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ATO Interpretative Decision

ATO ID 2001/360

Goods and Services Tax

GST and transfer of long service leave entitlements
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a government body, receiving consideration for a supply that is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it receives a transfer payment for an employee's accrued long service leave entitlement from the employee's previous employer, another government body?

Decision

Yes, the entity is receiving consideration for a supply that is a taxable supply under section 9-5 of the GST Act when it receives a transfer payment for an employee's accrued long service leave entitlement from the employee's previous employer.

Facts

The entity is a government body. The entity employs a new employee. Some state legislation and regulations require that, in certain circumstances, when an employee transfers from one government body to another, the previous employer must transfer an amount for the employee's accrued long service leave entitlement to the new employer.

The entity receives a transfer payment from the employee's previous employer. This payment represents the employees accrued long service leave entitlement.

The entity is registered for goods and services tax (GST). The transaction is made in the course or furtherance of an enterprise carried on by the entity in Australia.

Reasons for Decision

Section 9-5 of the GST Act provides that the entity will make a taxable supply if:

•
there is a supply for consideration;
•
the supply is made in the course or furtherance of an enterprise that is carried on by the entity;
•
the supply is connected to Australia; and
•
the entity is registered for GST, or required to be registered for GST.

The entity is registered for GST, the transaction is in the course or furtherance of the entity's enterprise and the supply is connected with Australia. Therefore, the question in this case is whether there is a 'supply' for 'consideration'.

Section 9-10 of the GST Act discusses the meaning of the word supply for GST purposes. Subparagraph 9-10(2)(g)(ii) of the GST Act states that a supply includes an entry into an obligation to do anything. In this case, the transfer payment for the accrued long service leave is made by the previous employer in exchange for the entity's entry into an obligation to allocate the funds towards the employee's entitlement to long service leave and to pay the entitlement for long service leave to the employee after the qualifying period. Therefore, the entity is making a supply as defined in section 9-10 of the GST Act.

Under paragraph 9-15(1)(a) of the GST Act, consideration includes any payment, or act or forbearance in connection with a supply of anything. In this case, it is considered that the transfer payment for the accrued long service leave entitlement is sufficiently connected with the entity's supply of entering into an obligation to apply that payment to the long service leave of the employee. Therefore, the payment by the previous employer amounts to consideration as defined in paragraph 9-15(1)(a) of the GST Act. As such, the entity is making a supply for consideration.

In this case, the entity is registered for GST and the transaction is a supply that fulfils all of the requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is receiving consideration for a supply that is a taxable supply under section 9-5 of the GST Act when it receives a transfer payment for an employee's accrued long service leave entitlement from the employee's previous employer.

[Note: The transfer payment for accrued long service leave entitlements made between employers is not salary and wages. The payment represents the movement of an accrued liability in the accounts of the previous employer to the new employer].

Date of decision:  30 May 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-10
   subparagraph 9-10(2)(g)(ii)
   paragraph 9-15(1)(a)
   Division 38
   Division 40

Keywords
Goods and services tax
GST supplies and acquisitions
GST supply
Taxable supply

Business Line:  GST

Date of publication:  29 September 2001

ISSN: 1445-2782

history
  Date: Version:
You are here 30 May 2001 Original statement
  15 August 2003 Archived

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