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05 Dec 13 Execution of a deed was a taxable supply - Australian Style Investments

The AAT has held that the execution of a deed providing for, amongst other things, the delivery of irrevocable proxies, by which the taxpayer would appoint certain entities to vote against resolutions to be considered at a meeting of unit holders of trusts "(the Trusts") constituting a registered managed investment scheme, in consideration of the payment of $4,500,000, was not an input taxed financial supply but a taxable supply for GST purposes.

The taxpayer, in its capacity as trustee of the Australian Style Investments Unit Trust, was a unitholder in the Trusts and was registered for GST purposes.

Regulation 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 1999 specifies what supplies are financial supplies. It includes, in reg 40-5.09(3) an "interest in or under...securities...[in] a scheme described in paragraph (e), (i) or (m) of the definition of managed investment scheme in section 9 of the Corporations Law".

The taxpayer submitted that the expression 'in or under' in reg 40-5.09(3), according to the ordinary meaning of those words, merely requires that the interest supplied 'relate' to securities, in the sense that the interest 'derives its existence from, or has been carved out from the limits of' the supplier’s securities. This was rejected by the AAT, which stated at para 110:

"The rights provided...under the Deed, being the rights of action arising in respect of the promises made by the [taxpayer] in clause 4 and perhaps extending to the irrevocable right to act as the [taxpayer’s] proxy as appointed, were contractual rights, enforceable only against the [taxpayer]. The interest provided by the [taxpayer] was therefore not a 'property interest broadly conceived' in or under the capital of the Trusts or rights to benefits produced by the Trusts in the sense described by the majority in FCT v American Express Wholesale Currency Services Pty Ltd [2010] FCAFC 122. It was not enforceable at law or equity in or under such “[s]ecurities”. Furthermore, as I have said, the proxy’s rights under s252W of the Corporations Act were held solely in its capacity as the [taxpayer's] agent. Those statutory rights were therefore not capable of constituting an 'interest in or under ... [s]ecurities' supplied by the [taxpayer] for the purposes of reg 40-5.09(3)."

 As the supply made by the taxpayer upon execution of the deed was therefore not a “financial supply”, it followed that it was a “taxable supply” for the purposes of the GST Act.

The penalty imposed by the Commissioner on the basis of "recklessness" was also upheld by the AAT, which declined to remit any part of the penalty.

Australian Style Investments Pty Ltd as Trustee for the Australian Style Investments Unit Trust and FCT [2013] AATA 847 (AAT, Alpins DP, 29 November 2013).


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