Edited version of private ruling

Authorisation Number: 1011908200836

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Ruling

Subject: GST and the transfer of assets and liabilities

Question

Is there a taxable supply in accordance with section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when assets, liabilities and any right, title, interest or liability arising under or relating to an instrument (Assets) were transferred from Entity A to Entity B by the operation of a law?

Answer

No, there is not a taxable supply in accordance with section 9-5 of the GST Act when Assets were transferred from Entity A to Entity B by operation of law.

Facts

Entity A and Entity B are related entities.

The assets, liabilities and any right, title, interest or liability arising under or relating to an instrument where transferred from Entity A to Entity B.

The transfer was effected by operation of the law.

Summary

Entity A will not make a taxable supply in accordance with section 9-5 of the GST Act where Assets were transferred from Entity A to Entity B by the operation of a law. As the transfer will not occur as a result of any action undertaken by Entity A, there will be no supply.

Detailed reasoning

Taxable supply has the meaning given by sections 9-5 the GST Act. This section provides that an entity makes a taxable supply if:

· the entity makes the supply for consideration

· the supply is made in the course or furtherance of an enterprise that the entity 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.

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 under section 105 of the Restructuring Act. 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 A will not make a voluntary supply as the transfers will occur without Entity A doing anything or taking any action.

Accordingly, Entity A does not make a taxable supply under section 9-5 of the GST Act when the Assets are transferred to Entity B.