Edited version of private ruling

Authorisation Number: 1011474836664

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Ruling

Subject: GST and sale assets

Issue 1

Question

Will the Commissioner of Taxation (Commissioner) allow the proposed methodology to account for GST, input tax credits and adjustments upon the sale of retail assets where a stock-take is impossible?

Answer

Yes.

Issue 2

Question

Is Entity X entitled to claim a bad debt decreasing adjustment?

Is the Purchaser entitled to claim bad debt decreasing adjustments as and when the Purchaser writes off any of the assigned debts as bad?

Answer

The Commissioner will allow Entity X to claim a bad debt decreasing adjustment.

The Commissioner will allow the Purchaser to claim bad debt decreasing adjustments as and when the Purchaser writes off any of the assigned debts as bad.

Issue 3

Question

Can the Purchaser can claim input tax credits for Entity X's acquisitions of 'supply Q' made by it prior to sale date but invoiced to the Purchaser post the sale date?

Will the Commissioner will exercise his discretion to treat as valid, tax invoices and adjustment notes issued to the Purchaser that include supplies of 'supply Q' made to Entity X prior to the sale date?

Can the Purchaser can claim input tax credits for acquisitions of 'supply p' made by Entity X from Entity y prior to sale date but invoiced to the Purchaser post the sale date?

Will the Commissioner will exercise his discretion to treat as valid, tax invoices and adjustment notes issued to the Purchaser by Entity y that include supplies of 'supply p' made to Entity X prior to the sale date?

Will the Commissioner accept that any GST related agreements entered into by Entity X (relevant to its business) prior to the sale date are treated as being entered into by the Purchaser?

Will the Commissioner accept that any private rulings issued to Entity X (relevant to its business) will apply to the Purchaser as if they had been issued to the Purchaser?

Will the Commissioner accept that any written "statements by suppliers" obtained by Entity X (relevant to its business) in respect of "no ABN withholding" will apply to the Purchaser as if they had been given to the Purchaser?

Answers

The Commissioner will allow the Purchaser to claim input tax credits for Entity X's creditable acquisitions of 'supply Q' made by it prior to sale date but invoiced to the Purchaser post the sale date.

The Commissioner will exercise his discretion to treat as valid, tax invoices and adjustment notes issued to the Purchaser that include supplies of 'supply Q' made to Entity X prior to the sale date.

The Commissioner will allow the Purchaser to claim input tax credits for acquisitions of 'supply p' made by Entity X from Entity y prior to sale date but invoiced to the Purchaser post the sale date.

The Commissioner will exercise his discretion to treat as valid, tax invoices and adjustment notes issued to the Purchaser by Entity y that include supplies of 'supply p' made to Entity X prior to the sale date.

The Purchaser will be required to obtain new agreements however the Commissioner will allow for a transitional period of 6 months that any GST related agreements entered into by Entity X (relevant to its business) prior to the sale date are treated as being entered into by the Purchaser.

The Commissioner will not accept that any private rulings issued to Entity X (relevant to its business) will apply to the Purchaser as if they had been issued to the Purchaser.

Any written 'statements by suppliers" obtained by Entity X (relevant to its business) in respect of "no ABN withholding" will be sufficient evidence to be relied on by the Purchaser, provided that the Purchaser holds these documents subsequent to the date of the sale of the business.

Relevant facts and circumstances

Your ruling is based on the following facts.

Issue 1

The Entity X is both a distributor and retailer of goods in Australia and has more than one million retail customers.

The Entity X will sell the following retail assets:

· customer contracts;

· debtors;

· the right to receive unbilled income;

· wholesale goods contracts, including purchase agreements, financial hedge arrangements, green rights sale and purchase contracts and goods transportation and supply contracts;

· intellectual property rights associated with the Entity X's brand and other retail business trade marks; and

· certain fixed assets (if any).

It is not expected that the Purchaser will have billing systems capable of immediately managing the retail customer accounts. As a consequence, the Entity X will provide various services to the Purchaser under a Transitional Services Agreement (TSA). Under this Agreement, the Entity X will provide (amongst other things) billing services to the Purchaser for a limited period of time.

To facilitate the sale of the retail assets, the Entity X intends to have in place arrangements for the following:

· Unbilled income in respect of goods supplied by the Entity X to be invoiced by the Purchaser post sale date

· Adjustments to amounts invoiced by and to the Entity X pre sale date

· Tax invoices

· Unbilled system charges supplied to the Entity X

· Contractual supplies of certain goods.

Issue 2

Broadly, it is proposed that Entity X will sell (including by assignment) the following assets:

· Customer contracts;

· Debtors;

· The right to receive unbilled income.

Issue 3

Acquisitions of 'Supply Q' by Entity X

Tax invoices issued by providers for 'supply Q' after the sale date (and which include a period of 'Supply Q' supplied which spans the sale date) will include undifferentiated supplies of 'Supply Q' made to Entity X (prior to the sale date) and to the Purchaser (post sale date).

Acquisitions of 'Supply p' by Entity X

The Entity y tax invoice which covers the billing period will include an undifferentiated portion of 'supply p' supplied to Entity X prior to the sale date, and a portion of 'Supply p' supplied to the Purchaser post sale date.

GST related agreements, GST private rulings and "statements by suppliers"

Entity X has (or may have by the sale date) the following GST related agreements with third parties:

· Recipient created tax invoice ('RCTI") agreements;

· Reverse charge agreements; and

· Division 153B agreements.

Entity X has also received various GST private rulings that relate to its business.

Entity X (in respect of its business) has received written "statements by suppliers' in respect of the 'no ABN withholding" provisions of section 12-190 of Schedule 1 to the Taxation Administration Act 1953.

Reasons for decision

Summary

The Commissioner will exercise his powers of general administration to allow the arrangements in the interests of protecting the revenue, promoting compliance at reduced costs, ensuring good management and maintaining community confidence in the tax administration system.

Detailed reasoning

The Entity X's situation is unusual because it is impossible practically to 'close off' its books at a given time due to its large client base and systems changes, if possible, would likely be prohibitively expensive.

Issue 1

Arrangements 1, 2, 4 and 5

Based on the facts of the Entity X's particular circumstances, we consider that it is appropriate for the Commissioner to exercise his powers of general administration under Practice Statement Law Administration PS LA 2009/4 and allow the arrangements (1, 2, 4 and 5) in the interests of protecting the revenue, promoting compliance at reduced costs, ensuring good management and maintaining community confidence in the tax administration system.

Tax invoices arrangement

The requirements for a valid tax invoice are set out in subsection 29-70(1) of the GST Act and regulation 29-70.01 of the A New Tax System (Goods & Services Tax) Regulations 1999. One of the legislative requirements is that a tax invoice must be issued by a supplier.

In your case, apart from a recipient created tax invoice, the tax invoice must contain the name and ABN of the supplier which in this case would be the Entity X where it has made supplies of goods prior to sale date instead of the Purchaser. Therefore, the legislative requirements for a valid tax invoice will not be met under the arrangement to have only the name and ABN of the Purchaser in respect of supplies made by the Entity X.

However, subsection 29-70(1) of the GST Act allows the Commissioner to exercise his discretion to treat a document as a tax invoice, despite the fact that it does not comply with all the legislative requirements.  This discretion allows some flexibility where the document in question may not meet all the strict requirements of a tax invoice but it is reasonable for the document to be treated as a tax invoice.

Therefore, it is necessary to consider whether the Commissioner can determine to treat the documents to be issued by the Purchaser as valid tax invoices.

Practice Statement Law Administration PS LA 2004/11 provides guidance on what factors the Commissioner will consider when exercising his discretion to treat a document as a tax invoice and Attachment A of PS LA 2004/11 deals with amongst other issues, the exercise of discretions for a supplier.

Paragraph 4 of Attachment A of PS LA 2004/11 indicates that the exercise of the discretions may also be sought by a supplier in respect of documents that are yet to be issued.

Example 8 of Attachment B of PS LA 2004/11 provides an example where the Commissioner will exercise his discretion under subsection 29-70(1) in a merger situation where from the merger date, tax invoices will be issued in the name of the new entity yut most of their customers will receive bills that span the merger date.

Similarly in this case, the Commissioner will, under subsection 29-70(1), exercise his discretion and:

· treat the tax invoices for unbilled income as valid where they are issued by the Purchaser; and

· treat the adjustment notes issued by the Purchaser in respect of any adjustments to the price of the unbilled income.

The above discretion will only be exercised where customers are duly notified in writing that the invoices issued by the Purchaser will be treated as valid tax invoices in respect of goods supplied in the billing period spanning the sale date.

The Commissioner will, under subsection 29-70(1), exercise his discretion and treat tax invoices and adjustment notes in respect of unbilled income issued by the Purchaser as valid.

Adjustments may arise due to errors and this may occur some months after the sale date. Based on the facts of your particular circumstances, we consider that it is appropriate for the Commissioner to exercise his discretion to treat as valid any tax invoices or adjustment notes issued within the requested period after the sale date by the Purchaser and containing only the Purchaser's name and ABN which relates to unbilled income as at sale date.

Further, the Commissioner will, under subsection 29-70(1), exercise his discretion and treat as valid tax invoices and adjustment notes issued by the Purchaser which contain amounts of goods supplied and invoiced by the Entity X prior to sale date provided all the legislative requirements for a tax invoice are met. The tax invoice or adjustment note in this case will have the name and ABN of the Purchaser instead of the Entity X's.

Issue 2

Division 21 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deals with bad debts. Section 21-5 of the GST Act states:

You have a decreasing adjustment if:

· you made a *taxable supply; and

· you write off as bad the whole or a part of the debt, or the whole or a part of the debt has been *overdue for 12 months or more.

· the whole or part of the *consideration for the supply has not been received; and

The amount of the decreasing adjustment is 1/11 of the amount written off, or 1/11 of the amount that has been overdue for 12 months or more, as the case requires.

Goods and Services Tax Ruling GSTR 2000/2 'Goods and Services Tax: adjustments for bad debts' notes at paragraph 32:

You have a decreasing adjustment if the following criteria are met:

· you have made a taxable supply;

· you have attributed the GST to a tax period;

· you have not received all or part of the consideration; and

· you have written off the debt or the debt has been overdue for 12 months or more.

GSTR 2000/2 further discusses writing off bad debts and notes at paragraph 43:

43. Before you are entitled to make a decreasing adjustment under Division 21 for a debt that has not been overdue for 12 months or more, the debt must be written off.

Based on the facts of your particular circumstances, we consider that it is appropriate for the Commissioner to exercise his powers of general administration and allow you to claim bad debt decreasing adjustments.

The Commissioner will allow the Purchaser to claim bad debt decreasing adjustments as and when the Purchaser writes off any of the assigned debts as bad.

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You are entitled to the input tax credit for any creditable acquisition that you make

Goods and Services Tax Ruling GSTR 2008/1 'Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose?' notes at paragraph 20:

The Australian GST is a multi-stage value added tax, borne at the point of final consumption of goods and services, and calculated with reference to supplies. A fundamental aspect of any value added tax is that tax is charged at every point at which value is added prior to final consumption, with credit available for GST charged at earlier stages. This credit results in each entity that is registered for GST paying a net amount at each stage, being the difference between the GST on their outputs (taxable supplies) and the GST on their inputs (creditable acquisitions).

In your situation, the technical requirements to make a creditable acquisition of both 'Supply Q' and 'Supply p' from Entity y by the Purchaser will not have been met because the acquisition(s) will be made by Entity X prior to the sale date. Instead, the proposal will effectively shift the opportunity to claim input tax credits from Entity X to the purchaser. Ordinarily the Commissioner would not endorse such a claim.

Your situation is unusual because it is impossible practically to 'close off' your books at a given time. Systems changes, if possible, would likely be prohibitively expensive.

Issue 3 - Input tax credits

Based on the facts of your particular circumstances, we consider that it is appropriate for the Commissioner to exercise his powers of general administration and allow Entity X's input tax credits for creditable acquisitions of 'supply Q' to be claimed by the Purchaser for the period of approximately 3 months after the sale date. It is appropriate for the Commissioner to exercise his powers of general administration and allow Entity X's input tax credits for creditable acquisitions of 'supply p' for the billing period that spans the sale date.

This is contingent upon Entity X forgoing such claims in the respective periods.

Issue 3 - Tax Invoice discretion

The requirements for a valid tax invoice are set out in subsection 29-70(1) of the GST Act and regulation 29-70.01 of the A New Tax System (Goods & Services Tax) Regulations 1999. One of the legislative requirements is that a tax invoice must contain the name of the recipient and the quantity of goods or the extent of the service supplied.

In your case, the supplier's tax invoice will contain only the name and ABN of the Purchaser as recipient but will be for undifferentiated supplies of 'Supply Q' and 'Supply p' to Entity X and the Purchaser. Therefore, the legislative requirements for a valid tax invoice will not be met under the arrangement to have only the name and ABN of the Purchaser in respect of supplies of 'Supply p' made by Entity X.

However, subsection 29-70(1) of the GST Act allows the Commissioner to exercise his discretion to treat a document as a tax invoice, despite the fact that it does not comply with all the legislative requirements.  This discretion allows some flexibility where the document in question may not meet all the strict requirements of a tax invoice but it is reasonable for the document to be treated as a tax invoice.

Therefore, it is necessary to consider whether the Commissioner can determine to treat the documents to be issued by the Purchaser as valid tax invoices.

Practice Statement Law Administration PS LA 2004/11 provides guidance on what factors the Commissioner will consider when exercising his discretion to treat a document as a tax invoice and Attachment A of PS LA 2004/11 deals with amongst other issues, the exercise of discretions for a supplier.

Paragraph 12 of Attachment A of PS LA 2004/11 indicates that the exercise of the discretions may also be sought by a recipient to exercise the discretion before the supply has even occurred and before a document is sought or obtained from the supplier

Example 8 of Attachment B of PS LA 2004/11 provides an example where the Commissioner will exercise his discretion under subsection 29-70(1) in a merger situation where from the merger date, tax invoices will be issued in the name of the new entity yut most of their customers will receive bills that span the merger date.

Similarly in your case, the Commissioner will, under subsection 29-70(1), exercise his discretion and:

· treat the tax invoices for acquisitions of 'Supply Q' and for acquisitions of Entity y 'Supply p' as valid where they are received by the Purchaser; and

· treat the adjustment notes received by the Purchaser in respect of any adjustments to the price of the 'Supply Q' and for adjustments to the price of Entity y 'Supply p'.

Issue 3 - GST related agreements

Based on the facts of your particular circumstances, we consider that it is appropriate for the Commissioner to exercise his powers of general administration and allow for a transitional period of 6 months that any GST related agreements entered into by Entity X (relevant to its retail business) prior to the sale date are treated as being entered into by the Purchaser.

Issue 3 - Entity X private rulings

A private ruling is provided in writing and applies to a particular taxpayer in relation to their specific circumstances. Following the passage of the Tax Laws Amendment (2010 GST Administration Measures No 2) Bill 2010 on 17 June 2010, the general rulings system will expand to include excise, GST and other indirect taxes from 1 July 2010. Section 357-60 of the Taxation Administration Act 1953 outlines when rulings are binding on the Commissioner. In essence, each private ruling is specific to an entity, and cannot be relied on by another entity. Should the Purchaser of the retail business be seeking to rely on a previous private ruling issued to Entity X, they will need to apply to the Commissioner for their own private ruling.

Issue 3 - Statements by suppliers

Generally you must withhold 46.5 % of the total payment for a supply unless you have an invoice or some other document relating to the supply on which the supplier's ABN is quoted.

A 'Statement by a supplier' may be provided where there are reasons for a supplier not quoting an ABN, such as the supplier is not entitled to an ABN as they are not carrying on an enterprise in Australia.

This Statement is not issued to any particular recipient and its application is not restricted. Provided the Purchaser holds the Statement subsequent to the sale of the retail business, it will be sufficient evidence to rely on for no ABN withholding purposes.

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