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Edited version of your written advice
Authorisation Number: 1051288790760
Date of advice: 15 November 2017
Ruling
Subject: GST and the effect of a Vesting Order on subdivision 153-B
Question
Will the Commissioner accept that the subdivision 153-B agreements and the recipient created tax invoices (RCTI) agreements (the Agreements) entered into by the Vendor are vested in Entity A in accordance with the Vesting Order and as such Entity A can rely on the Agreements for GST purposes without the need for Entity A to enter into new agreements with third parties?
Answer
Yes, we accept that the Agreements were covered by the Vesting Order and that Entity A can continue to rely on the Agreements for GST purposes. However, Entity A should inform the other parties to the Agreements of the effect of the Vesting Order to ensure that each of the parties continue to correctly and consistently comply with their GST obligations.
Relevant facts and circumstances
The Vendor supplied Assets to Entity A pursuant to a Sales and Purchase Agreement (SPA) (the Transaction). Entity A applies the Assets to the operation of its enterprise.
To facilitate the implementation of the Transaction, the State enacted new Enabling Legislation which gave effect to the Vesting Order.
The Vesting Order provided that the assets, rights and liabilities of the Vendor are vested in Entity A. These assets, right and liabilities included the rights, interest, obligations and liabilities of the Vendor, whether accruing on, before or after the Transaction, under or associated with all contracts, purchase orders, undertakings, representations, deeds, agreements, licences and other legally enforceable arrangements, including any manufacturers’ warranties and defects rectification rights, to the extent entered into by or benefiting or burdening the Vendor.
In this arrangement, contractually a Distributor makes a supply of distribution services directly to a customer, and the Retailer makes a supply of a related product to the customer. However Retailers issue bills to customers which include both the distribution services and the product components. As such, to allow a Distributor to account for GST as though its supply is made to the Retailer, often a Subdivision 153-B Agreement and RCTI Agreements are entered into between the Distributor and the Retailer.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
The act of vesting extinguishes the rights of a previous owner and confers those rights on the recipient entity. For example, in Goods and Services Taxation Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) the Commissioner discusses the consequences of the statutory vesting of real property at paragraph 82 which states:
The effect of the gazettal notice is that the legal ownership of the land, described in the notice, is vested in the authority acquiring the land, and that the land becomes freed from any other interests. The entity’s interest in the land, whether legal or equitable, is extinguished.
In State Bank of New South Wales Limited v. Commissioner of Stamp Duties (QLD) [1994] 2 Qd R 661, the Supreme Court of Queensland considered statutory provisions relating to the privatisation of the State Bank of NSW. In that case there was a vesting of assets and liabilities and a statutory provision that said ’on and from the dissolution of the State Bank, the Corporation is for all purposes a continuation of and the same legal entity as the State Bank.’
The Court stated, ‘Once the vesting of property had occurred then for legal purposes it was sufficient to refer to the Corporation alone as if it had been at all material times the only entity.’
In this case, the Enabling Legislation contains a similar statutory provision. On this basis, we accept that Entity A is effectively taken to be the Vendor, with respect to the vested ‘assets, rights and liabilities’.
It is therefore necessary to consider whether the Vesting Order covered the Agreements.
The effect of the vesting order on the Agreements
The Vesting Order is expressed in broad terms and includes among the ‘assets, rights and liabilities’ that are vested the following:
contracts, purchase orders, undertakings, representations, deeds, agreements, licences and other legally enforceable arrangements, including any manufacturers’ warranties and defects rectification rights.
Therefore we accept that the Agreements are vested in Entity A and it remains to be considered whether these Agreements continue to be effective for GST purposes.
Requirements of Agreements for GST purposes
Section 153-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) stipulates that a Subdivision 153-B Agreement must be a written agreement between the principal and the intermediary.
Similarly, section 29-70 of the GST Act requires a RCTI Agreement to be a written agreement between the recipient and the supplier.
As both provisions stipulate a written agreement between the principal/intermediary and supplier/recipient respectively, the relevant requirements for the Agreements are the same.
Therefore we consider that a consistent approach should be taken for each type of agreement.
As noted the Vesting Order provides that the references to the Vendor in the Agreements are to be read as a reference to Entity A.
Therefore we accept that the Agreements continue to be written arrangements between the principal/intermediary and supplier/recipient and are effective for GST purposes.
Subdivision 153-B Agreements
Entity A will need to ensure that the parties to the arrangements continue to deal with GST on a consistent basis and those consistent reporting arrangements continue. Entity A can assist the retailers in understanding their position in relation to the effect of the Vesting Order by contacting the retailers to confirm that references to the Vendor are to be read as references to Entity A. Also Entity A will need to update their ABN in relation to these Agreements.
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