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Edited version of your written advice

Authorisation Number: 1051487401224

Date of advice: 27 February 2019

Ruling

Subject: GST on settlement amount

Question 1

Can the settlement amount paid be characterised as consideration for a financial supply?

Answer:

Yes

Question 2

Is there an entitlement to claim input tax credits on the settlement amount?

Answer:

No. There is no entitlement to claim input tax credits on the settlement amount. The acquisition is not a creditable acquisition under section 11-5 of the GST Act because the acquisition relates to input taxed financial supplies.

The scheme commences on:

December xxx

Relevant facts and circumstances

Company X engaged Company Y to consider applications for credit and to assess Company X’s suitability for credit.

There was a dispute between Company X and Company Y in relation to the amount of payment for services. This dispute was taken to court and a settlement amount was agreed upon.

A certain deed provided that an amount of $XX would be paid by Company X to Company Y and Company Y would also fulfil other agreed obligations.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 11-5, 11-15, 40-5,

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

Reasons for decision

Summary

The settlement amount of $$$ paid, related to the acquisition of financial services, which are input taxed supplies. No input tax credits are available for input taxed supplies.

What is a creditable acquisition?

Section 11-5 of A New Tax System (Good and Services Tax) Act 1999 (GST ACT) provides that 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, for GST.

The meaning of ‘creditable purpose’ is defined in section 11-15 of the GST Act, which provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

Section 40-5 of the GST Act provides that a financial supply, which has the meaning given by the regulations, is input taxed. Broadly, the supply of a debt, credit arrangement or right to credit, including a letter of credit arrangement is an input taxed financial supply (per item 2 in the table in sub-regulation 40-5.09(3)) of A New Tax System (Goods and Services Tax) Regulations 1999 (GST regulations).

In this case

An amount was in dispute in relation to the services provided by Company Y to Company X.

The ATO view, of the services provided by Company Y to Company X, in relation to the facilitation of finance is detailed in Goods and Services Tax Ruling: GST treatment of financial supplies and related supplies and acquisitions. (GSTR 2002/2).

In particular, GSTR 2002/2 sets out lists of financial supplies of which the following relates to this case. Schedule 2 lists the following financial services in relation to items 1 and 2 in GST regulation 40-9.09(3) at:

In conclusion

Therefore, Company X’s acquisition of services from Company Y are not creditable acquisitions for the purposes of the GST Act as they relate to input taxed supplies and therefore, no input tax credits are available.

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