| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011821876423
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: GST and transfer of long service, unused holiday and sick leave entitlements
Question
Are you making a taxable supply when you receive a payment in respect of a new employee's long service, unused holiday and sick leave entitlements which accrued with the employee's former employer?
Answer: No
You are not making a taxable supply when you receive a payment in respect of a new employee's long service, unused holiday and sick leave entitlements which accrued with the employee's former employer.
Relevant facts
You are registered for goods and services tax (GST).
You conduct a lot of inter-company business with another company (company A) which has the same Directors as you.
You and company A are separate entities with an ABN of its own.
An employee was transferred from company A to you.
You receive a payment from company A that represents the employee's accrued long service, unused holiday and sick leave entitlements.
You are required to invoice company A for these entitlements.
Company A is registered for GST.
Reasons for decision
One of the requirements of a taxable supply is that an entity makes a supply (paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)). The term 'supply' is a broad concept for GST purposes and is defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. 'Supply' refers to 'something which passes from one entity to another'. Other jurisdictions have held that the term 'supply' takes its ordinary and natural meaning, being 'to furnish with or provide'.
Subsection 9-10(2) of the GST Act provides a list of examples of supplies. In particular subparagraph 9-10(2)(g) of the GST Act includes:
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;
As there is an entry into an obligation to do something by the new employer regarding the obligation to pay long service, unused holiday and sick leave entitlements, there is a supply within the meaning of section 9-10 of the GST Act.
In the GST Act, the term 'supply' covers not only the subject of the transaction - the thing that passes - but also includes the action by which the thing passes from one entity to another. By use of the word 'make' in the phrase 'you make the supply' in paragraph 9-5(a) of the GST Act, there is a requirement for a supplier to take some action to cause a supply to be made. This means that the new employer must take some action or do something to cause the supply to occur. The obligations in this case are imposed, required and effected by the words of the statute. Neither employer takes any action to enter into these obligations. There is no positive act by the new employer to cause a supply to occur.
The effect of the employee accepting employment with the new employer is that the former employer's obligation for any future long service, unused holiday and sick leave entitlements to the employee is extinguished. The obligation to pay long service, unused holiday and sick leave always rests with the current employer at the time when the leave is taken.
The new employer has not entered into an obligation with the former employer to do anything. The new employer's obligations are to the employee only and these arise from statute, not because of any obligation it enters into with the former employer. There is no supply by the new employer.
This means that for the purposes of paragraph 9-5(a) of the GST Act, the new employer has not ' made ' a supply of the entry into an obligation.
As a supply has not been made by the new employer, it is not necessary to proceed with the balance of paragraph 9-5(a) of the GST Act to ascertain if there is any consideration for the supply.
Therefore, while a supply has occurred, the supply was not 'made' by new employer and there has not been a taxable supply under section 9-5 of the GST Act.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
