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This edited version has been archived due to the length of time since original publication.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 your written advice

Authorisation Number: 1012682330345

Ruling

Subject: GST and the in specie distribution of Partnership assets

Issue 1

Question 1

Are the taxable supplies made by the Partnership of the in specie distributions of partnership assets to each of the partners, Partner A and Partner B, attributable under sub-section 29-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to the tax period of August 20XX when the in specie distributions occurred?

Answer

Yes.

Question 2

If the answer is yes to Question 1:

Answer

Question 3

If the answer is 'no' to Question 1, does the Commissioner's determination under section 29-25 of the GST Act apply to cause the GST on the Partnership taxable supplies in relation to the in specie distributions to be attributable to the tax period of November 20YY?

Answer

No, the answer to question 1 is 'yes' therefore the GST on the taxable supply of the in specie distribution by the Partnership is attributable to the August 20XX tax period.

Question 4

If the answer is 'no' to Questions 2(a), (b), and (c), are the 'creditable acquisitions' made by PARTNER A and PARTNER B in relation to the in specie distributions attributable under subsection 29-10(3) of the GST Act to the tax period of November 20YY?

Answer

No, the answer to question 2(a) and (c) is 'yes', the Commissioner will exercise his discretion to treat certain contract documents as tax invoices therefore the creditable acquisitions made by PARTNER A and PARTNER B in relation to the in specie distributions are attributable to the August 20XX tax period rather than the November 20YY tax period.

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 the Partnership not attributing the taxable supply to the August 20XX tax period?

Answer

Yes

Relevant facts and circumstances

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

Partnership is making a taxable supply when it makes in specie distributions of partnership assets to the partners (PARTNER A & PARTNER B).

As the non-monetary consideration was received in August 20XX when the distribution was made (even though the monetary value of the consideration is in dispute at the time), the taxable supply was attributable to August 20XX 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;

Please note that the * marks a defined term in Section 195-1 of the GST Act.

Paragraph 85A of Goods and Service Tax Ruling (GSTR) 2003/13 provides that in specie distribution of partnership property by a partnership to a partner is a supply made in the furtherance of the partnership's enterprise and is for consideration.

It states;

Paragraphs 85B to 85G of GSTR 2003/13 provide that an in specie distribution of partnership property to a partner is in the course or furtherance of an enterprise of the partnership as the application of an asset in an enterprise establishes the necessary connection between the supply of the asset and the relevant enterprise.

Further paragraph 135 of GSTR 2003/13 provides that anything done in connection with the termination of an enterprise is treated as done in the course of carrying on that enterprise. Paragraph 135 states:

Sub-section 9-15(1) of the GST Act defines consideration as;

The in specie distribution of partnership property by the Partnership to the partners reduces the partner's entitlement or claim over the assets of the partnership and the partner's wider interest in the partnership. This is the non-monetary consideration provided by the partners to the Partnership in return for their share of the partnership property. Paragraph 85N of GSTR 2003/13 states;

In these circumstances the Partnership receives from the partners the non-monetary consideration as outlined above when the distribution of property is made in August 20XX and monetary consideration for the amount of the GST liability when the tax invoice are issued in November 20YY.

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:

Paragraph 92 of GSTR 2000/29 states as follows

On a certain date, PARTNER A and PARTNER B entered into a general law partnership referred to as the 'Partnership', with the purpose of managing the shared Partnership operations. During the period all equipment acquired and installed for operational extensions to the Partnership business were commissioned by the Partnership.

In October 20XX, the partners decided to terminate their sharing arrangement and business dealing with the Partnership and entered into the Partnership Exit Agreement (the Exit Agreement) to give effect to the termination.

The termination of the sharing arrangement occurred on 31 August 20xx. PARTNER A's and PARTNER B interests in the Partnership acquired equipment were 'partitioned' at law so that each of PARTNER A and PARTNER B became the sole owner of the equipment allocated on respective partner's sites from the date of termination. The partitions were as follows:

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, each partner received a taxable supply from the partnership of the other partner's share of the Partnership equipment located on their respective sites. In return the partners provided non-monetary consideration to the Partnership in the form of dilution of their respective interest in the Partnership. In addition the partners provided further monetary consideration to the partnership in November 20YY for the GST proportion of the transaction.

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:

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:

The Partnership acknowledges that it made a taxable supply of interests in Partnership acquired equipment to the partners. The parties contend that the exact monetary value of the consideration for the supplies was only known in November 20YY, and that the Commissioner's Determination applies to attribute the supplies to the November 20YY tax period.

In addition, the Partnership did not issue a tax invoice to PARTNER A and PARTNER B prior to November 20YY. On this basis, the Partnership contends that their liability in respect to the GST should be deferred until the tax period in which all the parties agreed about the total consideration for the supply, that is, the Partnership should remit the GST on its supplies on its GST return for the November 20YY tax period.

If we follow these contentions, we would have to reach a conclusion that the GST liability on the supplies only arises if and when an agreement is reached between all the parties about the monetary value of the consideration.

We consider that the total consideration provided is known to both parties in August 20XX. The total consideration was agreed, but not quantified in a monetary amount. The Partnership received the total consideration from the partners in the form of a reduction in the proportion of the partner's interest in the partnership in August 20XX.

What was unknown was the monetary value of that 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:

The Partnership did not issue a tax invoice to the partners in August 20XX. The parties were unable to agree on a GST-inclusive value for the relevant rights and interests over the assets, until November 20YY, 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 into.

In addition, the consideration from the partners to the Partnership 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 the Partnership GST liability to the November 20YY tax period with respect to the supplies.

How do the attribution rules apply to the consideration received by the partnership? 

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 valuing non-monetary consideration and when this valuation should be done.

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

The parties considered that taxable supplies were being made in August 20XX and obtained their own market value of the equipment. However, the parties did not agree on their respective valuations. Eventually the parties agreed to jointly engage an accounting firm to provide a market valuation of the relevant equipment. This market valuation was accepted by the parties in November 20YY.

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

The partners and the Partnership entered into the Exit Agreement and economic risk and effective control of the relevant assets were transferred in August 20XX. Hence the reasonable time to determine the market value of the assets is August 20XX 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 the Partnership GST liability.

In conclusion, it is considered that the total consideration for the Partnership supplies to the partners is known and that the basic attribution rules as set out in Division 29 of the GST Act apply in relation to the GST liability.

As the Partnership accounts for GST on a non-cash basis, all of the GST payable in respect of the supplies is attributable to the August 20XX tax period when the Partnership made the supply and received the non-monetary consideration from the partners. The Partnership needed to determine the market value of the non-monetary consideration as at August 20XX in order to ascertain and account for their GST liability in August 20XX.

Question 2

Summary

Detailed reasoning

Section 11-5 of the GST Act defines a creditable acquisition as

A New Tax System (Goods and Services Tax) Waiver of Tax Invoice Requirement (Acquisitions Where Total Consideration Not Known) Legislative Instrument 2013

Acquisitions Where Total Consideration Not Known
In certain circumstances you are not required to hold a tax invoice for a creditable acquisition in order to attribute an input tax credit where the total price of the acquisition cannot be ascertained at the time an invoice is issued or a payment is made.

WTI 2013/4 states;

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

Question 3

Summary

The answer to question 1 is yes, therefore the Commissioner's determination under section 29-25 of the GST Act to cause GST on the Partnership taxable supplies of the in specie distributions be attributable to the tax period of November 20YY does not apply.

As the answer to question 1 is yes, the GST on the taxable supply is attributable to the August 20XX tax period.

Question 4

Summary

The Commissioner has exercised his discretion to treat the exit contract documents as a tax invoice therefore the creditable acquisitions by PARTNER A and PARTNER B are attributed to the August 20XX tax period. This question on whether the creditable acquisition is attributable to the November 20YY tax period under subsection 29-10(3) of the GST Act is no longer relevant.

Issue 2

Question 1

Summary

No shortfall arises or penalty and GIC applies. We will treat this PBR request as a VD for the Partnership for not attributing their taxable supplies in August 20XX, however there is no shortfall as the Commissioner has exercised his discretion to treat the exit contract documents as a tax invoice therefore PARTNER A and PARTNER B can also attribute the input tax credit for their creditable acquisitions (same value as the taxable supply) in August 20XX.

Detailed reasoning

In the interest of minimising compliance costs we have decided not to amend the August 20XX and November 20YY BAS as the adjustments will not result in a shortfall or have any other net revenue effect.

The Partnership has requested that administrative penalties and GIC not be imposed. The Commissioners 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 GIC remission to be considered.


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