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Edited version of private advice
Authorisation Number: 1012587618079
Ruling
Subject: Goods and Services Tax and Attribution
Issue 1
Question 1
Is the taxable supply made by Company A (You) of the relinquishment of its respective 50% interest in equipment under a legal partition to Company B attributable under sub-section 29-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to Tax period A when the legal partition occurred?
Answer
Yes.
Question 2
If the answer is yes to Question 1:
(a) Is the creditable acquisition made by you of the relinquishment by Company B of its respective 50% interest in the equipment under the legal partition attributable under subsection 29-10(1) of the GST Act to the tax period A when the legal partition occurred?
(b) Does the Commissioner's legislative determination under subsection 29-10(3) of the GST Act apply to waive the requirement for a tax invoice for Tax period A for the creditable acquisition?
(c) Will the Commissioner exercise the discretion under subsection 29-70(1B) of the GST Act to treat certain contractual documents as a tax invoice for the creditable acquisition in Tax period A?
Answer
(a) No
(b) No
(c) Yes
Question 3
If the answer is no to Questions 2(a), (b) or (c), is the creditable acquisition attributable under subsection 29-10(3) of the GST Act to Tax period B?
Answer
No, the answer to question 2(c) is yes therefore the creditable acquisition is attributable to Tax period A.
Issue 2
Question 1
Will the Commissioner treat this private ruling application as a Voluntary Disclosure (VD) and consider the remission requests for any General Interest Charge (GIC) and administrative penalties that the Commissioner may seek to impose for not attributing the taxable supply to Tax period A?
Answer
Yes
Relevant facts and circumstances
• Company A (You) is a wholly owned subsidiary, and is registered for GST and has an ABN. You are not grouped for GST purposes.
• Company B sold its 50% interest in its equipment to you, such that the equipment was from that time owned by Company B and you as tenants in common in equal shares.
• You and Company B entered into a general law partnership, with the purpose of managing the equipment held as tenants in common by the parties. The Partnership is registered for GST.
• You and Company B decided to terminate the arrangements and business dealings with the equipment and entered into the exit agreement, to give effect to the termination.
• The termination of the equipment sharing arrangements occurred in Tax period A, and as tenants in common, Company B and your interests in the equipment were 'partitioned' at law so that each tenant became the sole owner of the equipment allocated on the respective partys' sites from the date of termination. The partition was as follows:
1. Company B became the sole owner of the equipment located on Company B's allocated sites (Company B equipment) with you relinquishing your interest in the equipment located on the Company B sites; and
2. You became sole owner of the equipment located on your allocated sites (Company A equipment), with Company B relinquishing its interest in the equipment located on your allocated sites.
• No monetary consideration was provided or received by you as result of the allocation of the sites between the parties.
• From the termination date in Tax period A, you and Company B were able to use the allocated equipment on the sites for your sole benefit and could operate, maintain, replace and dispose of its equipment as it saw fit, without accounting to the other party.
• No invoices or tax invoices were issued by Company B or you at the time of the termination for the partition of the equipment as there were differing views between Company B and you on the GST treatment of the transaction and the relevant market value of the equipment involved.
• You contend that there were numerous which made it impractical and commercially difficult to determine and agree the value of the taxable supply in tax period A.
• Company B and you both sought and obtained separate and independent advice from legal and tax advisors on the GST treatment of the transaction. There were significant conflicting conclusions between you and Company B as to what the correct market value of the equipment should be.
• Due to the lack of agreement between you and Company B, both parties agreed to jointly obtain an independent market valuation of the relevant equipment. The valuation was finalised in Tax period B.
• In Tax period B:
2. Company B issued you a tax invoice for the amount of $x plus $y GST (total invoice of $z) for the relinquishment of its interest to you under the partition of equipment;
3. You issued Company B a tax invoice for the amount of $x plus $y GST (total invoice of $z) for the relinquishment of your interest to Company B under the partition of equipment.
• No payment of money was made by either party under the tax invoices issued therefore the relinquishment of the interests in the equipment was satisfied by 'non-monetary' means.
• You provided an extract of the Exit agreement.
• The taxable supply of your interest in Company B's equipment and the creditable acquisition of Company B's interest in your equipment were reported in your Tax period B BAS.
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
A New Tax System (Goods and Services Tax) Act 1999 Section 29-10
A New Tax System (Goods and Services Tax) Act 1999 Section 29-70
Reasons for decision
Issue 1 Question 1
Summary
You make a taxable supply and receive non-monetary consideration from Company B when you supply your rights and interest over Company B's equipment in exchange for Company B's rights and interest over your equipment. The non-monetary consideration is Company B's rights and interest over your equipment.
As the non-monetary consideration is received in Tax period A when the partition is made (even though the monetary value of the consideration is in dispute at the time), the taxable supply is attributable to Tax period A under paragraph 29-5(1) (a) of the GST Act.
Detailed reasoning
Section 9-5 of the GST Act defines what is a taxable supply and 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.
Please note that the * marks a defined term in Section 195-1 of the GST Act.
You make a taxable supply under Section 9-5 of the GST Act as you make a supply (relinquishing your rights and interest in Company B's equipment), for consideration (Company B relinquishing its rights and interest in Company A's equipment), and the supply is made in the course of furtherance of your enterprise, the supply is made in Australia, you are registered for GST, and the supply is not GST-free or input taxed.
Sub-section 9-15(1) of the GST Act defines consideration as;
(a) any payment, or any act or forbearance, in connection with a supply of anything;
and
(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
In your circumstances you receive consideration from Company B in Tax period A when Company B relinquishes its rights and interest in Company A's equipment for your supply of relinquishing your rights and interest in Company B's equipment.
The basic attribution rules are set out in Division 29 of the GST Act.
Under subsection 29-5(1) of the GST Act, where you account for GST on a non-cash 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 your case, you sold half (50%) of your equipment to Company B, such that the equipment was from that time owned by Company B and you as tenants in common in equal shares. This created a pool of equipment which was jointly owned by Company B and you.
Later, Company B and you decided to terminate the equipment sharing arrangement and entered into the Exit Agreement to give effect to the termination.
The termination of the equipment sharing arrangement occurred in Tax period A and as tenants in common, Company B and your 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 tax period A. The partition was as follows:
• You became sole owner of the equipment located on your allocated sites (Company A equipment) with Company B relinquishing its interest in the Company A equipment.
• Company B became sole owner of the equipment located on its allocated sites (Company B equipment) with you relinquishing your interest in Company B equipment.
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, Company B received the total of the consideration for Company B's supply of Company B's rights and interest over Company A's equipment. Since Company B received Company A rights and interest over Company B's equipment, we consider that Company B received the total consideration which is non-monetary payment from Company A in the form of Company A's network equipment transferred to Company B in Tax period A.
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.
You acknowledge that you made a taxable supply of your rights and interest over Company B equipment in exchange for Company B rights and interest over Company A's equipment. You contend that the exact monetary value of the consideration for your supply is only known in Tax period B, and that the Commissioner's Determination applies to attribute the supply to Tax period B.
In addition, you did not issue a tax invoice to Company B prior to Tax period B. On this basis, you contend that your liability in respect to the GST should be deferred until the tax period in which you and Company B agreed about the total consideration for your supply, that is, you should remit the GST on your supply on your GST return for Tax period B.
If we follow your contentions, we would have to reach a conclusion that GST liability on your supply only arises if and when an agreement is reached between you and Company B about the monetary value of the consideration.
We consider that the total consideration is known to both parties in Tax period A. The total consideration was agreed, but not quantified in a monetary amount. You received the total consideration which is non-monetary payment from Company B in the form of Company B's interest in Company A's equipment transferred to you in Tax period A.
What is unknown is the monetary value of that consideration. There is no further future consideration for this supply.
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.
You did not issue a tax invoice to Company B in Tax period A. The parties were unable to agree on a GST-inclusive value for the relevant rights and interests over the equipment, until Tax period B, 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. This is a contractual matter to be negotiated between parties at the time the Exit agreement was entered.
In addition, the total consideration from Company B to you 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 your GST liability to Tax period B with respect to your supply.
How do the attribution rules apply to the consideration received by you?
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 of non-monetary consideration and 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
You considered that you made a taxable supply to Company B in Tax period A and obtained your own market value of the equipment. However, Company B did not agree to the valuation. Eventually Company B and you agreed to jointly engage a valuer to provide a market valuation of the relevant equipment .This market valuation is accepted by both parties in Tax period B.
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.
You and Company B entered into the Exit Agreement and economic risk and effective control of the relevant equipment were transferred in Tax period A. Hence the reasonable time to determine the market value of the equipment is in Tax period A 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 equipment at a later date will not impact on your GST liability.
In conclusion, it is considered that the total consideration for your supply of your equipment to Company B is known and that the basic attribution rules as set out in Division 29 of the GST Act apply in relation to your GST liability.
As you account for GST on a non-cash basis, all of the GST payable in respect of your supply of your interest on Company B's equipment to Company B is attributable to Tax period A when you received the non-monetary payments from Company B. You needed to determine the market value of the non-monetary consideration as at Tax period A in order to ascertain and account for your GST liability in Tax period A.
Issue 1 Question 2
Summary
(a) The creditable acquisition made by you of the relinquishment by Company B of its respective 50% interest in the equipment under the legal partition is attributable under subsection 29-10(1) of the GST Act to Tax period A when the legal partition occurred. However, as you did not hold a valid tax invoice for the creditable acquisition at the time you lodged a GST return the creditable acquisition is not attributable to Tax period A under sub-paragraph 29-10(3)(a) of the GST Act.
(b) The Commissioner's legislative determination under subsection 29-10(3) of the GST Act will not apply to waive the requirement for a tax invoice for Tax period A.
(c) In these circumstances, it is reasonable for the Commissioner to exercise the discretion under subsection 29-70(1B) of the GST Act to treat certain contractual documents as a tax invoice for the creditable acquisition in Tax period A.
Detailed reasoning
(a) Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.
Section 11-5 of the GST Act defines a creditable acquisition as
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a *creditable purpose; and
(b) the supply of the thing to you is a *taxable supply; and
(c) you provide, or are liable to provide, *consideration for the supply; and
(d) you are *registered, or *required to be registered.
In this case you have acquired Company B's interest in the equipment on your sites solely for the creditable purpose of carrying on your enterprise. The supply of the interest to you is a taxable supply, and you provided consideration (your interest in the equipment located on Company B's sites) for the supply and you are registered for GST. Therefore your acquisition of Company B's interest in Company A's equipment on your sites is a creditable acquisition to you.
Section 29-10 of the GST Act provides for attributing the input tax credits for your creditable acquisitions to a particular tax period. Section 29-10 states;
(1) The input tax credit to which you are entitled for a *creditable acquisition is attributable to: |
(a) the tax period in which you provide any of the *consideration for the acquisition; or
(b) if, before you provide any of the consideration, an *invoice is issued relating to the acquisition - the tax period in which the invoice is issued.
……
(3) If you do not hold a *tax invoice for a *creditable acquisition when you give to the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable: (a) the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and (b) the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice. However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply.
(a) the input tax credit is not attributable to that tax period; and (b) the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account. In your case you made a creditable acquisition in the Tax period A as you provided consideration (your interest in equipment located on Company B's sites) in this period. However, you did not hold an invoice for the acquisition until Tax period B where you were issued with a tax invoice by Company B for an amount of $x which included a GST amount of $y. Therefore under subsection 29-10(3) of the GST Act your creditable acquisition is not attributable until Tax period B when you first held a tax invoice for the acquisition. The subsection 29-10(3) of the GST Act requirement for a tax invoice to attribute a creditable acquisition does not apply in certain circumstances as determined in writing by the Commissioner. Goods and Services Tax Ruling GSTR 2013/1 (GSTR 2013/1) provides the Commissioner's view on the requirements for a tax invoice and paragraph 3 of the ruling states; 3. This Ruling does not consider in detail the operation of subsection 29-10(3). However, it does include a summary of the circumstances where the Commissioner has determined under subsection 29-10(3) that an input tax credit is attributable to a tax period without the recipient being required to hold a tax invoice. The summary is included at Appendix 2 of this Ruling. Appendix 2 of GSTR 2013/1 (Appendix 2) provides information to help you understand the circumstances in which the Commissioner has determined in writing that a tax invoice is not required to attribute an input tax credit to a tax period. The table in Appendix 2 contains the following circumstance which is most relevant to your situation.
Paragraph 118 of Appendix 2 advises you should refer to the legislative instrument before relying on it to ensure you meet the requirements as set out in the instrument. The relevant legislative instrument for acquisition where total consideration is not known is WTI 2013/4. WTI 2013/4 states; …… 3. Waiver of requirement to hold a tax invoice Where the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination (No. 1) 2000 legislative instrument applies and an input tax credit would otherwise be attributable to a tax period to the extent: (a) of the amount of the consideration stated in an invoice issued in that tax period; or (b) of the consideration provided in that tax period (if an invoice is not issued or the consideration provided is greater than the amount on the invoice); the recipient is not required (under subsection 29-10(3) of the GST Act) to hold a tax invoice before the input tax credit for the creditable acquisition is attributable to that tax period if the requirements provided by this instrument are satisfied. 4. Waiver from holding a tax invoice requirements At the time the recipient gives its GST return for the tax period to the Commissioner, the recipient holds: (a) an invoice for a creditable acquisition, that shows an interim amount payable and meets the information requirements set out in clause 5; or (b) a document for a creditable acquisition, issued when the total consideration for the supply or supplies is known, that shows the remainder of the amount payable, and the document meets the information requirements set out in clause 5. 5. Document information requirements The invoice or the document referred to in paragraphs 4(a) and (b): (a) meets the requirements of paragraphs 29-70(1)(a) and 29-70(1)(c) of the GST Act other than subparagraph 29-70(1)(c)(iii) of the GST Act; and (b) contains enough information to enable the following to be clearly ascertained from the invoice or document: (i) what is supplied, including the quantity (if applicable); and (ii) where subclause 4(a) applies, the amount payable or paid rather than the total price of what is supplied; or (iii) where subclause 4(b) applies, the remainder of the consideration payable. The above instrument applies when the total of the monetary consideration is unknown at the time of supply, however an interim amount is ascertained. In this situation the recipient can attribute the interim amount to the period of supply and attribute the rest of the consideration to the period when the consideration is known. In your circumstances the total consideration provided for the acquisition is the relinquishment of your rights to the equipment located on Company B's sites. This is non-monetary consideration that is provided at the time of supply. What is not known and in dispute at the time is the monetary value of the consideration. GSTR 2000/29 provides guidance on how the Commissioner will determine particular attribution rules under section 29-25 of the GST Act. Paragraph 92 of GSTR 2000/29 outlines how the Commissioner will apply the special attribution rule where the total consideration is unknown at the time of supply, it states; 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. You sold half (50%) of your equipment to Company B, such that the equipment was from that time owned by Company B and you as tenants in common in equal shares. This created a pool of equipment which was jointly owned by Company B and you. Later Company B and you decided to terminate your equipment sharing arrangement and entered into an Exit Agreement to give effect to the termination. The termination of the equipment sharing arrangement occurred in Tax period A and as tenants in common, Company B and your interests in the equipment were partitioned at law so that each tenant became the sole owner of the equipment located on the respective party's sites in Tax period A. The partition was as follows: • You became sole owner of the equipment located on your allocated sites (Company A equipment) with Company B relinquishing its interest in the Company A equipment. • Company B became the sole owner of the equipment located on Company B allocated sites (Company B equipment) with you relinquishing your interest in the Company B equipment. 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, you received the total of the consideration for your supply of your rights and interest over Company B's equipment. Since you received Company B rights and interest over Company A's equipment, we consider that you received the total consideration which is non-monetary payment from Company B in the form of Company A's equipment transferred to you in Tax period A. 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. You acknowledge that you made a taxable supply of your rights and interest over Company B's equipment in exchange for Company B's rights and interest over Company A's equipment. You contend that the exact value of the consideration for the supply is only known in Tax period B, and that the Commissioner's Determination applies. In addition, you did not issue a tax invoice to Company B prior to Tax period B. On this basis, you contend that your liability should be deferred until the tax period in which you and Company B agree with each other about the total consideration for your supply, that is, you should remit the GST on your supply on your GST return for Tax period B. If we follow your contentions, we would have to reach a conclusion that the GST liability on your supply only arises if and when an agreement is reached between you and Company B about the monetary value of the consideration. We consider that the total consideration is known to both parties in Tax period A. The total consideration was agreed, but not quantified in a monetary amount. You received the total consideration which is non-monetary payment from Company B in the form of Company A's equipment transferred to you in Tax period A. What is unknown is the monetary value of the consideration. There is no further 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. You did not receive a tax invoice from Company B in Tax period A. The parties were unable to agree on a GST-inclusive value for the relevant rights and interests over the equipment, until Tax period B, 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 Exit agreement was entered. In addition, the total consideration from Company B to you was not expressed as an amount of money as required under paragraph 170 of GSTR 2000/29, it was non-monetary consideration. Hence the Commissioner's Determination is not applicable to the attribution of your creditable acquisition in Tax period A. (c) Sub-section 29-70(1B) of the GST Act allows the Commissioner to treat particular documents as valid tax invoices. It effectively gives the Commissioner the discretion to treat documents that would not normally be tax invoices as tax invoices. GSTR 2013/1 provides the Commissioner's view on Tax invoices. Paragraphs 51 to 54 of GSTR 2013/1 outline the circumstances where the Commissioner may exercise the discretion to treat a document as a tax invoice and states; 51. The Commissioner has the discretion to treat a document that does not satisfy the tax invoice requirements as a tax invoice.28 This discretion can also be used to treat a document that does not meet the requirements for a recipient created tax invoice as a tax invoice. The Commissioner will exercise this discretion on a case by case basis. 52. There are a number of factors that the Commissioner will consider in the exercise of this discretion which are explained in Law Administration Practice Statement PS LA 2004/11. These factors are not exhaustive and there may be other circumstances that are relevant in a particular case. 53. When the Commissioner exercises the discretion to treat a document as a tax invoice, that document is a tax invoice as defined in section 195-1. This treatment applies for the purposes of both the supplier and recipient. The document for which the discretion has been exercised is treated as a tax invoice for the taxable supply from the date it was created. 54. However, this does not mean that the supplier had, before the exercise of the discretion, complied with their obligation to issue a tax invoice within the required time. Practice Statement PS LA 2004/11 provides guidance to ATO staff on how to administer the Commissioner's discretion under sub-section 29-70(1B) of the GST Act to treat documents as tax invoices. Paragraph 10 of PS LA 2004/11 outlines when the exercise of the discretion should be considered and states; 10. Exercise of the Commissioner's discretion should be considered in situations where: • there is a creditable acquisition • a recipient is required to hold a tax invoice to claim an input tax credit (ITC) but the document held does not meet the requirements of a tax invoice - (see paragraph 17 for when the recipient is not required to hold a tax invoice) • the request is within the 4 year time limits under Division 93 (which broadly imposes a four-year time limit on the claiming of ITCs); and • it is reasonable to exercise the discretion on the basis of the relevant facts and circumstances, and the exercise of the discretion would not be inappropriate or unnecessary. Paragraph 27 of PS LA 2004/11 outlines when exercising the discretion may not be appropriate and states; 27. In some circumstances it might not be appropriate for officers to consider the exercise of the discretion. This may be the case, for example, if: • there is evidence of fraud or evasion by the entity making the request; or • there is other relevant GST compliance work being undertaken in relation to the same entity and it is appropriate for the discretion to be considered during that other work. In your case the consideration for a supply was made at the time of the supply through the mutual relinquishment of rights to equipment held by each entity as tenants in common. Tax invoices were not issued at the time of the supply due to a dispute between the parties over the monetary value of the consideration. This was settled by a third party in the Tax period B which resulted in valid tax invoices being issued by both parties to the transaction. In this circumstance it is appropriate for the Commissioner to exercise his discretion under sub-section 29-70(1B) of the GST Act to treat the Exit contract documents as a tax invoice based on the following factors; • you made reasonable attempts to obtain a valid tax invoice from the supplier at the time but a dispute over the valuation of the supply resulted in the invoice not being issued at that time, • there is sufficient evidence that the supply to you was a creditable acquisition • you have a good compliance history and you were aware at the time that you did not have a valid tax invoice and therefore you applied for this private binding ruling, • you have good record keeping systems, your inability to claim an input tax credit for this creditable acquisition is not related to you being unable to keep adequate records, • your knowledge, skills and experience of tax invoice requirements are at a very high level however this is not relevant to this situation. The decision is also supported by the fact that all the information to ascertain that a creditable acquisition was made at the time was available through the Exit contract with the exception of the monetary value of the consideration. The monetary value was confirmed in a later period by an independent third party, this resulted in the issue of a valid tax invoice. The exercise of the discretion is appropriate and reasonable considering the nature of the transaction and considerable compliance costs you will incur if it is not exercised. |
Issue 1 Question 3
Summary
The Commissioner has exercised his discretion to treat the Exit contracts as a tax invoice therefore the creditable acquisition is attributed to Tax period A. This question on whether the creditable acquisition is attributable to Tax period B is no longer relevant.
Issue 2 Question 1
Summary
No shortfall arises nor does any penalty and/or GIC apply. We will treat this PBR request as a VD for not attributing your taxable supply in Tax period A, however there is no shortfall as the Commissioner has exercised his discretion to treat the Exit contract documents as a tax invoice therefore you can also attribute the input tax credit for your creditable acquisition (same value as the taxable supply) in Tax period A.
Detailed reasoning
In the interest of minimising compliance costs we have decided not to amend your Tax period A and Tax period B BAS as the adjustments will not result in a shortfall or have any other net revenue effect.
You have requested that administrative penalties and GIC not be imposed. The Commissioner's policy on remitting administrative penalties is contained in Law Administration Practice Statement 2006/8 "Remission of shortfall interest charge and general interest charge for shortfall periods" and in PS LA 2012/5 "Administration of penalties for making false or misleading statements that result in shortfall amounts". However, as no shortfall exists there is no penalty and/or GIC remission to be considered.
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