1051474541655 | Legal database

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This edited version has been archived due to the length of time since original publication.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

Authorisation Number: 1051474541655

Date of advice: 4 June 2019

Ruling

Subject: GST and mortgage brokers

Question

Do you make an acquisition that satisfies section 11-5(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), in that the supply of the thing to you is a taxable supply, for acquisitions made pursuant to the deed?

Answer

You are making an acquisition that satisfies paragraph 11-5(b) of the GST Act as the supply of the thing to you is a taxable supply.

Relevant facts and circumstances

· You registered for goods and services tax (GST).

· You have decided to terminate an agreement via a deed.

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 40-5

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 40-5.04

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 40-5.09

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 40-5.10

A New Tax System (Goods and Services Tax) Regulations 1999 Subregulation 40-5.09(3)

Reasons for decision

In these reasons for decision, all references to a regulation are to the A New Tax System (Goods and Services Tax) Regulations 1999. The 1999 Regulations are referenced as the Deed was entered into while these Regulations were in force. Please note that these regulations expired on 31 March 2019 and were replaced by the A New Tax System (Goods and Services Tax) Regulations 2019 which commenced on 1 April 2019.

Is the supply to you under the Deed that of a financial supply?

Section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a financial supply, as defined in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations), is input taxed. GST Regulation 40-5.08 states that for this purpose, a supply is a financial supply if the supply is mentioned as:

· a financial supply in regulation 40-5.09 or

· an incidental financial supply in regulation 40-5.10.

Subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition, or disposal of an interest mentioned under subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations is a financial supply if:

(a) the provision, acquisition or disposal of that interest is:

· for consideration; and

· in the course or furtherance of an enterprise; and

· connected with the indirect tax zone, and

(b) the supplier is:

· registered or required to be registered for GST, and

· a financial supply provider in relation to the supply of the interest.

Under item 2 in the table in subregulation 40-5.09(3) of the GST Regulations the provision, acquisition or disposal of an interest in or under a debt, credit arrangement or right to credit, including a letter of credit, is a financial supply where the further requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied.

Item	An interest in or under...
2	A debt, credit arrangement or right to credit, including a letter of credit

Regulation 40-5.02 provides examples of an "interest" as including,

· A debt or a right to credit

· A right to receive a payment under a derivative

Further, under regulation 40-5.04 a "disposal" of an interest is defined as:

Disposal of an interest includes assignment, cancellation, redemption, transfer and surrender of the interest.

The Deed does not give rise to an input taxed supply of an interest in or under a debt.

As we have concluded that the other party is not making a financial supply under the Deed it needs to be determined whether there is a taxable supply for which the payment to the other party is consideration.

The requirements of a taxable supply are set out in section 9-5 of the GST Act which states:

· you make the supply for consideration, and

· the supply is made in the course or furtherance of an enterprise you carry on, and

· the supply is connected with the indirect tax zone, and

· you are registered or required to be registered for GST.

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

The supply made under the Deed is not a GST-free supply of a going concern. No other GST-free provisions in the GST Act have application in this case. As discussed above we do not consider the supply made by the other party under the Deed to be an input taxed financial supply.

In determining whether the supply is a taxable supply, all the requirements under section 9-5 must be satisfied. The requirement of a 'supply' is the first and most relevant one to consider here.

A supply, pursuant to section 9-10 of the GST Act, includes (amongst other things) a grant, assignment or surrender of real property, a creation, grant, transfer, assignment or surrender of any right, and an entry into, or release from, an obligation to do or refrain from doing anything.

The other party is registered for GST and carries on an enterprise. The supply by the other party to you under the Deed is made in connection with the business that the other party carries on. As the supply is made in Australia and indirect tax zone is defined by section 195-1 of the GST Act to mean Australia, the supply is connected with the indirect tax zone. The payment under the Deed is consideration for the supply made to you by the other party.

Accordingly the supply by the other party to you under the Deed is a taxable supply pursuant to section 9-5 of the GST Act.

Requirements for a creditable acquisition

Section 11-20 of the GST Act provides that an entity is entitled to the input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act lists the requirements that must be satisfied for an entity to make a creditable acquisition. One of those requirements is that the supply of the thing to you is a taxable supply (see paragraph 11-5(b) of the GST Act). As the supply made by the other party to you is a taxable supply, this requirement is satisfied.

This private ruling does not address whether the other requirements for a creditable acquisition are satisfied. This includes paragraph 11-5(a) of the GST Act, which provides that the entity must acquire the thing solely or partly for a creditable purpose.

Section 11-15 of the GST Act defines the meaning of creditable purpose. Paragraph 11-15(2)(a) of the GST Act provides that an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).