GST and agricultural managed investment scheme - supply of forestry services

Are payments made by participants in a forestry managed investment scheme consideration for: • an input taxed supply of an interest in the scheme under Division 40 of the New Tax System (Goods and Services Tax) Regulations 1999; or • a taxable supply of forestry services under Division 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

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

The scheme: • is a 'forestry managed investment scheme' as defined in subsection 394-15(1) of the Income Tax Assessment Act 1997 (ITAA 1997); • is a managed investment scheme under the Corporations Act 2001; and • involves the establishment and tending of trees for felling in Australia.

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: • Each participant leases a timber lot from the manager; • The lease agreement provides the participant with the right to enter the land; the right to establish, maintain and harvest a crop of trees on the land; the right to construct and use buildings, works and facilities as may be necessary for the participant to establish, maintain and harvest a crop of trees on the land; • The participant is entitled to all harvest proceeds from the sale of plantation produce; • The participant owns all the trees on their leased land and all plantation produce produced by or derived from those trees; • The participant controls what agricultural activities take place on the plantation and has the capacity to implement activities which differ from the recommendations of the manager; • The participant appoints the manager as an independent contractor to provide forestry services; • The forestry services include site preparation; provision of cutting or seedlings; fertilising, replanting, managing and maintaining the plantation; weed and pest control; hazard reduction; maintenance of roads, firebreaks, fences, gates and related infrastructure; fire prevention; harvesting and rehabilitation of the plantation land; • In consideration of the manager agreeing to carry out forestry services, the participant agrees to pay to the manager the management fee; and • Additional management fees may be payable from time to time.

The management fees and the lease payments are the only payments made by the participant.

Under section 9-5 of the GST Act, an entity makes a taxable supply if: a) the supply is for consideration; and b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and c) the supply is connected with Australia; and d) the entity is registered or required to be registered for GST.

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: (a) any payment, or any act or forbearance, in connection with a supply of anything; and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

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. Note: whether a participant in an agricultural managed investment scheme is entitled to input tax credits for the acquisition of taxable supplies from a manager depends on the facts of each case.

Date of amendment Part Comment 31 May 2013 Reasons for Decision Inserting 'section 9-17'. As of 1 July 2012, section 9-17 is included within the definition of consideration as defined by section 195-1. Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (paragraphs 15-16). [Note: GSTR 2000/11 was replaced by GSTR 2012/2 with effect from 31/5/2012.] Legislative References Section 9-17 added. Related Public Rulings (including Determinations) Reference to Goods and Services Tax Ruling GSTR 2000/11 deleted. Reference to Goods and Services Tax Ruling GSTR 2012/2 added.

Date of amendment | Part | Comment

31 May 2013 | Reasons for Decision | Inserting 'section 9-17'. As of 1 July 2012, section 9-17 is included within the definition of consideration as defined by section 195-1. Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (paragraphs 15-16). [Note: GSTR 2000/11 was replaced by GSTR 2012/2 with effect from 31/5/2012.]

Legislative References | Section 9-17 added.

Related Public Rulings (including Determinations) | Reference to Goods and Services Tax Ruling GSTR 2000/11 deleted. Reference to Goods and Services Tax Ruling GSTR 2012/2 added.