Edited version of private ruling

Authorisation Number: 1011542151878

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Ruling

Subject: GST supplies made by a company before the appointment of a representative.

Question

Are you, Deed Administrators of a Deed of Company Arrangement (DOCA) between Company A Pty Ltd (A), Company B Pty Ltd (B) and their creditors, liable to pay GST in respect of an amount received in accordance with the terms of a Deed of Termination?

Answer

No, A is responsible for the payment of GST on this amount.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were appointed Deed Administrators of the DOCA between A, B and their creditors.

Prior to this date you were the Administrators of A and B (Administrators).

While Deed Administrators, you were paid an amount (GST inclusive) as a result of a Deed of Termination, entered into by the Administrators, a certain state or territory government in Australia (Government) and another entity (L).

This Deed of Termination was entered into to enable payment to be made to the Administrators for partially completed works carried out by A on land owned by L (Land), prior to A and B being placed in the hands of the Administrators. The details of these works and the reasons for the Deed of Termination are as follows:

· A entered into a contract (Contract) and then, inter alia, a Principal Agreement (Principal Agreement) with the Government.

· The parties to the Principle Agreement were:

o The Government (who contracted with A to do certain works).

o A.

o L (Land owners).

o B who has undertaken to do the development works after the works were completed.

· 'A' commenced the works under the Contract. No progress payments were made in accordance with the Principle Agreement as it was intended A would only be paid for those works at the completion stage, pursuant to set-off arrangements as provided by the Principle Agreement.

· The parties then entered into a Deed of Variation to the Principal Agreement, but the only copy you have is undated and unsigned.

· No works were performed by 'A' under the Contract after the appointment of the Administrators.

· The relevant parties subsequently entered into a Deed of Termination. Pursuant to a particular clause of the Deed of Termination, the parties acknowledged:

o the value of the works that had been performed under the Contract was a particular amount (inclusive of GST) (Works Value), and

o the Government would pay the Works Value to A, in full and final satisfaction of A's obligation under the Contract within so many months.

Copies of the following relevant documents were enclosed in your private ruling application:

i) Principal Agreement (which includes the Contract);

ii) Deed of Variation;

iii) Deed of Termination.

A copy of the DOCA was obtained from the Australian Securities and Investment Commission's website.

The DOCA provides that you have the powers to enter upon or take possession of A's and B's property and to call in, collect or convert into money said property.

The DOCA does not make you responsible for any supply made by A prior to your appointment.

A operates on an accruals basis of accounting for GST purposes.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) 1999 section 9-15(1)

A New Tax System (Goods and Services Tax) 1999 section 9-40

A New Tax System (Goods and Services Tax) 1999 section 58-10.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

The supply was made by A prior to your appointment as Deed Administrators and hence it is their responsibility to report and pay the GST on the consideration received for their supply.

Detailed reasoning

When a company becomes subject to administration under a DOCA, the terms of the DOCA reveal in which circumstances and the extent to which the Deed Administrators can be taken to be acting as the company's representative.

Furthermore, Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Act sets out how to ascribe activities and liabilities between the representative and the incapacitated entity for GST purposes. In particular, section 58-10 of the GST Act provides that the representative (acting within the scope of their responsibility or authority for managing the incapacitated entity's affairs) and not the incapacitated entity, is liable for the GST consequences that arise from a supply, acquisition or importation or related acts or omissions during the representative's appointment.

Hence it becomes necessary to determine if the payment made to you is within your scope of responsibility under the DOCA or whether it is A's and hence, their responsibility to remit the GST payable on this amount.

Taxable supply made

Under section 9-40 of the GST Act, an entity must pay the GST on any taxable supply that it makes.

Section 9-5 of the GST Act further states that the entity makes a taxable supply if:

· the entity makes the supply for consideration

· the supply is made in the course or furtherance of an enterprise that the entity carries on

· the supply is connected with Australia, and

· the entity is registered, or required to be registered for GST.

'A' accounts for GST on a non-cash basis and neither issued an invoice nor received any payment for the works completed prior to 6 November 2008 as per the terms of the Principal Agreement. Consequently it was not required to remit GST at the time of supplying the works.

The supply of the works was made in the course of A's enterprise, is connected with Australia as the works were supplied in Australia and A was registered for GST. However, as payment for the supply was received during your appointment, it becomes necessary to determine whether the supply was made for consideration.

Subsection 9-15(1) of the GST Act defines consideration to include:

· any payment, or act or forbearance, in connection with a supply of anything, and

· any payment, or act or forbearance, in response to or for the inducement of a supply of anything.

The payment received by you is in connection with a supply made by A prior to your appointment. Neither section 9-5 nor subsection 9 -15(1) of the GST Act requires that the consideration must be received by the supplier of the goods or services. Therefore, the supply was made for consideration, even though that consideration was provided to another entity (you as Deed Administrators).

Furthermore, although the DOCA gives you the responsibility to collect any outstanding money owed to A (something that would be generally expected of any DOCA), it does not make you responsible for any supply made prior to your appointment as the Deed Administrators.

Therefore you as a representative of an incapacitated entity are not liable to pay the GST on this transaction as it is not within the scope of your responsibility or authority for managing A's affairs.

Accordingly, A made a taxable supply under section 9-5 of the GST Act and it is A that is liable for the GST on the consideration received by you for this supply pursuant to section 9-40 of the GST Act.

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