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Edited version of your written advice

Authorisation Number: 1051248045233

Date of advice: 19 July 2017


Subject: GST and Adjustments

Question 1

Is the request by Entity B for the liquidators of Entity A to pay the Recovery Amount an adjustment event under subsection 19-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?



Question 2

If the answer to question 1 is 'Yes’, does Entity A have a GST decreasing adjustment under section 19-55 of the GST Act?


Not necessary to answer

Question 3

If the answer to question (2) is 'Yes’, is the amount of Entity A’s decreasing adjustment the amount of GST stipulated on the Recipient Created Adjustment Note received?


Not necessary to answer.

Relevant facts and circumstances

Entity A is registered for GST.

On ddmmyyyy Entity A entered into X contracts with Entity B.

There were a number of adjustments and variations to the X contracts that increased the total contract prices

Entity A provided unconditional undertakings to Entity B based on a percentage of the original contract price.

Clause A provides the procedures to be followed when defects are detected during the contract.

Clause B provides the procedures to be followed when defects are found post completion.

Clause C sets out the methodologies for claiming damages in regards to delays caused by either Entity A or Entity B.

Clause D provides that if Entity B claims a sum from Entity A arising under the contracts Entity B may set off these amounts.

Under Clause E:

    ● Entity may terminate the contractor’s employment under the Contract for Contractor’s Default or Contractor’s Insolvency (E.1)

    ● In the case of Contractor’s Insolvency, Entity B may give the Contractor a notice of termination of its employment under the contract (E.5)

    ● Where Entity B terminates the Contractors employment , it is entitled to employ others to complete the works (E.6), in which case:

      ● Entity A must assign to Entity B its rights and benefits in all its contracts including unconditional undertakings, bank guarantees, insurance bonds, other security or purpose (E.6.2)

      ● Entity A must consent to a novation to the Entity B of all Subcontracts and its other contracts concerning the Works. (E.6.3)

      ● If the cost to Entity B of completing the Works exceeds the amount that would have been paid to Entity A to complete them, the difference will be a debt due by The Clause E payment is described as a debt due by Entity A

Entity A and B entered into a Recipient Created tax invoice (RCTI) agreement. Up until ddmmyyyy, the contract was partially completed and all supplies made had been attributed by Entity A across the contracts under the RCTI agreement.

Finance Facility

The underwriter of the undertakings was Entity C

Period of representations

On ddmmyyyy administrators were appointed and their period of administration ended on mmyyyy.

Entity A’s employment under the Contracts was terminated soon after as per clause E. Another contractor was engaged by Entity B to complete the remaining works under the Contracts.

On ddmmyyyy, Liquidators were appointed.

On ddmmyyyy a firm acting for Entity B estimated that the additional cost incurred by Entity B to complete the works was $XX.00. The recovery amount as calculated per clause E was reduced to $XY reflect the amounts paid out under the undertakings.

In mmyyyy the financier, Entity C lodged a proof of debt with the liquidator in relation to claims/payments made by Entity B against it in relation to Entity B’s contracts. This amount exceeded the percentage required under the contract.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 9-5,

A New Tax System (Goods and Services Tax) Act 1999 Division 19 and

A New Tax System (Goods and Services Tax) Act 1999 Division 11.

Reasons for decision

Under section 19-10, an adjustment event is any event which has the effect of:


    (b) changing the consideration for a supply or acquisition: or

    (c) …

Therefore, it is necessary to consider whether the recovery amount sought by Entity B relates to a supply that Entity A has made.

Entity A had attributed all supplies for the work done up to termination of their employment under the contract. The Contract contains clauses, which may lead to adjustments to the consideration for a supply already made by Entity A. These clauses were not invoked by Entity B.

Entity B invoked clause E of the contract to enable it to complete the Works that Entity A was contracted to complete and to recover the recovery amount.

Clause E relates specifically to work which Entity A failed to complete (due to insolvency), ie it relates to supplies not made by Entity A. Therefore, whilst the recovery amount sought by Entity B is determined by reference to the contract, it does not relate to any supply that Entity A has made. Accordingly, it is not an adjustment event.