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This edited version has been archived due to the length of time since original publication.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: 1012684013612

Ruling

Subject: GST and legal class action

Question 1

Will goods and services tax (GST) be payable on any compensation received by you as a result of the class action taken against the scheme promoters?

Decision 1

No, any compensation received by you as a result of the class action will not be subject to GST.

Question 2

Are you entitled to claim input tax credits on the legal costs incurred by you as a result of participating in the class action to claim compensation from the scheme promoters?

Decision 2

Yes, you are entitled to claim input tax credits on the legal costs incurred as a result of participating in the class action against the scheme promoters.

Relevant facts and circumstances

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 11-5.

Reasons for the decisions

Decision 1

In order to determine whether GST is payable on any proceeds or compensation received by you as a result of the court approved sale process, it is necessary to ascertain whether the scheme promoters will make a taxable supply to you as a result of your class action.

Section 9-5 of the GST Act provides that an entity makes a taxable supply if:

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this respect the Goods and Services Tax Ruling GSTR 2001/4 (GSTR 2001/4 or ruling) refers to GST consequences of court orders and out of court settlements.

Paragraph 21 of the ruling provides that:

Paragraphs 71-73 of the ruling refer to situations, where the subject of the claim is not a supply and state:

As explained above, this loss or damage incurred by you, being the substance of the dispute, cannot be treated as a supply made by you to the scheme promoters. Similarly, we do not consider the scheme promoters made any supply to you as a result of your class action. This is further explained at paragraphs 110-114 of GSTR 2001/4, which refer to payments made for damages and they are quoted below.

Accordingly, there was no taxable supply from the scheme prompters to you and you will not incur any GST liability on any compensation payment received as a result of the class action.

Decision 2

Section 11-5 of the GST Act refers to what is a creditable acquisition and provides that you make a creditable acquisition if:

It is necessary to determine whether you made a creditable acquisition of legal services from your legal representatives in participating in the class action. In this respect, paragraph 146 of GSTR 2001/4 states:

Your legal representatives provided a taxable supply of legal services to you and your consideration for such services was inclusive of GST. As you were registered for GST, we consider that you made a creditable acquisition of legal services and therefore, you are entitled to claim input tax credits on legal services acquired.


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