Edited version of private ruling

Authorisation Number: 1011592731997

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Ruling

Subject: Transfer of rights, liabilities and interests from XX Inc to XX Limited

Question

Does XX Inc make a supply (or supplies), in accordance with section 9-10 of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), when its rights, liabilities and interests are transferred to XX Limited pursuant to the appropriate legislation.

Answer: No.

XX Inc does not make a supply (or supplies), in accordance with section 9-10 of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), when its rights, liabilities and interests are transferred to XX Limited pursuant to the appropriate legislation.

Relevant facts and circumstances

XX Limited is a continuation of the previous XX Inc, simply in a different legal form. That is, XX Limited will continue the advocacy, advisory and monitoring role previously performed by XX Inc.

The only change between the two entities is in the legal form - from an entity incorporated under the previous Act to a company limited by guarantee.

In all material aspects, there has been no change in day-to-day operations between XX Inc and XX Limited.

The Explanatory Memorandum to the legislation provides that the current statutory obligations of XX Inc will cease and any obligations arising before that date will be discharged by the new entity, XX Limited.

The transfer of all rights, liabilities and interests from XX Inc to XX Limited was made pursuant to the Act.

The Act provides that all rights, liabilities and interests of XX Inc that are in existence immediately before a certain date, are taken to be the rights, liabilities and interests of XX Limited after that date.

Contentions

You contend that:

XX Inc. does not make a supply in relation to the transfer of its rights, liabilities and interests to XX Limited, as XX Inc will not take any action (i.e. it will not "do" anything) to cause its rights, liabilities and interests to be transferred. Instead, it is the operation of statute that will effect transfer.

XX Inc can only be described as taking a facilitative role in the transfer process.

In relation to the specific issue of the transfer, the transfer is a procedural and very minor aspect of broader reform and as such, was not an aspect led or driven by XX.

This is demonstrated by the fact that the XX transfer takes place entirely within the ambit of just one section within the Act.

XX was not concerned with, nor had any input into, the form or drafting of the Act.

From XX Inc's perspective, the legal form of the XX is an issue which is dictated by the legislative framework (i.e. the Act).

It cannot be said that XX Inc has taken an active or driving role in initiating or progressing the transfer.

XX Inc's role is simply to act in accordance with the Act - essentially a facilitative role.

The "special" circumstances present in Hornsby Shire Council v Commissioner of Taxation [2008] AATA 1060 (Horsnby) are not evident in this case and you consider that the transfer of XX Inc's rights, liabilities and interests does not trigger a supply.

You note that in the context of Machinery of Government (MOG) changes, say the merger of two departments, it is common that following a high level announcement by the Government, both departments will each establish project teams to implement the necessary changes. Usually, it is the responsibility of the project teams to, amongst other things:

· Identify and undertake all systems and technology upgrades;

· Apply for, cancel or amend taxation and legal requirements (e.g. ABN's and tax file numbers);

· Engage and pay for all third party providers to assist with the MOG changes (if required); and

· Notify affected parties.

You consider that the role played by XX Inc (as noted above) during the transfer is comparable to the role played by the departments affected by MOG changes.

Given that the Commissioner accepts that MOG changes do not give rise to a supply, the only available conclusion is that the transfer of XX Inc's rights, liabilities and interests also do not give rise to a supply.

Where an entity's assets are transferred pursuant to legislation, the entity does not make a supply.

The same conclusion should apply in this case. That is, there is no supply in accordance with section 9-10 of the GST Act.

Detailed reasoning

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

* Indicates a defined term in the GST Act.

The meaning of supply is contained in section 9-10 of the GST Act. It states:

1.) A supply is any form of supply whatsoever.

2.) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of *real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a *financial supply;

(g) an entry into, or release from, an obligation:

i.) to do anything; or

ii.) to refrain from an act; or

iii.) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

Goods and Services Tax Ruling GSTR 2006/9: supplies (GSTR 2006/9), examines the meaning of 'supply' in the GST Act.

Part 2 of GSTR 2006/9 looks at how to identify and characterise supplies in the context of the transactions in which they are made. The ruling uses ten propositions to assist in analysing a transaction to identify the supply or supplies in that transaction.

Proposition 5, to 'make a supply' an entity must do something' is relevant in your case and is discussed at paragraphs 71 to 91 of the ruling.

Paragraph 71 of the ruling refers to paragraph 41 of GSTR 2004/9, a ruling which is about the assumption of liabilities. It states:

In adopting the ordinary and natural meaning of the term, 'to furnish or provide', it follows that an entity must take some action to 'make a supply'. This approach is consistent with the use of active phrases throughout the examples of supplies in subsection 9-10(2), such as the normalised verbs: 'a provision'; 'a grant'; 'a creation'; ' a transfer'; 'an entry into'; and 'an assignment'.

The use of the word 'make' in the context of section 9-5 was considered by Underwood J in Shaw v. Director of Housing and State of Tasmania (no.2) ('Shaw'). His Honour expressed the view that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply.

Further, in Westley Nominees Pty Ltd v. Coles Supermarket Australia Pty Ltd (2006), the court noted that the ordinary meaning of 'supply' required a positive act.

In your case, XX Inc did not take any action to cause it's rights, liabilities and interests to be transferred to XX Limited. The transfer is part of the broader reform and was effected under the Act. Further, the Explanatory Memorandum provides that the current statutory obligations of the XX will also cease on a specific date and any obligations arising before that date will be discharged by the new entity.

Machinery of government (MOG) changes

A MOG change at a Commonwealth, state, territory and local government level may occur at any time and may include:

· an abolition of a government department by transferring its functions to other government departments; or

· the creation of a government department; or

· movement of functions in to, or out of, government departments.

For GST purposes, MOG changes apply to both government entities and government-related entities.

An example of a common MOG change is when functions from one government organisation (the losing agency) are transferred to another government organisation (the gaining agency).

In these circumstances, both agencies are registered for GST. The losing agency may continue to exist or be abolished. The gaining agency may be an existing government organisation or a newly created one.

The transfer of the functions under the MOG change may be effected by:

· an administrative arrangements order (AAO) made for government entities

· a proclamation declared for government related entities such as local governing bodies

· an Australian law establishing a government related entity that is a body corporate.

At the time the MOG change takes effect, the AAO, proclamation or Australian law would operate (in relation to the transferred functions) to, among other things:

· transfer any property, assets, rights, debts, liabilities and obligations held by the losing agency to the gaining agency

· treat a reference to the losing agency in any document or arrangement as a reference to the gaining agency.

Where the losing agency has not taken any action to cause the assets and liabilities to be transferred to the gaining agency, there are no GST consequences if those assets or liabilities are transferred as a result of MOG changes.

In your case, XX Inc has transferred its rights, liabilities and interests to XX Limited pursuant to the Act.

In order to determine whether the transfer has occurred under the MOG changes, it is first necessary to determine whether or not XX would still be considered a government entity.

Government entities at the Commonwealth, State, Territory and local level may encounter a variety of structural changes that include but are not limited to the takeover of whole or part of an entity by another entity.

The Commissioner considers that where it is evident that an entity emerging from a machinery of government change is to be treated, at law, as a continuation of the pre-change entity, the ABN, TFN and other roles of the pre-change entity continue unaltered, with only a change to the Entity Name in the ABR. Such evidence may only be found in the primary or delegated legislation, including orders and determinations made under such legislation, through which the restructure is effected. This will be in the form of specific transition, transfer and savings provisions that provide that the new entity is to be treated as if it were the former entity such that the new entity has all the rights, entitlements, liabilities and obligations of the former.

Section 601BM of the Corporations Act 2001 provides that the registration of a body corporate as a company does not create a new legal entity or affect the body's existing property, rights or obligations or render defective any legal proceedings by or against the body. Therefore the corporate conversion of XX does not create a new legal entity but provides legal continuity of the pre-change entity.

The effect of s601BM is that it provides legal continuity to any body corporate that becomes a Corporations Act company. The Australian Taxation Office (ATO) would allow any entity that comes within s601BM to retain its identifier (whether it is a government entity or not).

Consequently, the Commissioner allows a continuation of registration where there is a specific transition, transfer and savings provision that provides that the new entity is to be treated as if it were the former entity such that the new entity has all the rights, entitlements, liabilities and obligations of the former. The Act provides for the transition of all rights, liabilities and interests of XX Inc to XX Limited.

Conclusion

XX Inc does not make a supply (or supplies) in accordance with section 9-10 of the GST Act, when its rights, liabilities and interests are transferred to XX Limited pursuant to the Act.

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