Goods and Services Tax Advice
GSTA TPP 014
Goods and services tax: Is an assignment of trade debts by a registered entity reporting on a cash basis GST-free if the assignment is made under an arrangement for the supply of an enterprise as a GST-free going concern?
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Preamble
| This document was published prior to 1 July 2010 and was a public ruling for the purposes of former section 37 of the
Taxation Administration Act 1953
and former section 105-60 of Schedule 1 to the
Taxation Administration Act 1953.
From 1 July 2010, this document is taken to be a public ruling under Division 358 of Schedule 1 to the Taxation Administration Act 1953 . A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. [ Note: This is a consolidated version of this document. Refer to the Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] |
Answer
Yes. Trade debts can be things necessary for the continued operation of an enterprise. They can be assigned under an arrangement for the supply of the enterprise. If the supply of a going concern is GST-free under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) the assignment of the trade debts included under the arrangement is also GST-free
Example
S is a registered entity for GST and reports on a cash basis. S makes taxable supplies to customers and carries trade debts of $11,000 in relation to these supplies. S supplies its enterprise to P, who is also registered, as a GST-free supply of a going concern and assigns the trade debts to P under the arrangement. P agrees to pay S $11,000 for the assignment. S tells its customers that it has assigned their debts. P also agrees to notify S when it receives any payments from the debtors. Some time after settlement, one of the customers pays P $550 for a supply that S had made.
Explanation
When a vendor supplies an enterprise and assigns to the purchaser the rights to collect its trade debts, the assignment, and the consideration for the assignment, is separate to the original supplies made by the vendor. As the debtors accounts can be things necessary for the continued operation of an enterprise, the assignment of the debts by the vendor to the purchaser can form part of a GST-free supply of a going concern under section 38-325 of the GST Act.
When the customer pays P $550, S becomes liable for GST of $50. S is required to pay the GST in the tax period in which P receives the payment. The payment by the customer is treated as consideration for the earlier taxable supply made by S. If the customer only pays part of the debt, S is liable for GST to the extent of 1/11 of the amount paid.
In the contractual arrangements, S needs to ensure that P will notify it about each payment it receives. This is because S is still liable for the GST on the earlier supplies it has made and, in this case, would be liable for GST of $50 even if not notified by P.
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Application of this GST Advice
This Advice is based on GSTR 2002/5. That Ruling replaced GSTR 2001/5, which explains our view of the law as it applied from 1 July 2000. You can rely on this Advice on and from its date of issue for the purposes of section 37 of the Taxation Administration Act 1953. Goods and Services Tax Ruling GSTR 1999/1 explains the GST rulings system and our view of when you can rely on our interpretation of the law in GST public and private rulings. If this Advice conflicts with a previous private ruling that you have obtained, this public ruling prevails. However, if you have relied on a private ruling, you are protected in respect of what you have done up to the date of issue of this public ruling. This means that if you have underpaid an amount of GST, you are not liable for the shortfall prior to the date of issue of this later ruling. Similarly, you are not liable to repay an amount overpaid by the Commissioner as a refund. |
Commissioner of Taxation
14 June 2005
Not previously issued as a draft
References
ATO references:
NO 05/3095
Related Rulings/Determinations:
GSTR 2001/5
Subject References:
GST-free
going concern
debts
Legislative References:
ANTS(GST)A 99 38-325
ANTS(GST)A 99 Div 135
TAA 1953 37
| Date: | Version: | Change: | |
| You are here | 14 June 2005 | Original ruling | |
| 31 October 2012 | Consolidated ruling | Addendum |