Edited version of private advice

Authorisation Number: 1052109686673

Date of advice: 20 April 2023

Ruling

Subject: Decreasing adjustment on the sale of the property

Question

Will the incentive payment of $X be a decreasing adjustment in accordance with Division 19 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) relating to the sale of the Property?

Answer

Yes, incentive payment of $X will be a decreasing adjustment in accordance with Division 19 of the GST Act.

The scheme commences on:

Contract date

Relevant facts and circumstances

X as trustee for X Trust (you) sold vacant land (Property) to the Purchaser on X for $X including GST.

The purchaser was required to pay you this amount as in the Payment Direction in the PEXA Statement of Adjustments at settlement.

In addition, you offered (and paid) an incentive to the purchaser for paying the full settlement price on settlement within the required settlement timeframe.

The payment of $X was transferred on X.

You were registered for GST and the Purchaser was not registered for GST at the time of the sale.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 19-10

A New Tax System (Goods and Services Tax) Act 1999 Section 29-75

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

Detailed reasoning

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with the indirect tax zone; and

(d) you are registered or required to be registered.

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

Section 195-1 defines consideration for a supply to mean any consideration within the meaning given by section 9-15, in connection with the supply.

Under section 9-15 of the GST Act consideration includes:

a)    Any payment or any act or forbearance, in connection with a supply of anything; and

b)    Any payment or any act or forbearance in response to or for the inducement of a supply of anything...

In Goods and Services Tax Ruling 2006/9 Goods and services tax: supplies, the Commissioner takes the view that the words 'in connection with the supply or acquisition' in section 195-1, and the phrases 'in connection with a supply of anything' and 'it does not matter whether the payment, act or forbearance was voluntary' in section 9-15 mean that there does not have to be an enforceable relationship for there to be a sufficient nexus between the supply and a payment. Nor does the consideration have to be agreed in advance.

You are liable for GST on taxable supplies that you make in section 9-40 of the GST Act.

The sale is a taxable supply under section 9-5 of the GST Act as you have satisfied all the above criterion.

In relation to the incentive payment, section 19-10 of the GST Act states:

(1) An adjustment event is any event which has the effect of:

(a) cancelling a supply or acquisition; or

(b) changing the consideration for a supply or acquisition; or

(c) causing a supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.

In Goods and Services Tax Ruling 2000/19 Goods and Services Tax: making adjustments under Division 19 for adjustment events (GSTR 2000/19) explains the Commissioner's view on the operation of Division 19 of the GST Act.

Paragraph 20-21 of the GSTR 2000/19 deals with discounts and volume rebates and it states:

20. After a supply occurs, a discount may be granted for early payment. Discounts referred to as settlement discounts or prompt payment discounts are made for the purpose of encouraging early payment of an amount owing for a supply. Benefits to the supplier include early cash flow, certainty of payment at an earlier point and avoidance of collection costs. Although the discount is typically expressed as a percentage of the amount owing and is conditional on payment within a specified period, the discount is considered to be a change in consideration.

21. This situation can be contrasted with a 'discount' offered in negotiating a price for an acquisition. In such a situation, the 'discount' is used to arrive at the consideration for the supply at the time the invoice is issued. As there is no change to the consideration, there is no adjustment event.

Accordingly, consistent with the Commissioner's views in GSTR 2000/19, the incentive payment represents a change in the consideration for the sale of the Property and, as such, gives rise to a decreasing adjustment event for the purposes of section 19-10 of the GST Act. Therefore, the GST payable will be the consideration less the incentive payment divided by eleven (x-x/11).

In accordance with section 29-75 of the GST Act, you must issue an adjustment note to your purchaser containing the requisite information outlined in that section.

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