GST Issues register

Issue no. 19 - General

Schedule:

• The postscript (a) indicates the date the original issue was placed on the register
• The postscript (u) indicates the date the original issue was updated
• The postscript (w) indicates the date the issue was withdrawn from the register
• Withdrawn issues have been placed in the NTLG-GST Issues Register Archive (Issue 19 archive)

19.31 GST and WET

Issue

Could the ATO please clarify the following GST and WET issues. Based on paragraph 104 of the WET ruling WETR 2002/2, it appears that supplies to staff and shareholders at discounted prices may not be considered at arm's length and may therefore be subject to GST under Division 72 of the GST Act. Most companies supply goods (and services) to staff at discounted prices where the discount falls short of constituting a fringe benefit. It is of concern to us to suggest that these sales are not at arm's length - see paragraph 104.

1. Would the ATO please explain the rationale behind its ruling at paragraph 104 of WETR 2002/2 that 'Sales to staff, shareholders and grape growers at discounted prices are considered to be non-arm's length sales?'

2. Where a retailer makes sales of wine to staff and shareholders at discounted prices are such sales regarded as non-arm's length dealings?

3. Does Division 72 of the GST Act apply to sales of wine to staff and shareholders at discounted prices? How about similar sales of goods other than wine (and services) at discounted prices?

ATO response

Wine Equalisation Tax and non-arm's length sales

Question 1

The legislation

Section 27-10 in the A New Tax System (Wine Equalisation Tax) Act 1999 provides as follows:

27-10 Alteration of wine tax liability or wine tax credit if affected by non - arm's length transaction

(1) This section applies to you if:

(a) you (or your associate) has been a party to a non-arm's length transaction; and

(b) if the transaction had instead been an arm's length transaction, it would have been the case (or could reasonably be expected to have been the case) that:

(i) your liability to wine tax on the non-arm's length transaction, or any other transaction, would have been increased; or

(ii) your entitlement to a wine tax credit in connection with the non-arm's length transaction, or any other transaction, would have been reduced.

(2) The liability or wine tax credit is taken always to have been the amount that it would have been (or could reasonably be expected to have been) if it had been based on an arm's length transaction instead of on the non-arm's length transaction.

The Explanatory Memorandum to the Wine Equalisation Tax Bill in paragraph 10.9 states:

'The parties to a transaction will be required at all times to ensure that wine is sold at an arm's length price. Where the wine is not sold at an arm's length price the law will operate to apply an arm's length price to the sale or other taxable dealing.'

The intention of the provision is therefore quite clear. The WET liability for an assessable dealing is always the amount it would have been (or could reasonably expected to have been) if it had been based on an arm's length transaction.

What is a non-arm's length transaction?

In relation to non-arm's length transactions the courts have held that a transaction is not at arm's length where the parties are not dealing with each other as arm's length parties normally would, with the result that the outcome of their dealing is not a matter of real bargaining (see Australian Trade Commission v WA Meat Exports Pty Ltd (1987) 75 ALR 287; Barnsdall v FC of T 88 ATC 4565; 19 ATR 1352; The Trustee for the Estate of the late AW Furse No 5 Will Trust v FC of T 91 ATC4007; 21 ATR1123; Granby Pty Ltd v FC of T 95ATC 4240; (1995) 30 ATR 400; Copperart Pty Ltd v FC of T 93 ATC 4779; (1993) 26 ATR 327; Pontifex Jewellers (Wholesale) Pty Ltd v FC of T (1999) 2000 ACT 4642).

It should be noted that the body of case law supports the view that a transaction is not necessarily a non-arm's length transaction merely because the parties to the transaction are not at arm's length. However, the fact that the parties are not at arm's length may have some relevance in concluding that the transaction is not at arm's length.

WET approach

It is common in the wine industry for wine manufacturers to sell wine to employees, shareholders, and growers at heavily discounted prices. Where this occurs it is our view that the price of the transactions has not been determined as a result of real bargaining and hence the transactions are considered to be non-arm's length. This is supported by the fact that a relationship exists between the parties (although it is accepted that the existence of the relationship does not, of itself, mean the dealings are non-arm's length).

In these circumstances the WET liability is the amount it would have been (or could reasonably expected to have been) if it had been based on an arm's length transaction.

Question 2

From a WET perspective a retailer would be regarded in the same manner as a producer or wholesaler. However, the retailer will only have a liability to WET on a retail sale if the sale is an 'untaxed sale' of wine or the wine was purchased WET-free.

In normal circumstances a retailer purchases wine at prices which include WET and then does not have a further liability when the wine is sold by retail. This means that the amount of WET paid on wine sold by a retailer from WET-paid stock is the same whether sold at the normal retail price or at a discounted price. Section 27-10 achieves the same position in relation to a producer or wholesaler who chooses to sell wine at discounted prices and the transaction is non-arm's length.

Question 3

Division 72 of the GST Act does not apply to sales of wine (or other goods or services) to staff and shareholders unless they are 'associates' of the supplier. For the purposes of GST, 'associate' takes the meaning given by Section 318 of the ITAA 1936. Under that section, staff who are merely employees are not 'associates'. Shareholders are only considered to be 'associates' where they are in a position to 'sufficiently influence' a company or exercise a 'majority voting interest' {see subsection 318(2)}. This means that, in the vast majority of cases where staff or shareholders are entitled to a discount, Division 72 of the GST Act would not be applicable and GST would simply be payable on the actual amount they paid for the supply of the wine (or other goods or services).

19.32 GSTR 2003/1 GST-free education courses

Issue

In general the supply of an education course is GST-free under Section 38-85 of the GST Act. Paragraph (j) of the definition of "education course" in Section 195(1) of the GST Act includes a "professional or trade course". A "professional or trade course" is in general a course leading to a qualification that is an "essential prerequisite". A qualification is an "essential pre-requisite" in relation to the entry to or the commencement of the practice of a particular profession or trade if the qualification is imposed by 'and includes (a) an industrial instrument'.

Paragraph 50 of GSTR 2003/1 states that an 'industrial instrument means an Australian Law or an award, order, determination or industrial agreement in force under an Australian Law'.

Bearing this in mind there arises an issue in our view with Example 9 in the GST Ruling. The GST Ruling assumes that because Graeme already holds a heavy vehicle drivers license, for Graeme to obtain a dangerous goods heavy vehicle drivers license, the training would only constitute a course providing additional skills and would not be considered an essential pre-requisite in relation to the entry to or the commencement of the practice of a particular profession or trade. However it has been brought to our attention that this is not necessarily the case. It is our understanding that Graeme even though he has the heavy vehicle license cannot drive a dangerous goods heavy vehicle unless he obtains a further "essential prerequisite" ie this new license and that this is a condition set out in an industrial instrument eg an Australian Standard requires this license. If Graeme does not obtain this license he cannot and is not permitted to drive a heavy vehicle carrying these dangerous goods.

It is thus our view that the conclusion reached in this GST Ruling needs re-consideration in light of this information.

An additional example

To illustrate the concern further lets take the example of electricians. The electrician's award outlines nine different grades of electricians of which the 'base' electrician is a grade 5 leading all the way up to grade 9. For the electrician to be able to enter that grade and thus undertake that occupation/job there is a pre-requisite in the award that requires the person to undertake an additional course. If the ATO example is correct then each course offered to increase from the base electrician would be treated as a taxable supply and not GST-free.

The ICAA is also concerned as to how a supplier of education courses will be able to establish whether a supply of an education course to an entity is an "essential pre-requisite" for the entities acquiring the benefit and thus fulfilling the requirements for GST-free status for the purposes of Section 38-85 of the GST Act. For example in the example above what if the initial heavy vehicle license was obtained by an accountant who was interested in driving a truck on weekends for pleasure. How would the supplier be able to establish that this is not an essential pre-requisite for a trade for this person? Or do they simply assume it is and thus automatically assume a GST-free status on these transactions. To do otherwise in our view would seem to be creating a huge compliance burden for taxpayers. Could the ATO please clarify its views on this issue?

The ICAA would also like some additional guidance and examples of what would satisfy the definitions of an order and determination for the purposes of the definition of an "industrial Instrument".

Further

In the Joint Professional Bodies submission to the above Ruling the below concerns were raised:

• Introduction

The professional bodies welcome the draft goods and services tax ruling and its attempt to clarify the meaning of 'professional or trade course' in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999. However we raise the following concerns that require addressing.

• Essential prerequisite

The ATO at paragraph 54 and following would appear to be applying a very narrow interpretation for the term "essential prerequisite". The ATO states that there can only be one professional or trade association at the national level imposing the "essential prerequisite".

In section 195-1 of the GST Act paragraph (b) states that:

'If there is no industrial instrument for that profession or trade association but there is a professional or trade association that has uniform national requirements relating to the entry to, or the commencement of the practice of, the profession or trade concerned - by the association; or'

Section 195-1 of the GST Act does not set any limits to the number of professional associations.

There are instances where two professional associations can exist in tandem however they offer very different and varied 'essential prerequisite' qualifications that lead to specific employment opportunities in a trade area within the profession. Furthermore it is not possible in these instances for only one of these professional or trade associations to impose the 'essential prerequisites'.

It is thus recommended that paragraph 54 and following be amended to reflect commercial reality that there may be instances where two or more professional or trade associations could meet the "essential prerequisite" requirements.

• Entry into a profession or trade

The issue of what constitutes entry into a trade or profession is unclear in the draft ruling. For example often a person can work in a trade or profession while preparing for or awaiting for the opportunity to undertake the course that is finally required for entry into the profession. For example, in New South Wales a person may work for a firm of solicitors while awaiting a place in the College of Law program, which is required to become a Legal Practitioner of the Supreme Court of NSW.

When is the time that they have entered the profession in question? Was it when they started to work for the firm of solicitors? If so, then they would have already entered the profession and so it would be arguable that the "College of Law" program would not be GST-free. This is obviously not the intention of the provision.

A clarifying statement explaining that working in the profession while waiting for or undertaking the essential prerequisite course will not effect the operation of Subdivision 38C of A New Tax System (Goods and Services Tax) Act 1999 would be of assistance to taxpayers.

The ICAA and the TIA have recently had a look at the final version of GSTR Ruling 2003/1 dealing with professional or trade courses which are GST-free. Paragraph 60 of this ruling states the following:

If more than one professional or trade association, either at national level or for a particular State or Territory, has requirements relating to the entry to, or the commencement of the practice of, the profession or trade concerned, no qualification, set by any of the associations as a requirement for entry or commencement, would be 'an essential prerequisite'.

This was also in the draft ruling issued in October 2002 and the Professional Bodies made comments to get this view amended.

At face value, this interpretation of the meaning of the term 'professional or trade course' in the GST Act would appear to mean that none of the courses run by the various accounting bodies which lead to entry into the profession of accounting or commencement of practice would now qualify for GST-free status as a "professional or trade course". This is on the assumption that the relevant 'profession' for the purposes of the trade and professional course concession in the GST Act is that of an accountant, rather than that of a 'chartered accountant', CPA etc. The definition in section 195-1 does use the term "particular" profession but the way the ATO is interpreting this term is as per paragraphs 65 to 68 of GSTR 2003/1.

Can the ATO please clarify its position on this issue and why the comments in the joint submission were not reflected in the final Ruling? The ICAA and the TIA are further calling for the recommendations made in the Joint submission to be reflected in the final ruling and for the final ruling to be amended.

Additional information

The ICAA are of the view that in some cases the course will constitute an 'essential prerequisite' into a particular trade and not merely as the ATO has outlined as 'merely recognising additional skills'".

For example in the case of an electrician the award outlines separate courses that need to be undertaken for an electrician to be able to undertake the particular trade.

The ICAA have attached the award for an electrician and the different types of courses it requires for an electrician or an alarm installer etc to undertake to be able to undertake the trade. These have been highlighted and begin at 2.5.6. In summary there are nine grades of electrical trades and in order to undertake a different electrical related trade the person is required to undertake a specified course outlined in the award.

The ICAA are of the view that these courses meet the definition of an essential prerequisite for they are required by an industrial instrument. If the course is not undertaken the person cannot enter the respective trade. Therefore they should be GST-free.

Could the ATO reconsider its response taking the award into account by way of an example?

ATO response

Goods and Services Tax Ruling GSTR 2003/1: supplies that are GST-free as professional or trade courses

In response to questions and issues raised by members of the Tax Practitioners' Industry Partnership (TPIP) in relation to the above ruling, the following advice is provided:

Response to Questions 1 and 2

Paragraphs 92-94 of GSTR 2003/1 and the example at paragraph 95 deal with specialisations within a particular profession or trade as opposed to separate professions or trades.

Once you have entered a profession or trade, any additional qualifications gained need to be examined to determine whether they are for entry into a different profession or trade or are merely recognising additional skills.

The two examples above (heavy vehicle driver and electrician) are both situations where the person has already entered the profession or trade. The qualifications obtained (dangerous goods, above-base level grade electrician), albeit covered by an industrial instrument, are not for entry into the particular profession or trade (heavy vehicle driver, electrician). Therefore, courses which lead to either of these qualifications will not be GST-free as a professional or trade course.

Only the heavy vehicle license and the base grade electrician qualification are essential prerequisites for entry into the profession or trade of heavy vehicle driver and electrician respectively. Example 9 at paragraph 95 of GSTR 2003/1 deals sufficiently with this scenario.

It is important to note that although a qualification may be imposed under an industrial instrument, it is not necessarily an essential prerequisite for entry to a particular profession or trade. For example, the NSW Electrical, Electronic and Communications Contracting Industry (State) Award sets the qualification levels for various classifications within that industry for the purposes of remuneration only. The qualifications set out in the Award are not essential prerequisites as they are not legal requirements for entry into, or commencing the practice of, the profession or trade of 'electrician'. Such a requirement is set out in the "NSW Electricity Safety Act 1945."

Response to Question 3

If the course meets all the criteria of a professional or trade course, it will be GST-free, regardless of who the supply is being made to and the recipient's underlying intention for undertaking the course. Paragraph 19 of GSTR 2003/1 states:

The definition of a 'professional or trade course' in section 195-1 requires you to examine the characteristics of the particular course you supply. Your examination does not need to consider the recipients' intention, nor whether the participants actually enter or practise a particular profession or trade.

Response to Question 4

The definition of 'industrial instrument' for the purposes of the definition of an 'essential prerequisite' and subsequently the definition of a 'professional or trade course' was taken in its entirety from the Income Tax Assessment Act 1997 (ITAA). Paragraph (b) of the ITAA definition relates principally to allowable work-related deductions based around various amounts received by employees under awards, orders, determinations or industrial agreements, and has little or no practical application to the setting of essential prerequisites for entry into professions or trades.

The ATO is yet to come across an essential prerequisite that has been documented in an award, order, determination or industrial agreement. This is not to say that one doesn't exist or that one may never appear in the future, hence the retention of the whole definition for the purposes of the definition of a 'professional or trade course'.

The vast majority of essential prerequisites for entry into professions or trades are set down in Australian laws (as per paragraph (a) of the definition of 'industrial instrument').

Background to Questions 5 and 6

In the joint Professional Bodies' submission to the draft Ruling, the following comment was made:

'The ATO at paragraph 54 and following would appear to be applying a very narrow interpretation for the term "essential prerequisite". The ATO states that there can only be one professional or trade association at the national level imposing the "essential prerequisite".

In section 195-1 of the GST Act paragraph (b) states that:

"If there is no industrial instrument for that profession or trade association but there is a professional or trade association that has uniform national requirements relating to the entry to, or the commencement of the practice of, the profession or trade concerned - by the association; or…"

Section 195-1 of the GST Act does not set any limits to the number of professional associations.

There are instances where two professional associations can exist in tandem however they offer very different and varied "essential prerequisite" qualifications that lead to specific employment opportunities or a trade area within the profession. Furthermore it is not possible in these instances for only one of these professional or trade associations to impose the "essential prerequisites".

It is thus recommended that paragraph 54 and following be amended to reflect commercial reality that there may be instances where two or more professional or trade associations could meet the "essential prerequisite" requirements.'

Response to Questions 5 and 6

The joint Professional Bodies' submission was considered by the ATO in the preparation of the final ruling GSTR 2003/1, but the ATO did not agree with the submission on this point, the practical effect (of more than one association imposing entry requirements) being that persons could enter a particular profession or trade without the qualification imposed by one of a number of associations.

However, a new footnote was added in paragraph 60 of the final ruling to note that where more than one association imposes entry requirements for specific employment opportunities in different areas within a broader field or industry, the requirements may relate to specialisations. The footnote reads:

13 However, two associations that, at first, may seem to be imposing qualifications for the same profession or trade, may in fact be representing specialisations that are different professions or trades. Paragraphs 92 to 97 discuss specialisations.

Consistent with the footnote to paragraph 60 of GSTR 2003/1, whether chartered accountants and certified practising accountants are in a separate profession to that of an 'accountant' - and to each other - is a matter of fact and degree.

The ATO is currently reviewing GST private rulings - issued prior to the release of GSTR 2003/1 - which considered the definition of a professional or trade course. Where the advice given in a private ruling is inconsistent with the Public Ruling, the ATO will contact the relevant entity.

Background to Question 7

In the joint Professional Bodies' submission to the draft Ruling, the following comment was made:

'The issue of what constitutes entry into a trade or profession is unclear in the draft ruling. For example often a person can work in a trade or profession while preparing for or awaiting for the opportunity to undertake the course that is finally required for entry into the profession. For example, in New South Wales a person may work for a firm of solicitors while awaiting a place in the 'College of Law' program, which is required to become a Legal Practitioner of the Supreme Court of NSW.

When is the time that they have entered the profession in question? Was it when they started to work for the firm of solicitors? If so, then they would have already entered the profession and so it would be arguable that the 'College of Law' program would not be GST-free. This is obviously not the intention of the provision.'

Response to Question 7

The ATO recognised the importance of this point made in the joint Professional Bodies' submission, and inserted into the final ruling paragraph 82 which states:

'In other cases, a person may work in a profession or trade on a supervised basis without a qualification, pending the gaining of a qualification that will enable the person to enter or commence the practice of a profession or trade. A course leading to such a qualification will also be a professional or trade course providing the qualification is an essential prerequisite.'

19.33 GST and rebates

Issue

In its ruling/tax facts Rebates and GST, the ATO has taken the view that promotional rebates and warehousing rebates are supplies which are made by the purchasers (recipients) of goods acquired. That is, they are payments made by a supplier of goods to a recipient which under the terms of the arrangement the acquirer is required to provide services to the supplier (eg advertising, storage etc).

Question 1

Is this still the ATO's considered position?

The importance of the above question is that in negotiating its trade agreements many purchasers are now moving to bundled terms type arrangements. Under the bundled terms arrangements the volume rebate amount has been increased to incorporate any 'former' promotional rebate and early settlement discount amounts, eg the volume rebate has moved from 3% to 9% to reflect the 3% plus the 'former' promotional rebate of 3% and early settlement discount of 3%.

In line with these bundled terms arrangements, the discount provided is being treated as a reduction in the price of the goods to which the discount has been applied. As a consequence, the discount is also applied to any GST that was charged in relation to the relevant goods thus creating a decreasing GST adjustment.

Prior to moving to bundled terms the volume rebate and early settlement discount were treated as reductions in price and the promotional rebate was treated as consideration for a taxable supply by the purchaser of promotional services.

Question 2

Is the bundling of terms into a total amount labelled as a volume discount sufficient to treat the whole rebate amount as a reduction in price (ie 9% is the reduction in price) or should it be construed that the volume rebate, under bundled terms is a mixed supply? Or put another way, is the essential character of the bundled discount one of the supplying entity granting discounts/rebates together with the provision by the supplying entity of separate consideration for a supply by the purchaser (a promotional rebate component), ie 6% reduction in price due to previous 3% for volume discount and 3% early settlement discount and 3% consideration for promotional services or advertising?

Alternatively, is the total rebate amount in fact consideration for promotional services supplied by the purchaser and therefore, the total discount/rebate amount granted under bundled terms by the supplying entity consideration for a taxable supply by the purchaser? Where this is the case, the supplying entity would be entitled to claim an input tax credit equal to 1/11th of the total discount/rebate amount. Under this scenario, the total 9% would be consideration for the promotional services or advertising.

ATO response

Question 1

Yes, this fact sheet still contains the ATO's considered position on rebates such as promotional rebates and warehousing rebates for GST purposes.

Question 2

The bundling of terms into a total amount under one label is not sufficient to treat the whole rebate amount as a reduction in price or as consideration for a separate supply, where the essential character of the 'bundled discount' is one of the supplying entity granting discounts together with the provision by the supplying entity of separate consideration for a supply by the purchaser. The bundled rebate is not a mixed supply.

Discussion

The ATO's view on promotional rebates is set out in the fact sheet, Rebates and GST and Goods and Services Tax Ruling GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events. Such rebates are considered not to adjust the price of goods but are consideration for a separate taxable supply of services. The recipient is considered to supply services for consideration equal to the amount of the rebate received.

The ATO view as set out in GSTR 2000/19 and the fact sheet, distinguishes between volume and payment discounts as a reduction in price leading to an adjustment event, and the promotional rebate being consideration for a taxable supply. The label given to the bundled terms, eg a volume discount does not determine the essential character of the component discounts or rebates. Due to the different nature of each type of discount or rebate a change in label is not sufficient to treat the total bundled components as if they are all a reduction in consideration or all consideration for a separate supply.

The treatment of the discount or rebate for GST purposes is dictated by the identification of the essential nature or substance of the bundled discount/rebate. In this case the bundled term can be identified as a combination of separate volume discount, early settlement discount and consideration for promotional services or advertising. The relevant GST treatment must be given to each of those separate components. A case by case analysis of the bundled terms must be undertaken to determine the GST treatment of the treatment of the discount or rebate. There may be cases where are the separate components of the bundled terms are the same (that is, adjustment event or consideration for a taxable supply). In other cases the relevant GST treatment for each component may be different and the components will need to be separated so that the applicable GST treatment is given to each of the separate components.

The bundling cannot be treated as a mixed supply as a combination of a supply and adjustment event is not considered to be a mixed supply.

19.35 GST and ETPs

Issue

What is the GST liability of an employer who provides goods (eg a motor vehicle) to an employee as, or as part of, a termination payment? Is the answer the same regardless of whether or not the termination payment is an ETP?

Employers at times give departing employees goods rather than cash in satisfaction of the employee's entitlement to a termination payment.

For example, an employer may give an employee a motor vehicle with a GST-inclusive market value of $22,000 as part of the employee's termination payment.

Where the termination payment is an ETP, the statement to the employee will have a gross value of $28,820 ($22,000 x 1.31), the employer's PAYG liability will be $6,820 with the employee receiving an after tax 'payment' valued at $22,000.

Does the employer have a GST liability on the supply of the motor vehicle?

Alternatively, if the termination payment does not qualify as an ETP, the statement to the employee will have a gross value of $32,670 ($22,000 x 1,485 - assuming the top marginal rate), the employer's PAYG liability will be $10,670 with the employee receiving an after tax 'payment' of $22,000.

Does the employer have a GST liability on the supply of the motor vehicle?

It might be argued that the supply will be a taxable supply by the employer. However, if the supply of the motor vehicle is the provision of a fringe benefit by the employer, the valuation rules in section 9-75(3) will apply.

I understand that the supply of the motor vehicle is not regarded as the provision of a fringe benefit in either of the circumstances outlined above.

Therefore, it could be argued that the employer in each case would have a GST liability of $2,000. Technically, that liability should be calculated by reference to the GST-inclusive market value of the services the employer has received from the employee as consideration for the supply. However, in accordance with GSTR 2001/6, that liability can be calculated as 1/11th of the GST-inclusive market value of the motor vehicle supplied by the employer to the employee.

Alternatively, it might also be argued that the motor vehicle has been supplied to the employee as salary and wages. The employer would have a PAYG (Withholding) obligation but would have no liability for payment of GST on the supply of the motor vehicle. Clearly, the employee is not carrying on an enterprise in connection with the provision of services as an employee. To treat the supply of the motor vehicle to the employee as the payment of salary and wages without any GST liability brings some symmetry to the relative positions of the employer and the employee.

ATO response

Questions

1. Is an employer making a taxable supply when it provides goods (eg a motor vehicle) to an employee as, or as part of, a termination payment?

2. Is an employer making a taxable supply when it provides goods (eg a motor vehicle) to an employee and that payment is not an eligible termination payment?

Background

Eligible termination payments

An eligible termination payment (ETP), as defined by section 27A of the Income Tax Assessment Act 1936 (ITAA 1936), means, amongst others 'any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer'.

Subsection 27A(8) of the ITAA 1936 provides that the transfer of property to, or for the benefit of, a person is deemed to be a payment of an amount equal to the value of the property. Therefore, the transfer of property can be an 'eligible termination payment'.

Fringe benefits

When an employer provides a car fringe benefit to an employee, the employer is making a supply. The consideration for the supply is the employee's services. Therefore, the employer is making a taxable supply of the motor vehicle (assuming the other requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met). However, the amount of GST payable on the taxable supply is calculated by reference to section 9-75 of the GST Act.

Where the supply is a fringe benefit, subsection 9-75(3) of the GST Act applies in determining the 'price' of the supply. Subsection 9-75(3) states:

In working out under subsection (1) the value of a taxable supply made in a tax period, being a supply that is a fringe benefit, the price is taken to be the sum of:

(a) to the extent that, apart from this subsection, paragraph (a) of the definition of price in subsection (1) would be applicable:

(i) if the fringe benefit is a car fringe benefit - so much of the amount that would be worked out under that paragraph as represented the recipient's payment made in that period, or

(ii) if the fringe benefit is a benefit other than a car fringe benefit - so much of the amount that would be worked out under that paragraph as represented the recipients contribution made in that period, and

(b) to the extent that, apart from this subsection, paragraph (b) of the definition of price in subsection (1) would be applicable:

(i) if the fringe benefit is a car fringe benefit - so much of the amount that would be worked out under that paragraph as represented the recipient's payment made in that period, or

(ii) if the fringe benefit is a benefit other than a car fringe benefit - so much of the amount that would be worked out under that paragraph as represented the recipient's contribution made in that period.

In order to calculate the amount of GST payable on that taxable supply, the price of the supply must be determined. Section 9-75 of the GST Act provides that the price is the amount of consideration (where the consideration is expressed as an amount of money). Subsection 9-75(3) of the GST Act does not change the 'consideration' provided for the supply, it merely alters the price of the supply to equal the amount of the recipient's payment in relation to that supply.

Therefore, where an employer provides a car fringe benefit, the employer is making a taxable supply to the employee. However, where the employee does not make any recipient's payments, the price of the supply is nil and the amount of GST payable is nil.

Question 1

For the purposes of the GST Act, a 'fringe benefit' is defined by section 195-1 of the GST Act to have the meaning:

'given by section 995-1 of the ITAA 1997 but includes a benefit within the meaning of subsection 136(1) of the Fringe Benefits Assessment Act 1986 that is an exempt benefit for the purposes of that Act'.

Paragraph 136(1)(k) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) specifically excludes a payment that would be an eligible termination payment (ETP) from the definition of a fringe benefit.

The supply of a motor vehicle by an employer as part of an ETP is not a fringe benefit within the meaning given by section 995-1 of the ITAA 1997, nor is it an exempt benefit within the meaning of subsection 136(1) of the FBTAA. As a consequence, the supply of the motor vehicle is not a 'fringe benefit' for the purposes of the GST Act. For a supply that is not a fringe benefit within the meaning of the GST Act, subsection 9-75(3) of the GST Act does not apply.

Consideration

Paragraph 9-5(a) of the GST Act requires a taxable supply must be 'for consideration'. The term 'consideration' is used both in subsection 27A(8A) of the ITAA 1936 and also in section 9-5 of the GST Act. However, it does not follow that the word must have the same meaning in each. Whilst section 27 of the ITAA 1936 does not define 'consideration', for GST purposes, it is defined by section 9-15 of the GST Act and includes:

• any payment, or any act or forbearance, in connection with a supply of anything, and
• any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

This response reflects the ATO view in respect of the meaning of 'consideration' for the purposes of section 9-15 of the GST Act only. It does not reflect the Tax Office view of the meaning of 'consideration' for any other purpose, particularly in regard to subsection 27A(8A) of the ITAA 1936. The ATO is in the process of issuing an ATO ID in regard to the meaning of consideration for the purposes of subsection 27A(8A) of the ITAA 1936 which should be released in the near future.

The Explanatory Memorandum (EM) to the A New Tax System (Goods and Services Tax) Bill 1998 (GST Bill) states:

Consideration

3.9 Section 9-15 defines consideration. Consideration for GST is broader than it is for contractual purposes. Consideration for GST is intended to be very broad and includes any:

• payments, acts, refraining from acting or forbearance that are made for a supply
• payments, acts, refraining from acting or forbearance that are made in response to a supply
• payments, acts, refraining from acting or forbearance that are made to induce a supply, and
• payment for a supply even if paid by a person other than the recipient of the supply.

As stated in the EM to the GST Bill, the term 'consideration', for the purposes of GST, is intended to be very broad and includes more than a monetary payment.

When amending the GST Act, the Parliament was of the opinion that 'services provided by an employee would constitute 'consideration' within the broad definition of that term in section 9-15'. The EM to the A New Tax System (Fringe Benefits) Bill 2000 states:

2.4 … To the extent an employee provides consideration (other than services as an employee) for goods or services provided by an employer, that amount is to be treated as the price of a taxable supply.

2.6 Consideration given by the recipient, other than the services provided by the employee as an employee, is to be treated as the price of a supply which has not been subject to FBT. GST will therefore be payable on taxable supplies that are fringe benefits and exempt benefits but only if the recipient does give consideration of that kind. The amount of GST will be calculated by reference to the consideration given by the recipient.

2.9 Ordinarily goods and services provided by an employer to an employee or associate of an employee would be taxable supplies, unless the supplies are input taxed or GST-free. Services provided by an employee would constitute 'consideration' within the broad definition of that term in section 9-15 of the GSTA 1999.

Even though the A New Tax System (Fringe Benefits) Act 2000 makes amendments to the GST Act in relation to the supply of fringe benefits, the assertion that the services provided by an employee would constitute 'consideration' applies equally to supplies that are not fringe benefits. Goods and Services Tax Ruling, GSTR 2001/3 discusses how GST applies to supplies of fringe benefits. Paragraph 19 of GSTR 2001/3 articulates the view that the consideration for the supply of a fringe benefit is the services provided by the employee and states that the 'services of an employee can be consideration for the supply of a fringe benefit to that employee'.

Therefore, for the purposes of the GST Act, the employer is making a taxable supply when it provides a motor vehicle to a former employee as part payment of an eligible termination payment. The consideration for the supply (as it is with the supply of a fringe benefit) is the employee's services. The price of the supply (when determining the GST payable), when the consideration is not expressed as an amount of money, is the market value of the consideration (services) because subsection 9-75(3) of the GST Act does not apply.

Goods and Services Tax Ruling GSTR 2001/6 provides guidance when determining the price of a supply where the consideration is not expressed as an amount of money. Paragraph 151 of GSTR 2001/6 states:

Where the consideration is difficult to value (for example, an intangible) and where the market value of the supply is readily ascertainable, you may determine the market value of the consideration by reference to the market value of the supply. Using this method, the market value of the non-monetary consideration will be determined by reference to the market value of the supply. However, if there is any monetary consideration provided in addition to any non-monetary consideration in relation to that supply, you need to make an appropriate adjustment.

Therefore, the supply of a motor vehicle as part of an ETP is a taxable supply made by the employer. The GST payable on the supply may be determined by reference to the market value of the supply.

Question 2

The second question raises the issue of whether the response is the same if the payment is not an ETP. If the supply of the motor vehicle is not an ETP, then it will presumably be a fringe benefit. The supply will be a taxable supply and the consideration for the supply will still be the employee's services. However, as the supply is a fringe benefit, subsection 9-75(3) of the GST act will apply to reduce the 'price' on which the GST is calculated, to the amount of the recipient's payment.

Therefore, where the employee does not make any recipient's payments, the price of the taxable supply is nil and the GST payable is also nil where the supply of the motor vehicle is a fringe benefit.