture/licence agreement. On 30 June 200X the Growers entered into the MIS and various agreements including a License and Joint Venture Agreement (JV Agreement) with Company A and Company C. The JV agreement outlined the following: · The Growers were entitled to 90% of the JV Assets and Company C was entitled to 10%. That is the Growers were entitled to 90% of the crop. · The Growers were required to enter into an agreement with Company C under which each Grower purchased the crop and engaged Company C to plant the crop on the Grower's lots. · An initial Licence Fee of $X per JV lot was payable. · The Growers acknowledged in this agreement that the Capital Works and the Water Rights belonged to the land owner however the crop on the Lots remain their property. At a later time Company C transferred the land on which the specified Project was established to company B. Company B then entered into a lease of the land to Company D for $X per annum. Company D subleased the land to Company C for $X on the same date. In addition, a sublease was entered into by Company C with Company A and Company A leased the land back to Company C who then licensed the land to the Growers. This was a similar arrangement to what had been set out in the original JV Agreement. [The original JV Agreement between Company C and the Growers continued after Company B became the new land owner] Company C continued to own land on which a number of other projects continued to be operated. Voluntary administrators were appointed to Company A. Then the creditors of the company voted to wind up a number of the companies including Company A and appoint the administrators as Liquidators. As the Liquidators did not have the funds to continue operating, it was necessary to undertake a sale process to realise any value. During this period of time it was decided that the various entities should be liquidated and the projects sold. In your capacity as Liquidators for various related group companies, including Company A and C you published an advertisement seeking expressions of interest for the purchase of the Project Assets or the recapitalisation of the Projects which were conducted on land owned by Company C. Although the sale process did not involve land owned by Company B (and therefore did not relate to the Growers in the specified Project), subsequent events impacted on the rights of Growers in all schemes, including the specified Project. In this regard, in order to facilitate and maximise a sale at the best achievable price (in respect of the Project Assets), the liquidators decided that they needed to demonstrate that a buyer could, if it wished, buy the Project Assets with title unencumbered by the Grower's rights. You then sought orders from the Court in regards to various matters, but most relevantly for these facts, orders were sought in regard to the arrangements between the Growers, Company C and Company A and the other parties including the Growers under the specified project The court directed that: 1.Pursuant to s 511 of the Corporations Act 2001 (Cth) (Act), the Second and Third Plaintiffs are justified in causing the First Plaintiff in its capacity as the responsible entity of each of the following listed projects including a. the specified Project; et al b. .(together, the Schemes), to amend the constitution of each of the Schemes pursuant to s 601 GC(1)(b) of the Act by executing a deed in the form contained in Schedule X for each of the constitutions. The Amendment deed was prepared and sets out the following relevant details under the background: · A Company A was appointed the responsible entity of the [insert name of Project] pursuant to the Constitution. · B Company A is desirous of disposing of it's assets including various leases granted by third parties. · C In order to give clear and free title to the assignee of any lease, any subleases/licence and joint venture agreement of the leased land may be surrendered. · D Company A considers it appropriate that, it be granted the power to surrender each sublease/licence and joint venture agreement on behalf of the Growers. · E On dd mm yyyy, Justice .. of the Supreme Court directed company A and the liquidators of Company A that the liquidators of Company A would be justified in executing or procuring Company A to execute a deed amending the Constitution, pursuant to section 601 GC(1 )(b) of the Corporations Act, in the form of this Deed. · F In accordance with section 6O1GC of the Corporations Act and the directions of the Court, Company A has executed this deed to modify the Constitution in the manner set out in this deed. A secured creditor appointed receivers and managers of all the assets charged by Company B. At this time, the owner of the land on which the specified Project was conducted (ie Company B) became subject to the control of the receivers and managers, who commenced an orderly sale of the Company B assets. A sale of the Company B assets gave rise to similar considerations as for the sale of the Company A project assets, including that it was important to demonstrate to a buyer the capacity to sell the assets with title unencumbered by any rights of the Growers. On a later date you, as liquidators of Company A, sought various orders from the Supreme Court including that: Company A be given explicit power to 'assign, terminate, surrender or otherwise deal with any sub-leases, licence or joint venture agreement. The court, after consideration of the various matters before it, declared and directed that, amongst other things, that the Liquidators may extinguish all of the rights of the Growers. In the meantime, the receivers and managers of Company B continued the process of seeking an orderly sale of the assets over which they were appointed, including to enter into arrangements with other parties which were relevant to the maintenance of the crop on the land owned by Company B. In this regard, a Sale of Crop Agreement (the Agreement) was entered into. We note that any reference to the sale of rights or assets under this Agreement includes any rights or assets held by parties to the specified Project. You advised that the Agreement reflects the resolution of various matters between the parties with a view to facilitating the cultivation and sale of the crop from the land in order to maximise returns and satisfy competing claims. You entered into the Agreement with an aim to ensure that payments were made to various parties in the following order: · Entity E portion · Entity F portion · Company B portion. The Agreement sets out various matters under the recitals. With regards to point X in the recitals the company B portion is defined as: · the lesser of: · the portion of the Crop as gives rise, or would give rise, if sold …. to Net Proceeds equal to the aggregate of the Actual Costs in respect of company B and the Required Costs in respect of the company B Portion; and · the balance of the specified Crop after deduction of the entity E Portion and the entity F Portion. Further relevant definitions include: Company B consideration means Company B's agreement to accept the obligations to be performed by company B pursuant to clause X. Purchaser means · Entity F in respect of the Entity F portion · Company B in respect of the Company B portion Vendors means whichever of one or more of Company A as agent and attorney for each Participant Grower, the RE and the RE as agent and attorney for each Participant Grower as is or are together entitled under the Constitution, Lot Management Agreement or at Law to sell the specified Crop. The following relevant clauses have been extracted from the Agreement: Sale of Company B portion The Vendors agree to sell all of its and the Participant Growers' present and future right, title and interest in and to the Company B Portion to Company B and Company B agrees to buy the Company B Portion: · for the Company B Consideration; · Free from all Encumbrances; and · With effect from the relevant Completion Date, · in accordance with this Agreement Clause X provides that: All of the Vendors and the Participant Growers' present and future right, title and interest in and to: (b) the Company B Portion will pass to Company B, with effect on and from the relevant Completion Date. Clause Y (a) and (b) provide that: The RE will, during the Relevant Period, pay the Use and Occupancy fees to Company B. The Use and Occupancy Fees will be payable, and deemed to have been paid, on the CP Satisfaction Date by the Vendors agreeing to sell the Company B Portion to Company B pursuant to this Agreement The project assets were acquired by Entity G who issued a press release outlining that it had signed a definitive agreement to acquire X hectares of planted crop and X mega litres of permanent water rights from Company B. This acquisition included the land on which the specified Project operated. The Court heard the case for the apportionment of the net proceeds derived from the sale of the Project assets between the banks and the Growers, based on the value of the Grower's rights that were extinguished by the liquidators and the banks rights as secured creditors. The court concluded that no value can or should be attributed to the rights given up by the Growers. Although the Growers in the specified Project were not the subject of the proceeding, their rights were extinguished before the Company B sale to Entity G in the same way that the rights of the Growers, in the projects which were the subject of the proceeding, were extinguished. You as the Liquidator of Company A wrote to us asking whether you have any GST liabilities and obligations in relation to specified transactions set out in a document called the "Sale of Crop Agreement 20yy Project" (the Agreement) to which you are a party. In particular, you referred to: · Clause X where Company A agreed to "sell" all of its and the Growers present and future right, title and interest in and to a portion of the crop to Company B (Company B Portion), and · Clause Y where Company A agreed to pay the Grower's Use and Occupancy Fees to Company B which were deemed to have been paid by the Vendors agreeing to sell the Company B portion to Company B. Your agent advised in subsequent conversations including the concluding conversation that: · Company A, in its own right, did not have any right or interest in the Company B portion of the crop; and · that the supply of the Company B portion to Company B by Company A did not occur.

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 Division 58, | A New Tax System (Goods and Services Tax) Act 1999 Division 11

Reasons for decision: Summary: Are you, as Liquidators of Company A, making taxable supplies on behalf of a specified group of entities when you supply a portion of the specified crop to Company B, in its capacity as Trustee of Trust A, under the Agreement. Section 9-5 of the GST Act provides that y ou make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with Australia; and (d) 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 make a taxable supply, an entity must meet all the requirements of section 9-5 of the GST Act and not be excluded because the supply would be input taxed or GST free. In your case, the Agreement sets out that you, as an agent of the Growers, would supply a portion of the specified crop from the specified project to Company B. In your case, all the growers: · were conducting an enterprise · in Australia and · the supply was not GST-free or input taxed Therefore, the supply by the GST registered growers would be taxable subject to their being a supply and consideration being paid. However, in your case, the buyer of the project assets, required that the Growers rights to any proceeds of the project under any JV or license agreements be extinguished as a condition precedent of the sale. This issue was taken to court and the Court declared and directed that amongst other things the liquidators may extinguish all of the rights of the Growers. In addition, we understand that the particular transaction of the supply of the Company B portion to Company B as contemplated by the Agreement did not occur. Therefore, as there was no supply of the Company B portion and the growers rights to the X% of the crops were extinguished there can be no taxable supply of the Company B portion by either you as liquidator of Company A or as agent of the growers. Are you, as authorized agent for the Growers, making a creditable acquisition in accepting the obligations to be performed by Company B under the Agreement? Section 11-5 of the GST Act provides that you make a creditable acquisition if: · you acquire anything solely or partly for a creditable purpose; and · the supply of the thing to you is a taxable supply; and · you provide, or are liable to provide, consideration for the supply; and · you are registered, or required to be registered. For there to be a creditable acquisition under section 11-5 of the GST Act there must be, amongst other things, consideration provided. As noted above, the buyer of the project Assets required that the Growers rights to any proceeds of the crop or ownership of the crop under any JV or license agreements be extinguished as a condition precedent of the sale. This issue was considered by the Court and the Court declared and directed that amongst other things, the Liquidators may extinguish all of the rights of the Growers. In addition, we understand that the supply of the Company B portion to Company B, as contemplated by the Agreement, did not occur. Consequently you are not making a creditable acquisition as set out in section 11-5 of the GST Act in accepting the obligations to be performed by Company B under the Agreement as you did not provide consideration.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Are you, as Liquidators of Company A, making taxable supplies on behalf of the Growers, when you supply a portion of the specified crop to Company B, in its capacity as Trustee of Trust A, under the Agreement. | Documents relied upon in these rulings: A number of agreements were entered into place over time and we have relied on clauses from these agreements in our ruling, including: | · License and Joint Venture Agreement for the specified Project (JV Agreement) . | In addition, excerpts and paraphrases from a number of relevant court cases have been used in this ruling.