Edited version of private ruling

Authorisation Number: 1011679099590

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Ruling

Subject: GST and pre-transfer reorganisation

Question

Whether Corporation A (Corp A) is liable for GST upon assuming certain environmental liabilities from Corp B?

Answer

No

Relevant facts and circumstances

A State Government proposes to transfer some of the functions of Corp B to the private sector under a State Act.

Prior to the transfer of those functions of Corp B to the private sector, the State Government proposes to transfer certain Corp B assets, rights and liabilities to Corp B.

Corp B is registered for GST.

Corp B is a statutory State-owned Corporation constituted and regulated under State Acts.

The State Treasurer and one other Minister nominated by the State Premier are the two shareholders of Corp B.

Corp A is constituted by a State Act as a State Government agency subject to the control and direction of the Treasurer. A State Act, Corp A has the following functions:

· to hold, on behalf of the Crown, Corp B assets¹ acquired by it or transferred to it by or under this or any other Act and to conduct businesses, provide services and carry on activities that relate to or are incidental to the management of any WSN assets held by it,

· to undertake, on behalf of the Crown, the development for any purpose for the benefit of the State of any land comprising WSN assets held by it,

· such other functions in connection with WSN assets held by it as may be prescribed by the regulations,

· such other functions as may be conferred or imposed on the Corporation by or under this or any other Act.

Corp A is registered for GST.

Transfer of Corp B assets to Corp A

It is the State Government intention that the responsibility for the ownership, operation, maintenance and rehabilitation of certain Corp B assets (which will not be transferred to the private sector) be transferred to Corp A.

Transfer of the liabilities to Corp A

Certain liabilities will also be transferred from Corp B to Corp A.

These liabilities relate to assets to be transferred to Corp A and include future liabilities.

The vesting orders that will vest Corp B's property rights associated with particular assets in Corp A will be drafted so as to also vest in Corp A the liabilities associated with those assets.

Where those liabilities arise under any State law, the liabilities may be vested in Corp A by order of the Treasurer under a State Act.

Vesting of the assets, rights and liabilities

The State Government proposes to transfer the above-mentioned assets, rights and liabilities of Corp B to Corp A by making vesting orders under a State Act.

A clause of the Schedule of a State Act provides that:

When any assets, rights or liabilities are vested by a vesting order, the following provisions have effect (subject to the vesting order):

· the assets vest in the transferee by virtue of this clause and without the need for any conveyance, transfer, assignment or assurance,

· the rights and liabilities become, by virtue of this clause, the rights and liabilities of the transferee,

· all proceedings relating to the assets, rights or liabilities pending

· by or against the transferor are taken to be proceedings pending

· by or against the transferee,

· any act, matter or thing done or omitted to be done in relation to

· the assets, rights or liabilities by, to or in respect of the transferor

· is (to the extent that the act, matter or thing has any force or effect) taken to have been done or omitted by, to or in respect of the transferee,

· the transferee has all the entitlements and obligations of the transferor in relation to those assets, rights and liabilities that the transferor would have had but for the order, whether or not those entitlements and obligations were actual or potential at the time the order took effect,

· a reference in any Act, in any instrument made under any Act or in any document of any kind to the transferor or a predecessor of the transferor is (to the extent that it relates to those assets or liabilities but subject to the regulations), to be read as, or as including, a reference to the transferee.

No attornment to the transferee by a lessee from the transferor is required.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Paragraphs 7-1(a), 9-5(a), 9-10(2)(g).

Reasons for decision

Summary

No, Corp A is not liable for GST upon assuming certain liabilities from Corp B because Corp A has not made any supply within the meaning of section 9-10 of the GST Act.

Detailed reasoning

Under paragraph 7-1(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) GST is payable on taxable supplies and taxable importations. Section 9-40 of the GST Act further provides that an entity must pay the GST payable on any taxable supply that it makes.

The term 'taxable supply' is defined in section 9-5 of the GST Act. This section provides the requirements for a supply to be taxable.

You make a taxable supply if:

· you make the supply for *consideration; and

…

· asterisk denotes a defined term in the Act.

The term 'supply' is defined in section 9-10 of the GST Act to mean:

9-10 Meaning of supply

A supply is any form of supply whatsoever.

Without limiting subsection (1), supply includes any of these:

· a supply of goods;

· a supply of services;

· a provision of advice or information;

· a grant, assignment or surrender of *real property;

· a creation, grant, transfer, assignment or surrender of any right;

· a *financial supply;

· an entry into, or release from, an obligation:

· to do anything; or

· to refrain from an act; or

· to tolerate an act or situation;

· any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

Goods and Services Tax Ruling 2006/9 examines the meaning of 'supply' in the GST Act. Part 2 of this Ruling looks at how to identify and characterise supplies in the context of the transactions in which they are made. This Part uses ten propositions to assist in analysing a transaction to identify the supply or supplies made in that transaction. However, it should be noted that the propositions are not universal as they may have exceptions or be qualified either by the operation of particular provisions of the GST Act, or by the facts and circumstances of a transaction.

Of relevance to this case is Proposition No 5: To 'make a supply' an entity must do something.

71. In overseas jurisdictions the term 'supply' has been held to take its ordinary and natural meaning, being 'to furnish or to serve' or 'to furnish or provide'. The Commissioner picks up this meaning in considering the meaning of supply in the GST Act at paragraph 41 of GSTR 2004/9 a ruling which is about the assumption of liabilities:

"In adopting the ordinary and natural meaning of the term, 'to furnish or provide', it follows that an entity must take some action to 'make a supply'. This approach is consistent with the use of active phrases throughout the examples of supplies in subsection 9-10(2), such as the normalised verbs: 'a provision'; 'a grant'; 'a creation'; 'a transfer'; 'an entry into'; and 'an assignment'."

72. The use of the word 'make' in the context of section 9-5 was considered by Underwood J in Shaw v. Director of Housing and State of Tasmania (No. 2) ('Shaw') in relation to the payment of a judgment debt. His Honour was of the view that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply. He considered the actions of the judgment creditor with respect to the extinguishment of the debt when the judgment debtor made the payment of the judgment sum to meet the judgment debtor's obligations.

73. The Commissioner agrees with Underwood J's decision that there was no supply by the judgment creditor, as the judgment creditor did not do any act or thing to extinguish the obligation when the judgment debtor paid the judgment debt.

Therefore, in the GST Act, the term supply covers not only the subject of the transaction (i.e. the thing that passes), but also the means by which it passes from one entity to another. By the use of the phrase you make a supply in the definition of the term taxable supply above, there is a requirement that an entity as a supplier takes some action to cause a supply to be made.

Certain liabilities will be transferred from Corp B to Corp A pursuant to the vesting orders made under a State Act. These liabilities relate to assets to be transferred to Corp A and include future liabilities.

Therefore, we need to consider whether Corp A is making a supply to Corp B when those liabilities are vested in Corp A. If the answer is in the negative, there will be no taxable supply and there will be no GST to be paid by Corp A in relation to the liabilities that are vested in Corp A.

Under section 9-10 of the GST Act, the term supply has a very broad definition of any form of supply whatsoever. In particular, paragraph 9-10(2)(g) provides that an entry into or release from an obligation to (i) do anything, or (ii) refrain from an act, or (iii) tolerate an act or situation, is a supply.

We need to consider, in relation to the transfer, whether Corp A has done anything, or taken any action to cause something to pass from it to Corp B.

Paragraphs 80 to 91 of GSTR 2006/9 discuss the GST consequences of vesting in a government authority of real property in accordance with State legislation. One of the common mechanisms employed by State legislation is to vest the interest in the real property in the government authority and extinguish any interests of the previous owner in that property.

In this circumstance, under a State Act:

· the assets vest in the transferee without the need for any conveyance, transfer, assignment or assurance,

· the rights and liabilities become the rights and liabilities of the transferee,

· all proceedings relating to the assets, rights or liabilities pending by or against the transferor are taken to be proceedings pending by or against the transferee,

· any act, matter or thing done or omitted to be done in relation to the assets, rights or liabilities by, to or in respect of the transferor is (to the extent that the act, matter or thing has any force or effect) taken to have been done or omitted by, to or in respect of the transferee,

· the transferee has all the entitlements and obligations of the transferor in relation to those assets, rights and liabilities that the transferor would have had but for the order, whether or not those entitlements and obligations were actual or potential at the time the order took effect,

· a reference in any Act, in any instrument made under any Act or in any document of any kind to the transferor or a predecessor of the transferor is (to the extent that it relates to those assets or liabilities but subject to the regulations), to be read as, or as including, a reference to the transferee.

Liabilities of Corp B vested in Corp A

A vesting order made under a State Act extinguishes the identified liabilities of Corp B and confers them on Corp A.

Upon whatever liabilities to be transferred to Corp A pursuant to certain vesting orders, Corp A may need to undertake certain action for the purposes of discharging those liabilities and /or satisfying those liabilities.

In this circumstance, we consider that there is no binding obligation 'passes' from Corp A to Corp B. This is because we consider that Corp A has done nothing for the purposes of entering into any obligation to do anything in respect of any liabilities vested in it.

Paragraph 23 of GSTR 2004/9 lends further support for this conclusion, in stating that the assumer of a liability imposed, required and effected by the words of a statute does not make a supply within the meaning of section 9-10 of the GST Act.

Therefore, in assuming the liabilities of Corp B, Corp A does not make a supply under section 9-10 of the GST Act. Consequently, paragraph 9-5(a) of the GST Act is not satisfied.

That is Corp A has not made a taxable supply under section 9-5 of the GST Act and as such the assuming of liabilities from Corp B by Corp A is not subject to GST.