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Ruling

Subject: GST and Machinery of Government changes

Question

Do you make a supply in accordance with section 9-10 of the GST Act, when your assets, liabilities and instruments are transferred to another Government entity pursuant to Machinery of Government changes?

Answer

No

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.

· An Act received royal assent in 2007. The Act made significant structural changes to your industry, involving the establishment of four State-owned entities:

· In 2012, the relevant Government Minister announced the transfer of assets and liabilities of some Government departments to another Government department and the abolition of a certain commission.

· A new entity was established in 2012 to manage and administer the transfer of assets and liabilities.

· The entity established a Program Office and appointed an independent Program Director, Project Manager, Legal Adviser and Communications Consultant to manage the relevant transfers.

· In accordance with a section of the Act, the Treasurer and Government Minister provided a Ministerial direction to the boards of the Government departments. The Ministerial Direction directs the recipient to take necessary steps and provide full cooperation and in respect to the transfer of the relevant entity's business (including employees).

· An Amending Act received assent in 2012. The Amending Act provides for the merger of the businesses into a new entity and concomitantly abolishes a relevant Government commission.

· A Regulation was made in accordance with the powers conferred by in the Restructuring Act in 2012. The Regulation requires specified assets and liabilities of the certain Government Departments to be transferred or assumed by a new Department..

· Where instruments cannot be transferred as they are not made under State legislation, they will be novated to the new department.

· All the relevant Government departments are registered for GST.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 7-1

Sections 9-5

Sections 9-10

Reasons for decision

Issue 1

Question 1

Summary

You do not make a taxable supply and therefore are not subject to GST upon transferring certain assets, rights, and liabilities to the other entities.

Detailed reasoning

GST is payable on taxable supplies and taxable importations. Section 9-40 of the GST Act further provides that an entity must pay the GST payable on any taxable supply that it makes.

The term 'taxable supply' is defined in section 9-5 of the GST Act. This section provides the requirements for a supply to be taxable.

You make a taxable supply if:

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

…

Therefore, initially we need to consider whether you are making a supply in transferring certain of your assets, rights and liabilities. If the answer is in the negative, there will be no taxable supply and there will be no GST to be paid by you in relation to the transfer.

The term 'supply' is defined in section 9-10 of the GST Act to mean:

9-10 Meaning of supply

(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).

* asterisk denotes a defined term in the Act.

Goods and Services Tax Ruling (GSTR) 2006/9 examines the meaning of 'supply' in the GST Act. Part 2 of this Ruling looks at how to identify and characterise supplies in the context of the transactions in which they are made. This Part uses ten propositions to assist in analysing a transaction to identify the supply or supplies made in that transaction. However, it should be noted that the propositions are not universal as they may have exceptions or be qualified either by the operation of particular provisions of the GST Act, or by the facts and circumstances of a transaction.

Of relevance to this case is Proposition No 5: To 'make a supply' an entity must do something.

71. In overseas jurisdictions the term 'supply' has been held to take its ordinary and natural meaning, being 'to furnish or to serve' or 'to furnish or provide'. The Commissioner picks up this meaning in considering the meaning of supply in the GST Act at paragraph 41 of GSTR 2004/9 a ruling which is about the assumption of liabilities:

"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'."

72. 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') in relation to the payment of a judgment debt. His Honour was of 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. He considered the actions of the judgment creditor with respect to the extinguishment of the debt when the judgment debtor made the payment of the judgment sum to meet the judgment debtor's obligations.

73. The Commissioner agrees with Underwood J's decision that there was no supply by the judgment creditor, as the judgment creditor did not do any act or thing to extinguish the obligation when the judgment debtor paid the judgment debt.

We need to consider, in relation to the transfer, whether you have done anything, or taken any action to cause a supply to be made i.e. 'make a supply'.

In this circumstance, the State Government proposes to transfer the assets, rights and liabilities to a new Department by rights conferred by the Restructuring Act. The Amending Act requires specified assets and liabilities of yours to be transferred or assumed by this Department.

Paragraphs 80 to 91 of GSTR 2006/9 discuss the GST consequences of vesting in a government authority of real property in accordance with State legislation. One of the common mechanisms employed by the legislation is to vest the interest in the real property in the government authority and extinguish any interests of the previous owner in that property.

In this case the facts indicate that you are required to transfer various assets, liabilities and instruments to a new Department in accordance with the Regulations that are to be made pursuant to the Restructuring Act.

The proposed arrangement results in:

· The mandatory divestiture of your assets;

· The mandatory transfer of the your assets

· The assumption of your liabilities.

Assets, rights and liabilities transferred under the Amending Act

We consider the use of the word 'make' in the phrase 'you make a supply' in paragraph

9-5(a) of the GST Act requires the supplier to take some actions to cause a supply to be made by it to a recipient. This means that you must undertake some action or do something in making a supply.

Paragraph 23 of GSTR 2004/9 lends further support to the view that to make a supply you must actively undertake some action or do something. It confirms that the assumer of a liability imposed, required and effected by the words of a statute also does not make a supply within the meaning of section 9-10 of the GST Act.

Therefore, in respect of assets which are transferred or vested to another entity, a supply is not made by the entity which loses the assets. The act of vesting extinguishes the rights of the previous owner and confers ownership rights on the recipient entity. The extinguishment of rights is not a supply of those rights by the losing entity.

Even though there is a transfer and vesting of assets, rights and liabilities from you to the new Department, there is no positive action by you to cause the supply to occur. The transfer of assets, rights and liabilities arise under a statutory vesting order, not because of any action by you to 'make' a supply.

Consequently, this means that for the purpose of paragraph 9-5(a) of the GST Act, you have not made a supply of the assets, rights and liabilities to the new Department.

That is you have not made a taxable supply under section 9-5 of the GST Act and as such the transfer and vesting of assets, liabilities and rights to the new Department is not subject to GST.

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