Edited version of private ruling

Authorisation Number: 1011724974280

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Ruling

Subject: GST and supply of trucks by an incapacitated entity

Question

Are you as liquidators of a company liable to pay the goods and services tax (GST) in respect of the supply of the fleet of trucks to the purchaser?

Answer: No.

Relevant facts and circumstances

You are registered for GST.

You account for GST on a non-cash basis.

You were appointed liquidators of a company.

The company as the vendor and the purchaser, entered into a sale and purchase agreement to supply a number of assets for an agreed GST inclusive price.

The agreed amount was to be paid to the company on a specified date.

The agreement stated that the settlement was subject to the consent of the bank that a bank charge on the assets will be removed.

The company and the purchaser agreed that the assets will be hired to the purchaser from the date of the agreement until the settlement date.

The purchaser did not settle on some of the assets and paid a lesser amount at settlement.

The company did not issue a tax invoice to the purchaser.

The company did not receive any consideration prior to the settlement date and no amount was paid as part consideration on entering into the agreement.

You issued a tax invoice in the name the company (In Liquidation) in your capacity as liquidators.

The company has not attributed any of the GST payable on the supply of the assets.

Relevant legislative provisions

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

Section 7-1

Section 9-5

Section 9-10

Section 9-40

Section 58-5

Section 58-10

Section 58-60

Reasons for decision

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is liable for GST on the taxable supplies it makes.

Under section 9-5 of the GST Act an entity makes a taxable supply if:

· it makes a supply for consideration,

· the supply is in the course or furtherance of an enterprise that it carries on,

· the supply is connected with Australia, and

· the entity is 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 first requirement of section 9-5 of the GST Act is that there must be a supply made for consideration. Therefore in this case we need to determine whether a supply was made by you, (the liquidators) when you received the amount of $695,000 at settlement for the sale of the assets to the purchaser.

Section 9-10 of the GST defines 'supply' to mean any form of supply whatsoever. Subsection 9-10(2) of the GST Act further provides that supply includes a supply of good amongst the supply of other things.

In this circumstance:

· The company and the purchaser entered into a sale contract, prior to the appointment of the liquidators, for the sale of a number of assets.

· The company and the purchaser agreed that the assets will be hired to the purchaser from the date of the agreement until the settlement date.

· the purchaser did not settle on some of the assets and paid a lesser amount at settlement.

· the purchaser did not make a part payment of the sale price to the company to settlement.

· The company did not issue a tax invoice to the purchaser for the sale price for the supply.

You, (the liquidators) after your appointment, received a monetary amount from the purchaser at settlement, under the terms of the contract between the company and the purchaser. There was no new contract or change in the terms of the contract. You simply carried out the terms of the existing contract.

The issue is whether you made a supply to the purchaser when you received payment for the assets.

Goods and Services Tax ruling GSTR 2006/9 examines the meaning of supply in the GST Act.

Proposition No 11 of this Ruling suggests that 'the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply'. In this case, there was a sale contract between the company and the purchaser in place prior to your appointment. You were not a party to the contract. After your appointment, the terms of the contract had not been altered and no new contract was entered into between you and the purchaser. You took no action in receiving the amount due at settlement under the terms of the existing contract.

On the basis of the fact above, it is considered that you are not the supplier in relation to the sale of the assets in accordance with the existing contract.

Division 58 of the GST Act sets out how GST applies where representatives are appointed to act for incapacitated entities. This Division:

· provides that any supply, acquisition or importation by a representative of an incapacitated entity in his or her representative capacity will be treated as a supply, acquisitions or importation of the incapacitated entity. This ensures that the GST consequences that arise from a supply, acquisition or importation of the representative are the same as the consequences that would have arisen as if they were a supply, acquisition or importation of the incapacitated entity.

· ensures the representative is responsible for certain GST consequences which arise from a supply, acquisition or importation that falls within the scope of the representative's responsibility or authority for managing the incapacitated entity.

· places all types of representative on common footing and provide a consistent base from which the representative becomes liable for relevant liabilities and becomes entitled to relevant entitlements.

Section 58-5 of the GST Act provides the general principle for the relationship between incapacitated entities and their representative. Paragraph 1.23 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Measures No 5) Bill 2009 (the EM) explains that:

The overall effect of section 58-5 is to ensure that all supplies, acquisitions and importations, and certain acts or omissions made during the period of a representative's appointment will be taken to be those of the incapacitated entity, regardless of whether it was the incapacitated entity or the representative that undertook the transactions or undertook the relevant acts or omissions.

However, section 58-10 of the GST Act provides the exceptions in which the representatives have GST-related liabilities and entitlements rather than the incapacitated entity.

General rule in paragraph 58-10(1)(a) [in relation to GST payable] provides:

(1) A *representative of an *incapacitated entity:

(a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation; …

(b) …

(c) …

to the extent that the making of the supply, importation or acquisition to which the GST, input tax credit or adjustment relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Note: The terms marked with an asterisk are defined in section 195-1 of the GST Act.

Under this paragraph, you as liquidators are only liable to pay GST on sale of the assets to the extent that the company would be liable to pay GST on delivering the assets as a taxable supply and to the extent that you were making the supply within the scope of your responsibilities or authority for managing the affairs of the company.

It is considered that you did not make any supply when you received payment for the assets from the purchaser, therefore the exception under paragraph 58-10(1)(a) does not apply to make you liable for GST for the sale of the assets.

Under section 58-60 of the GST Act, you are required to notify the Commissioner of certain liabilities as follows:

(1) A *representative of an *incapacitated entity must notify the Commissioner, in the *approved form, of an amount of GST for which the entity is liable, or an *increasing adjustment that the entity has, if:

(a) the representative becomes aware, or could reasonably be expected to have become aware, of the amount of GST, or the adjustment; and

(b) the amount of GST, or the adjustment, has not been taken into account in any *GST return that has been given to the Commissioner; and

(c) the Commissioner has not been previously notified of the amount of GST, or the adjustment, under this section.

(2) The notification must be given to the Commissioner before the day on which the *representative declares a dividend to unsecured creditors of the *incapacitated entity.

(3) This section does not apply if the *representative is a representative of a kind that does not have the capacity to declare dividends to unsecured creditors of the *incapacitated entity.

(4) This section does not apply in circumstances determined by the Commissioner under subsection (5).

(5) The Commissioner may, by legislative instrument, determine circumstances in which this section does not apply.

Therefore, you are required to notify the Commissioner of the GST liability that the company has on the sale of the assets and has not reported on their Business activity statement.