ATO Interpretative Decision
ATO ID 2005/253
Goods and Services Tax
GST and adjustments in relation to the settlement of a voidable preference claimFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does the entity, a company in liquidation, have an adjustment under section 19-70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when its representative receives a payment in settlement of a voidable preference claim?
Decision
Yes, the entity has an adjustment under section 19-70 of the GST Act when its representative receives the settlement payment.
Facts
The entity is registered for goods and services tax (GST) and accounts for GST on a basis other than cash.
The entity made a creditable acquisition from a supplier and provided payment for the acquisition. The input tax credit for the creditable acquisition was attributable to, and claimed in, the tax period in which the payment was made. The entity has not had any adjustments under Division 21 or 129 of the GST Act for the acquisition.
Subsequently, a liquidator (representative) was appointed to wind up the entity. The representative commenced legal action against the supplier on the basis that the payment made to the supplier was a voidable transaction pursuant to section 588FE of the Corporations Act 2001.
The supplier and the representative agreed to settle the matter before it was heard by a court. Under the deed of settlement, the supplier repaid, to the representative, a portion of the consideration it had previously received from the incapacitated entity for the creditable acquisition.
The deed provides that the supplier will not lodge a claim (proof of debt) against the incapacitated entity in the winding up process.
Reasons for Decision
Under section 19-70 of the GST Act an entity has an adjustment for an acquisition if:
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- in relation to the acquisition, one or more adjustment events occur during a tax period
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- an input tax credit on the acquisition was attributable to an earlier tax period, and
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- as a result of those adjustment events, the previously attributed input tax credit amount for the acquisition no longer correctly reflects the amount of the input tax credit on the acquisition taking into account any change of circumstances that has given rise to an adjustment under Divisions 21 or 129 of the GST Act for the acquisition.
Paragraph 19-10(1)(b) of the GST Act provides that an adjustment event is any event 'which has the effect' of changing the consideration for a supply or acquisition.
The deed of settlement requires the supplier to repay some of the consideration provided by the incapacitated entity for the creditable acquisition. Paragraph 129 of Goods and Services Tax Ruling GSTR 2001/4 provides that an adjustment is required when a payment made under an out of court settlement is a repayment of consideration wholly or in part for an earlier supply. Under the deed, the supplier agrees that it will not lodge a claim (proof of debt) against the incapacitated entity in the winding up process.
Therefore, although the deed does not expressly state that the parties are agreeing to a change in the consideration for the earlier supply, the 'effect' of the deed is that the final consideration for the supply is less than the original amount. As such, the arrangement has the effect of changing the consideration for the incapacitated entity's acquisition and there is an adjustment event under paragraph 19-10(1)(b) of the GST Act.
As a result of the adjustment event, the previously attributed input tax credit amount no longer correctly reflects the amount of the input tax credit on the acquisition. Therefore, the incapacitated entity has an adjustment under section 19-70 of the GST Act for its acquisition.
Amendment History
| Date of amendment | Part | Comment |
|---|---|---|
| 2 May 2014 | Reasons for decision | Replace reference to section 147-20 with its current equivalents, subsection 58-10(4) and section 58-60. |
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
paragraph 19-10(1)(b)
section 19-70
Division 21
subsection 58-10(4)
section 58-60
Division 129
section 588FE
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2000/19
Goods and Services Tax Ruling GSTR 2001/4
Keywords
Goods and services tax
GST net amounts & adjustments
Adjustment events
Adjustments
GST special rules
Representative of incapacitated entities
ISSN: 1445-2782
| Date: | Version: | |
| 8 March 2005 | Original statement | |
| You are here | 2 May 2014 | Updated statement |
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