Edited version of your private ruling

Authorisation Number: 1012563164492

Ruling

Subject: GST and representatives of incapacitated entities

Question 1

Is the liquidator liable for GST under section 58-10 of the A New Tax System (Goods and Services Tax) Act 1999 on the supplies made in accordance with the settlement?

Advice/Answers

The liquidator is only liable for the GST on the some of the supplies made in accordance with the settlement.

Question 2

Is the liquidator liable for GST under section 58-10 of the A New Tax System (Goods and Services Tax) Act 1999 on the transfer of the assets in accordance with the settlement?

Advice/Answers

No, the liquidator is not liable for GST on the transfer of the assets as the distribution of partnership property is not within the scope of the liquidator's responsibility or authority.

Relevant facts and circumstances

Company A entered into a partnership with Company B to acquire certain assets and operate businesses.

The Partnership has since been dissolved and the Supreme Court of X ordered Company A be wound up.

Company A and Company B entered into a settlement to resolve all outstanding matters. The settlement requires Company A and Company B make supplies to each other in addition to an agreement that Company B pay a sum of money and the partnership assets be distributed.

All supplies made by the parties are connected with Australia.

Company A is registered for GST and the liquidator is registered for GST in his capacity as liquidator of Company A.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Division 58.

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

Taxation Administration Act 1953 subsection 444-30(2) of Schedule 1.

Corporations Act 2001 paragraph 556(1)(a).

Reasons for decision

Question 1

Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) operates, in most cases, to ensure that GST-related liabilities and entitlements are allocated to the representative for transactions that are within the scope of the representative's responsibility or authority. Subsection 58-10(1) of the GST Act provides a general rule which is modified in certain circumstances:

General Rule

(1) A *representative of an *incapacitated entity:

(a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation; and

(b) is entitled to any input tax credit that the incapacitated entity would, but for this section or section 48-45, be entitled to for a *creditable acquisition or a *creditable importation; and

(c) has any *adjustment that the incapacitated entity would, but for this section or section 48-50, have;

to the extent that the making of the supply, importation or acquisition to which the GST, input tax credit or adjustment relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

(Items marked with an *asterisk are defined in the Dictionary at section 195-1 of the GST Act).

At the time that the supplies were made in accordance with the terms of the settlement, the liquidator was appointed as liquidator of Company A. In the context of section 58-10 of the GST Act, it is important to determine whether or not a supply is made 'within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Under the settlement, Company A (or its relevant external representative) supplied various assets to Company B.

As the liquidator signed the settlement as liquidator of Company A, it is assumed that the supplies made under the settlement are within the scope of the liquidator's appointment. Therefore, the liquidator will be liable to pay any GST that the incapacitated entity would be ordinarily liable to pay in relation to taxable supplies. Generally, an entity makes a taxable supply if the conditions of section 9-5 of the GST Act are met:

9-5 Taxable supplies

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.

The supplies made under the settlement are taxable supplies as that are made for consideration (ie payment) are supplied in the course of the business operated by Company A, are connected with Australia, are made by an entity which is registered for GST and are neither GST-free nor input taxed.

Therefore, pursuant to section 58-10 of the GST Act, the liquidator of Company A is liable to pay the GST on the specified supplies.

The amount of the GST payable on a taxable supply is calculated as 1/11^th of the price of the supply where price is determined with reference to the GST inclusive market value of the consideration provided for the supply.

Company B is providing cash and non-cash in exchange for the supplies made by Company A and the partnership in final settlement of all disputes and in dissolution of the partnership. The partnership will distribute the assets to Company A and Company B, the values of which are $x million and $x+360,000 respectively. Therefore, it is suggested that some of the consideration provided by Company B relates to the supply made by the partnership rather than the supplies made by Company A. This is because the distribution by the partnership would ordinarily be expected to be of equal value. Paragraph 19 of Goods and Services Tax Ruling GSTR 2001/6 states:

19. We consider that, in most circumstances, when the parties to a transaction are acting at arm's length, the goods, services or other things being exchanged are of equal market value.

The difference in the value of the partnership distributions to the two partners is $. Therefore, it is reasonable to conclude that some of the consideration received by Company A relates to a partnership equalisation payment being made by Company B as partner. The remainder of the consideration received by Company A determines the 'price' of the taxable supplies made by Company A, being the cash payment (minus $) and the value of the assets.

Question 2

As discussed above, the representative of an incapacitated entity is only liable under section 58-10 of the GST Act for the GST payable on taxable supplies made by an incapacitated entity that are within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

At the time that the supplies were made in accordance with the settlement, the supplies of the assets were not within the scope of the liquidator's responsibility or authority.

As the distribution of the unsold leases was not within the scope of the liquidator's appointment, the liquidator is not liable under section 58-10 of the GST Act for the GST payable on those distributions.

Further issues for you to consider

Partnership Distribution

Although the liquidator is not personally liable under section 58-10 of the GST Act to pay the GST on the taxable supply of the partnership's distribution of the unsold leases to the partners, the distribution of the unsold leases may impact upon the liquidation of Company A.

The partners in a partnership are jointly and severally liable to pay the GST on taxable supplies made by the partnership under subsection 444-30(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA). Furthermore, obligations that are imposed on the partnership under the GST Act or TAA are imposed on each partner (and can be discharged by any partner).

Therefore, on the distribution of all of the assets, the liability would remain with the partnership and both Company A and Company B would be jointly and severally liable to pay that amount.

That amount would become a provable debt in the liquidation of Company A. However, paragraph 556(1)(a) of the Corporations Act 2001 may apply to give the debt a priority:

556(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;

The GST payable on the distribution of the assets by the partnership is an expense incurred in the 'getting in' of property of Company A (being the interests in the partnership). It has been properly incurred by the liquidator as the settlement was agreed to by the liquidator in his capacity as the relevant authority of the partner, Company A.

Acquisition and Supply of Assets

As recipient of the creditable acquisition of the assets, the liquidator of Company A is entitled to the input tax credits under section 58-10 of the GST Act. This remains true regardless of who is liable to pay the GST on the distribution of the assets.

Furthermore, the liquidator is liable to pay the GST on any subsequent taxable supply of the assets under section 58-10 of the GST Act.

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