Edited version of private ruling

Authorisation Number: 1011826788733

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Ruling

Subject: GST and the transfer of assets between government entities

Question

Will Entity Old make a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when certain shares, assets, liabilities, leases, rights, contracts, personnel and instruments (hereafter collectively referred to as 'the Assets') are transferred from Entity Old to Entity New as a result of the operation of a regulation pursuant to the Act?

Answer

No, Entity Old will not make taxable supplies in accordance with section 9-5 of the GST Act where the Assets are transferred by operation of a regulation pursuant to the Act.

Relevant facts

Entity Old is ultimately controlled by a Government.

Subsidiary is a wholly-owned subsidiary of Entity Old.

Entity New is ultimately controlled by a Government.

The purpose of the Act is to facilitate a restructure of the industry to deliver significant benefits to the community, including:

(a) Improved regional coordination and management

(b) More efficient delivery of services

(c) Enhanced customer service for consumers; and

(d) A clearer accountability framework for supply security.

The Government announced that the two entities, Entity New and Entity Old and its subsidiaries would be merged into a single supply authority.

To give effect to the decision, the Government introduced amendments to the Act. The Explanatory Notes explains the policy objectives and the reasons for the amendments to the Act.

The Government's proposal is for Entity Old's assets, including Subsidiary's assets, to be transferred to Entity New.

Once merged into a single supply authority, Entity New will have authority under the Act to acquire by transfer any and all of Entity Old and Subsidiary's assets.

Assumption

The following assumptions have been made for the purposes of this ruling:

· the transfer of the Assets will be for no consideration, and

· subsidiary will be prescribed under a regulation pursuant to the Act before the Assets are transferred.

Reasons for decision

Taxable supply has the meaning given by sections 9-5 (the basic definition) of the GST Act. A thing is a taxable supply to you if the supply by the supplier satisfies the requirements of section 9-5 of the GST Act.

Section 9-5 of the GST Act provides that an entity makes a taxable supply if:

(a) the entity makes the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that the entity carries on

(c) the supply is connected with Australia, and

(d) 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.

There are no circumstances which would make the transfer of Assets, as a result of the operation of a regulation under the Restructuring Act, a GST-free supply under Division 38 of the GST Act or input taxed under Division 40 of the GST Act.

Makes the supply for consideration

Goods and Services Tax Ruling GSTR 2006/9 GST: Supplies (GSTR 2006/9) examines the meaning of 'supply' in the GST Act. Part 1 of the 'Ruling with Explanation' section discusses the concept of 'supply' in the GST Act and the meaning of 'supply' in section 9-10. Part 2 of the Ruling looks at how to identify and characterise supplies in the context of the transactions in which they are made.

Section 9-10 of the GST Act defines the meaning of supply broadly as 'any form of supply whatsoever'. Subsection 9-10(2) of the GST Act provides a list of things that are included as supplies. It does not limit the possible breadth of the definition of supply in subsection 9-10(1).

An entry into, or release from, an obligation to do anything or refrain from an act is a supply under paragraph 9-10(2)(g) of the GST Act; as is a surrender of any right under paragraph 9-10(2)(e). However, section 9-5 requires an entity to take some action to cause a supply to occur. To satisfy section 9-5 of the GST Act, an entity must, amongst the other requirements, make a supply for consideration.

GSTR 2006/9 uses ten propositions to assist in analysing a transaction to identify the supply or supplies made in that transaction. Under Proposition 5 the Commissioner considers that to 'make a supply' an entity must do something (refer to paragraphs 71 to 91 of GSTR 2006/9).

Specifically, paragraph 72 of GSTR 2006/9 states:

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. …

The transfer of the Assets will occur pursuant to regulation. However, an entity may still make a supply if it is made under the compulsion of statute. Paragraph 74 of GSTR 2006/9 provides the following explanation:

However, Underwood J was of the view, with which the Commissioner also agrees, that an entity can still make a supply even if the supply is made under the compulsion of statute if the entity takes some action to cause a supply to occur. His Honour went on to compare a supply resulting from a positive act against a situation where there is no supply because nothing is done:

It seems to me that different considerations arise when considering the meaning of 'supply' in the Act. Notwithstanding the statutory compulsion, the liquidator's disposition in St Hubert's Island Pty Ltd (in liq) was something that was 'made' by him and for that reason would be likely to be considered a supply within the meaning of the Act. This is quite a different situation from the matter at hand, for the release of the obligation to pay a judgment sum by the payment of that sum will occur regardless of whether the judgment creditor makes or does any act at all. It was held in Databank Systems Ltd v. Commissioner of Inland Revenue (NZ) (1987) 9 NZTC 6213 that 'supply' means 'to furnish or provide'. Application of that proposition to the word 'supply' as enacted in the Act, s9-10 reinforces the concept that there is a legislative intention not to include in the word 'supply' the release of an obligation that occurs independently of the act of the releasor.

Entity Old will not make a voluntary supply of the Assets as the transfers of the assets will occur without Entity Old doing anything or taking any action.

The Act provides, amongst other things, that a regulation may make provision to transfer an asset or liability from one relevant entity to another relevant entity. In this case, the relevant transfers will occur by operation of regulation and for no consideration. The transfers of the Assets will not occur as a result of any action undertaken by the Entity Old.

When the Government's announced decision that the entities would be merged into a single supply authority is given legislative effect, authority over the Assets of Entity Old will pass to Entity New.

The Government's administrative decision will be implemented by way of operation of a regulation under the Act.

Entity Old will not take any action to cause a supply to occur.

Accordingly, Entity Old will not make a taxable supply under section 9-5 of the GST Act when the Assets are transferred to Entity New.