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ATO Interpretative Decision

ATO ID 2004/316 (Withdrawn)

Goods and Services Tax

GST and cancellation of a licence as a result of a government direction
FOI status: may be released
  • This ATO ID has been superseded by GSTR 2006/9.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 licence holder, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when its licence is cancelled as a result of a government direction?

Decision

No, the entity is not making a taxable supply under section 9-5 of the GST Act when its licence is cancelled as a result of a government direction, as the entity is not making a supply.

Facts

The entity is a holder of a licence issued by a government body. The entity is registered for goods and services tax (GST).

In accordance with the relevant government legislation, the government body issues a direction for the cancellation of the entity's licence. The government direction is published in the government gazette. The entity is entitled to and receives compensation.

The entity has done nothing to cause the cancellation of the licence. The entity has no right of appeal against the cancellation of its licence.

Reasons for Decision

Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply. The first requirement is that there must be a supply for consideration (paragraph 9-5(a) of the GST Act).

The term 'supply' is a broad concept for GST purposes and is defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'.

The meaning of the term 'supply' is discussed in Goods and Services Tax Ruling GSTR 2001/4. Paragraph 22 of GSTR 2001/4 provides that a supply is essentially 'something which passes from one entity to another'. Further, paragraph 25 of GSTR 2001/4 provides:

Subsection 9-10(2) refers to two aspects of a supply; the thing which passes, such as goods, services, a right or obligation; and the means by which it passes, such as its provision, creation, grant, assignment, surrender or release.

Therefore, in the GST Act, the term 'supply' covers not only the subject of the transaction - the thing that passes - but also includes the action by which the thing passes from one entity to another. In addition, by use of the word 'make' in the phrase 'you make the supply' in paragraph 9-5(a) of the GST Act, there is a requirement for a supplier to take some action to cause a supply to be made. This means that the entity must take some action or do something for a supply to occur.

Therefore, it is necessary to determine whether the entity makes a supply when its licence is cancelled. In particular, whether the entity is surrendering any of its rights provided under the licence.

In accordance with the relevant government legislation, the government body issues a direction for the cancellation of the entity's licence. The government direction is published in the government gazette. The entity has no right of appeal against the cancellation of its licence.

The entity did not take any action to cause its rights to be surrendered to the government, as the rights under the licence were extinguished by the government. As the rights were extinguished without the entity's action, the entity is not making a surrender of a right. Accordingly, as the entity is not making a supply as defined under subsection 9-10(1) of the GST Act, there is no 'supply' being made by the entity under paragraph 9-5(a) of the GST Act.

The entity is not making a taxable supply under section 9-5 of the GST Act when its licence is cancelled as a result of a government direction.

Note: Action by the holder of a government licence to appeal the amount of compensation provided by the relevant authority will not affect whether there is a supply made by the entity. Regardless of the outcome of this action, the cancellation of the licence still does not result in a supply by the entity.

Date of decision:  18 February 2004

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   paragraph 9-5(a)
   subsection 9-10(1)

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2001/4

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

Business Line:  GST

Date of publication:  8 April 2004

ISSN: 1445-2782

history
  Date: Version:
  18 February 2004 Original statement
You are here 18 May 2007 Archived

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