Edited version of your private ruling

Authorisation Number: 1012582753380

Ruling

Subject: GST and attribution

Questions

1. Would the Commissioner's Determination the A New Tax System (Goods and Services Tax) (Particular Attribution Rules where total consideration is not known) (no 1) 2000 (the Commissioner's Determination) apply to the relevant ABC's taxable supply?

2. Is the GST payable on the taxable supply by ABC attributable to Agreed date, being the earliest tax period in which the GST-inclusive market value for the taxable supply is known?

Answers

1. No, the Commissioner's Determination does not apply to the relevant ABC taxable supply.

2. The GST payable on the taxable supply by ABC is attributable to Termination date because this is the tax period in which the GST-inclusive market value for the taxable supply is known.

Relevant facts and circumstances

ABC sold half (50%) of their assets to XYZ, such that the assets were from that time owned by ABC and XYZ as tenants in common in equal shares.

This created a pool of assets which was jointly owned by ABC and XYZ.

ABC and XYZ decided to terminate their arrangements and business dealings with the joint assets and entered into the Termination Arrangement to give effect to the termination.

The termination of the joint assets arrangement occurred on termination date and as tenants in common, ABC and XYZ interests in the equipment were partitioned at law so that each tenant became the sole owner of the equipment located on the respective parties' sites from the termination date. No money was provided or received by ABC as a result of the termination of the asset sharing arrangement.

After agreeing who would own which assets in the pool, ABC and XYZ exchange their relevant rights and interest over the respective share of each asset to each other.

ABC considered that they made a taxable supply to XYZ as at the Determination date and obtained its own market value of the relevant assets. However, XYZ did not agree to the valuation. Eventually ABC and XYZ agreed to jointly engage a third party to provide an independent professional valuation of the assets. Third party supplied a market valuation of the relevant assets. Both parties accepted this market valuation on Agreed date. Tax invoices have been exchanged on Agreed date.

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 Section 9-15

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

A New Tax System (Goods and Services Tax) Act 1999 Section 29-25

A New Tax System (Goods and Services Tax) Act 1999 Section 29-5

Reasons for the Decisions

Summary

ABC receives non-monetary consideration from XYZ when ABC supply ABC's rights and interest over XYZ's assets in exchange for XYZ rights and interest over ABC's assets. The non-monetary consideration is XYZ's rights and interest over ABC's assets.

The GST inclusive market value of the consideration was determined and agreed between the parties on Agreed date. However, the economic risk and effective control of the assets were transferred on Termination date, and non-monetary consideration is known to both parties on Termination date. The total consideration does not depend on a future event outside ABC's control. Agreement on the method to obtain a market valuation for the assets exchanged is a contract negotiation matter. In addition, the A New Tax System (Goods and Services Tax) (Particular Attribution Rules where total consideration is not known) (no 1) 2000 (the Commissioner's Determination) only applies where the total consideration for the supply is expressed as an amount of money, not when the consideration is non-monetary. The basic attribution rules as set out in Division 29 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) will apply. As ABC accounts for GST on an accruals basis, all of the GST payable in respect of ABC's supply will be attributable to the Termination date's tax period. 

Details

The basic attribution rules are set out in Division 29 of the GST Act. 

Under subsection 29-5(1) of the GST Act, if you account for GST on an accruals basis, the basic attribution rules are that the GST payable on a taxable supply is attributable to the tax period in which you receive any of the consideration, or an invoice is issued, whichever is the earlier. 

Section 29-25 of the GST Act provides that the Commissioner may determine particular attribution rules. Paragraph 29-25(2) (e) of the GST Act refers to situation where a supply or acquisition occurring before the supplier or recipient knows the total consideration.

Goods and Services Tax Ruling 2000/29 (GSTR 2000/29) provides guidance on the attribution rules. It explains that the Commissioner's Determination is used only in circumstances when it is inappropriate to apply the basic attribution rules.

Paragraphs 5, 58, and 59 of GSTR 2000/29 state as follows:

5. In particular the Ruling sets out the reasons for, and the effect of the Commissioner making determinations under section 29-25, for the following supplies and acquisitions:

… (iv) supplies and acquisitions for which consideration is received or provided, or an invoice is issued, before the total consideration is known, ….

Determination of particular attribution rules under section 29-25

58. The Commissioner may, under section 29-25, determine, in writing, the tax period or periods to which GST payable, input tax credits and adjustments for taxable supplies, creditable acquisitions and creditable importations of certain kinds are attributable. The Commissioner can only make a determination under section 29-25, specifying a different tax period to that which would otherwise apply, if satisfied that the application of the basic attribution rules and any relevant special rules under the GST Act would produce an inappropriate result.

59. The Commissioner can make these determinations only in the circumstances described in subsection 29-25(2).

Paragraph 92 of GSTR 2000/29 states as follows

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

92. The particular attribution rule is for supplies and acquisitions where some consideration is received (or provided), or an invoice is issued, but the total consideration for the supply or acquisition has not been ascertained because it depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier

In this case, ABC sold half (50%) of their assets to XYZ, such that the assets were from that time owned by ABC and XYZ as tenants in common in equal shares. This created a pool of assets which was jointly owned by ABC and XYZ.

ABC and XYZ decided to terminate their assets sharing arrangement and entered into the Termination Agreement) to give effect to the termination.

The termination of the asset sharing arrangement occurred on Termination date and as tenants in common, ABC and XYZ interests in the equipment were partitioned at law so that each tenant became the sole owner of the equipment located on the respective parties' sites from Termination date.

Consideration for GST purposes is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply or acquisition.

In the above partition, ABC received the total of the consideration for ABC's supply of ABC's rights and interest over XYZ's assets. Since ABC received XYZ's rights and interest over ABC's assets, we consider that ABC received the total consideration which is non-monetary payment from XYZ in the form of XYZ's asset assets transferred to ABC on Termination date.

1) Application of the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination (No. 1) 2000 (the Commissioner's Determination)

Subclause 3(1) of the Commissioner's Determination states:

This Determination applies where:

(a) you make a taxable supply;

(b) you do not know the total consideration for the supply when any

consideration is received for the supply or an invoice is issued relating to

the supply; and

(c) the ascertainment of the total consideration depends on a future event or

events that is not entirely within your control;

  and either:

(d) an invoice is issued relating to the supply; or

(e) any consideration is received for the supply.

The Commissioner's Determination applies in certain circumstances where the total consideration is unknown in the tax period when GST would normally be payable.

Paragraphs 147 to 148 of GSTR 2000/29 state as follows:

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

The nature of the relevant transactions

147. Sometimes consideration is received or provided before the total consideration for the supply or acquisition is known, the consideration being unascertainable because it is dependent on a future event or events.

148. For example, in some industries, particularly agricultural industries where produce is pooled, goods may be removed by or delivered to a recipient before the total consideration for the supply is ascertained. It is a characteristic of this type of supply that final determination of the consideration is dependent on factors including:

· quantitative analysis of the goods, such as measurement of weight or volume;

· qualitative analysis of the goods; and

· market conditions and prices.

ABC acknowledges they made a taxable supply of ABC's rights and interest over XYZ's assets in exchange for XYZ rights and interest over ABC's assets. ABC contends that the exact value of the consideration for their supply is only known on Agreed date, and that the Commissioner's Determination applies.

In addition, ABC did not issue a tax invoice to XYZ prior to Agreed date. On this basis, ABC contend that the ABC's liability in respect to the supply should be deferred until the tax period in which ABC and XYZ agreed with each other about the total consideration for ABC's supply, that is, ABC should remit the GST on ABC's supply on its GST return on the Agreed date's tax period.

If we follow ABC's contentions, we would have to reach a conclusion that GST liability on ABC's supply only arises if and when an agreement is reached between ABC and XYZ about the monetary value of the consideration.

We consider that the total consideration is known to both parties on Termination date. The total consideration was agreed, but not quantified in monetary amount. ABC received the total consideration which is non-monetary payment from XYZ in the form of XYZ's asset assets transferred on Termination date.

What is unknown is the monetary value of the consideration. There is no future consideration.

Paragraph 9-75(1)(b) of the GST Act provides that if the consideration is not expressed as an amount of money, then the value of the taxable supply is the GST inclusive market value of that consideration.

Paragraphs 168 to 170 of GSTR 2000/29 state as follows:

168. This determination only applies if the consideration for a supply or acquisition is not known at the time some of the consideration is received or provided, or an invoice is issued, because the amount of the consideration depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier.

169. It is not accepted that you do not know the consideration for a supply simply because there is a possibility that the amount of the consideration for the supply may change.

170. This determination only applies where the total consideration for the supply is expressed as an amount of money.

ABC did not issue a tax invoice to XYZ on Termination date. The parties were unable to agree on a GST-inclusive value for the relevant rights and interests over the assets, until Agreed date, when an independent professional valuation of the equipment occurred. The fact that the parties could not quantify the GST inclusive market value of the consideration is not a future event which is beyond the supplier's control. Rather this is a contractual matter to be negotiated between parties at the time the Termination agreement was entered.

In addition, the total consideration from XYZ to ABC was not expressed as an amount of money, it was non-monetary consideration. Hence the Commissioner's Determination is not applicable to the attribution of ABC's GST liability with respect to ABC's supply to XYZ.

2) How do the attribution rules apply to the consideration received by ABC? 

Goods and Services Tax Ruling 2001/6 (GSTR 2001/6) discusses non-monetary consideration.

Paragraph 166 of GSTR 2001/6 explains that the basic rules for attributing GST payable apply whether or not the consideration for a taxable supply is monetary and/or non-monetary. Paragraph 4 of GSTR 2001/6 explains that this ruling provides reasonable methods for determining the GST inclusive market value of that non-monetary consideration and provides guidance when this valuation should be done.

Paragraphs 138 and 139 and 144 of GSTR 2001/6 state as follows:

Reasonable valuation of non-monetary consideration

138. Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply. In most circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value.

139. As the GST inclusive market value of consideration will be shown as the price on any tax invoice that the supplier issues, the onus for determining the GST inclusive market value of the consideration rests with the supplier.

144. You may determine the GST inclusive market value of non-monetary consideration for a taxable supply by applying a method that produces a reasonable GST inclusive market value of the consideration. There will be situations where the methods used by parties differ according to their particular circumstances. Examples of reasonable methods include:

· the market value of an identical good, service or thing;

· the market value of a similar good, service or thing;

· the market value of the supply; or

· a professional appraisal

ABC considered that they made a taxable supply to XYZ on Termination date and obtained its own market value of the equipment. However, XYZ did not agree to the valuation. Eventually ABC and XYZ agreed to jointly engage a third party to provide a market valuation of the relevant equipment. This market valuation is accepted by both parties on Agreed date.

Paragraphs 159-162 of GSTR 2001/6 state as follows:

Time when the GST inclusive market value of non-monetary consideration is worked out

159. In general, the market value of things fluctuates over time. Therefore, the time when the market value of non-monetary consideration is worked out will usually affect the value.

160. The GST Act does not specify the time when the market value of non-monetary consideration is to be ascertained for the purposes of working out the value of the supply under paragraph 9-75(1)(b). We consider that the time must be reasonable in the circumstances of a particular transaction. Depending on the circumstances, it may be:

· when parties enter into a binding agreement;

· when economic risk is transferred; or

· when a recipient assumes effective control.

161. You need to be able to demonstrate that these times, or another time at which you value the consideration, is reasonable in your particular circumstances.

162. The process of valuing non-monetary consideration can be done before or after the appropriate time as long as it reflects the GST inclusive market value at the time when it should be determined. For example, if you value non-monetary consideration for the purposes of entering into an agreement and that value reasonably reflects the value as at the time the agreement is made, you can use it to work out the value of your supply. However, it is not reasonable to use this value if you enter the agreement on the basis that the market value has changed from a value established before you entered the agreement.

ABC and XYZ entered into the Termination Agreement and economic risk and effective control of the relevant assets were transferred on Termination date. Hence the reasonable time to determine the market value of the assets is the Termination date although the process of valuing can be done before or after this time.

In accordance with paragraphs 163 and 164 of GSTR 2001/6 any changes in the value of the assets at a later date will not impact on ABC's GST liability.

In conclusion, it is considered that the total consideration for ABC's supply of ABC's assets to XYZ is known and that the basic attribution rules as set out in Division 29 of the GST Act apply in relation to ABC's GST liability.

As ABC accounts for GST on an accruals basis, all of the GST payable in respect of ABC's supply of ABC's assets to XYZ is attributable to the Termination date's tax period when ABC received the non-monetary payments from XYZ. ABC needs to value the non-monetary consideration of the equipment as at Termination date in order to ascertain and account for its GST liability on Termination date.

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