Issue
Is the entity, an investor, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) or an input taxed supply under subsection 40-5(1) of the GST Act, when it sells units in a unit trust in its private capacity for investment purposes and not for trading purposes?
Decision
The entity is neither making a taxable supply under section 9-5 of the GST Act nor an input taxed supply under subsection 40-5(1) of the GST Act when it sells units in a unit trust in its private capacity for investment purposes and not for trading purposes.
The supply is outside the scope of the goods and services tax (GST) legislation, as the entity is not making a supply in the course or furtherance of an enterprise.
Facts
The entity is an investor. The entity sells units in a unit trust. The entity held its interest in the unit trust in its private capacity for investment purposes and not for trading purposes.
The sale of the units is not part of a series of activities.
The unit trust is registered for GST. The unit trust fits within the definition of a unit trust under section 195-1 of the GST Act.
The entity is not registered for GST.
Reasons for Decision
Section 9-5 of the GST Act lists the requirements that must be satisfied to make a taxable supply. Subsection 9-5(b) of the GST Act requires that the supply is made in the course or furtherance of an enterprise that an entity carries on.
Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act defines a financial supply as having the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).
Subregulation 40-5.09(1) of the GST Regulations states:
The provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if: (a) the provision, acquisition or disposal is: (i) for consideration; and (ii) in the course or furtherance of an enterprise; and....
First, it is necessary to determine whether the supply of a unit in a unit trust is the supply of an interest in an item mentioned in subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations.
Item 10 in the table in subregulation 40-5.09(3) of the GST Regulations (Item 10) lists securities. Paragraph (d) of Item 10 defines securities to include the 'capital of a partnership or trust'. Item 5 in Part 8 of Schedule 7 lists 'units in a unit trust' as an example of something that is the capital of a trust. Therefore, the entity is making a supply of an interest in an item mentioned in subregulation 40-5.09(3) of the GST Regulations.
Section 9-20 of the GST Act widely defines the term enterprise. In particular, paragraphs 9-20(1)(a) and 9-20(1)(b) of the GST Act provide that an activity or a series of activities done in the form of a business or in the form of an adventure or concern in the nature of trade are enterprises for the purposes of the GST Act.
The entity held the units in its private capacity for investment purposes and not for trading purposes. The sale of the units is not part of a series of activities. Therefore, the sale of the units is not part of a series of activities done in the course or furtherance of a trading enterprise carried on by the entity.
For the one off sale of the units to be an enterprise in itself, the sale would have to be in the form of an adventure or concern in the nature of trade. Paragraphs 233-261 of Miscellaneous Tax Ruling MT 2006/1 consider the concept of 'an adventure or concern in the nature of trade'. Paragraph 259 of MT 2006/1 states that the disposal of investment assets does not amount to trade.
The entity held the units in the unit trust as an investment. Although investment assets may be used by an entity in carrying on an enterprise, the realisation of an investment asset is not, in itself, an enterprise activity. When the entity sells those units it is merely realising an asset that it held for investment purposes. Therefore, the entity's sale of the units is not an adventure or concern in the nature of trade in accordance with MT 2006/1.
As such, the entity is not making a supply in the course or furtherance of an enterprise and the requirements in subregulation 40-5.09(1) of the GST Regulations and paragraph 9-5(b) of the GST Act are not satisfied.
This means that the entity is neither making a taxable supply under section 9-5 of the GST Act nor an input taxed supply under subsection 40-5(1) of the GST Act when it sells units in a unit trust in its private capacity for investment purposes and not for trading purposes. Note 1: Goods and Services Tax Determination GSTD 2006/6 provides that the meaning of 'enterprise' as discussed in MT 2006/1 applies to the terms 'enterprise' as used in the GST Act. The MT 2006/1 definition of enterprise can be relied on for the purpose of this ATO ID.