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Ruling

Subject: GST and services of Receivers

Question 1

Is goods and services tax (GST) payable on payments to be received, in discharge of a Receivers' indemnity?

Answer 1

Yes, GST is payable on payments to be received, in discharge of a Receivers' indemnity.

Question 2

Is the assignment by the Receivers (both in their capacity as receivers, and personally) of their rights, title and interests in the Receivers' indemnity to another entity under Assignment Deed an input taxed financial supply?

Answer 2

Yes, the assignment by the Receivers (both in their capacity as receivers, and personally) of their rights, title and interests in the Receivers' indemnity to another entity under Assignment Deed is an input taxed financial supply.

Facts

Entity A is an incapacitated entity.

Under a Deed of appointment entity B was appointed by the creditors of entity A as the receiver of entity A (Receivers).

The Receivers claimed a right of indemnity from the property held by entity A, secured by a lien, in respect of their costs, expenses and remuneration incurred in caring for, preserving, maintaining property held by Entity A.

Any payment to be received by the Receivers when the indemnity is discharged represents their costs, reimbursements and remuneration.

The Receivers intends to assign the rights, title and interest that they have under the indemnity to another entity for an amount.

Reasons for Decision

GST is payable on taxable supplies. A taxable supply is defined in section 9-5 of the A New Tax System (Gods and Services Tax) Act 1999 (GST Act) as follows:

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 Australia; 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.

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

In order for the first requirement of section 9-5 of the GST Act to be met (which is, 'you make a supply for consideration') the following three conditions must be satisfied:

· there must be a supply,

· there must be consideration,

· the supply must be made for consideration (in other words, there must be a sufficient nexus between the supply and consideration.

Supply

A supply is defined in section 9-10 of the GST Act as follows:

"A supply is any form of supply whatsoever.

In this case we have indentified two supplies that can potentially be seen as supplies made by the Receivers. These are identified as the:

1. supplies made for which the Receiver acts on-behalf of the incapacitated entity, and

2. supply of the Receivers services in their own capacity.

1. Supplies made on-behalf of the incapacitated entity:

Division 58 of the GST Act deals with incapacitated entities. Subsection 58-5(1) of the GST Act states:

Subject to this Division, any supply, acquisition or importation by an entity in the capacity of a *representative of another entity that is an incapacitated entity is taken to be a supply, acquisition or importation by the other entity.

The terms "incapacitated entity" and "representative" are defined in section 195-1 of the GST Act as follows:

incapacitated entity means:

(a) an individual who is a bankrupt; or

(b) an entity that is in liquidation or receivership; or

(c) an entity that has a *representative

representative means:

(a) a trustee in bankruptcy; or

(b) a *liquidator; or

(c) a receiver; or

(ca) a controller (within the meaning of section 9 of the Corporations Act 2001); or

(a) an administrator appointed to an entity under Division 2 of Part 5.3A of the Corporations Act 2001; or

(b) a person appointed, or authorised, under an *Australian law to manage the affairs of an entity because it is unable to pay all its debts as and when they become due and payable; or

(c) an administrator of a deed of company arrangement executed by the entity.

As such, pursuant to subsection 58-5(1) of the GST Act, any supplies that the Receivers may supply on behalf of entity A are taken to be supplies made by entity A and not the Receivers. Consequently, any supplies made while the Receivers are the appointed representative for Entity A will be subject to rules outlined in Division 58 of the GST Act.

2. Supply of the Receivers services in their own capacity

The supply of the Receivers services are those that the Receivers are required to carry out in fulfilling their obligations under the Deed of appointment. That is, these services are between the Receivers and the secured creditors. These duties can be separately identified from those which the Receivers carry out as representative of the incapacitated entity.

GSTR 2006/9: Supplies (GSTR 2006/9) discussed the Commissioners view on the concept of supply and paragraph 119 states:

119. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.

Consistent with paragraph 119 we consider that the Receivers services are supplied to the secured creditors under the Deed of appointment and any other agreement that outlines the duties of the Receivers.

Consideration

Consideration is defined in section 9-15 of the GST Act as follows:

(1) 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.


(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.

According to paragraph 9-15(1)(a) of the GST Act, there must be a connection between a payment and the supply for that payment to be considered as consideration for that supply. Further, as mentioned above, in order for the first requirement of section 9-5 of the GST Act to be satisfied, there must be a sufficient nexus between the identified supply and consideration.

In GSTR 2006/9 the Commissioner considers the issue of nexus and states at paragraph 180 the following:

Sufficient nexus

180. In other GST rulings the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' those rulings take the view that:

· the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

· regard needs to be had to the true character of the transaction; and

· an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Thus, the issue here is whether the relevant amount to be received upon exercising the right to indemnity can be considered as consideration 'in connection with' any of the above mentioned supplies.

Supplies for consideration

1. Supplies on-behalf of the incapacitated entity

Generally, the consideration for supplies made by the Receivers on behalf of the incapacitated entity (i.e. entity A) would be determined by any contractual arrangements that entity A had with the recipients of such supplies. Thus, the nexus between the supply and any consideration for the supply would be established under such arrangements.

In the case of representatives of incapacitated entities division 58 of the GST Act sets out the circumstances in which representatives will have GST-related liabilities and entitlements. In particular section 58-10 of the GST Act states:

General rule

(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; and

(b) is entitled to any input tax credit that the incapacitated entity would, but for this section or section 48-45, be entitled to for a *creditable acquisition or a *creditable importation; and

(c) has any *adjustment that the incapacitated entity would, but for this section or section 48-50, have;

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.

Exceptions for certain taxable supplies

(2) This section does not apply to the GST payable on a *taxable supply to the extent that one or more of the following apply:

(a) the *incapacitated entity received the *consideration for the supply before the *representative became a representative of the incapacitated entity;

(b) if, under Division 83 or 84, the GST is payable by the recipient of the supply - the incapacitated entity provided the consideration for the supply before the representative became a representative of the incapacitated entity;

(c) if:

(i) the supply is a supply for which a *voucher to which Division 100 applies is redeemed; and

(ii) the incapacitated entity supplied the voucher before the representative became a representative of the incapacitated entity;

the consideration for the supply referred to in subparagraph (i) does not exceed the consideration provided for the incapacitated entity's supply of the voucher.

In this case, pursuant to subsection 58-10(1) of the GST Act the Receivers are liable to pay any GST for taxable supplies which are made in their capacity as Receivers of entity A.

Therefore upon the Receivers becoming the representatives of entity A an issue arises as to the whether the payment under the indemnity represents consideration for any supply by the Receivers.

The payment arising from the discharge of the indemnity relates to the costs, reimbursement and remuneration of the Receivers.

Costs and reimbursements

It is our view that to the extent that the payment made under the indemnity to the Receivers is for recovery of costs and/or reimbursement of costs belonging to entity A, this does not represent consideration for any supply of services by the Receiver. Rather, this amount is merely a reimbursement to the Receiver of the relevant costs (i.e. operational costs) they have met in their capacity as the representative of entity A.

Remuneration

Based on the facts, the remuneration portion of the payment that arises as a consequence of discharging of the Receivers' indemnity is made in respect of the services that the Receivers have provided personally and not in their capacity as the receivers of entity A.

However if, any of the payment under the indemnity would relate to entity A's supplies then, to that extent, that payment represents consideration for a supply, for which the Receivers have a GST obligations arising under division 58 of the GST Act.

2. Supplies of the Receiver services in their own capacity

As discussed above, part of the payment made to the Receivers is a remuneration amount in respect of the services they have provided personally.

It is our view that any payment that the Receivers receive under the indemnity which is directed to satisfying the payment under the terms of the Deed of appointment represents consideration for the supply of Receiver services. That is, we consider that the payment will have a sufficient nexus with the services provided by the Receivers to their appointer.

Remaining requirements for a taxable supply

1. Supplies on-behalf of the incapacitated entity

On the understanding that the incapacitated entity satisfies the requirement of section 9-5 of the GST Act, then the supplies made will be a taxable supply for which the representative (i.e. the Receivers) will be required to report the GST according to Division 58 of the GST Act.

2. Supplies of the Receiver services in their own capacity

We are of the view that the Receivers have supplied their services to the appointers in the course of carrying on their respective enterprises and this supply of services is connected with Australia. Further, where each of the Receivers are registered for GST or required to be registered for GST each of the receivers will satisfy the remaining requirements listed in paragraph 9-5(b) to 9-5(d) of the GST Act.

As the supply by the Receivers is not input taxed or GST-free under the GST Act the requirements of section 9-5 will be satisfied.

Additional information

Attribution rules

1. Any taxable supplies made on-behalf of the incapacitated entity

Section 58-35 of the GST Act outlines attribution rules in relation to supplies made by a representative as follows:

1. If a *representative of an *incapacitated entity is *required to be registered in that capacity, the tax periods applying to the representative in that capacity are the same tax periods that apply to the incapacitated entity.

2. This section has effect despite Division 27 (which is about how to work out the tax periods that apply).

Thus, any GST liabilities arising under Division 58 of the GST Act should be attributed as per the above provisions.

2. Supplies of the Receiver services in their own capacity

Division 29 of the GST Act outlines the GST attribution rules.

Subsection 29-5(1) of the GST Act states:

The GST payable by you on a *taxable supply is attributable to:

(a) the tax period in which any of the *consideration is received for the supply; or

(b) if, before any of the consideration is received, an *invoice is issued relating to the supply - the tax period in which the invoice is issued.

In this case we have not been advised when the tax invoices for the services of the Receivers were issued. Therefore GST on the relevant amount should be attributable according to the rules as set out in subsection 29-5(1) of the GST Act.

Recipient of taxable supplies

Goods and services tax ruling GSTR 2006/9 states the following in relation to a recipient.

15. You make an acquisition if you are the recipient of a supply. That is, the supply is made to you. In most transactions concerning GST the recipient of a supply is the entity that is also provided with that supply.

1. Supplies on-behalf of the incapacitated entity

In the case where the Receivers are acting within their authority as representative of entity A and making supplies is accordance with section 58-5 of the GST Act, we consider that the recipient of these supplies will be the entities to whom entity A is required to make the supply.

2. Supplies of the Receiver services in their own capacity

According to Corporations law provisions, a receiver is generally appointed by either a secured creditor or by a court order. In this case, according to the Deed of appointment, the Receivers have been appointed by the secured creditors. Further, the following has been extracted from the Australian Securities & Investments Commission (ASIC) website in relation to a receivers' primary duty;

The receiver's primary duty is to the company's secured creditor.

Based on the above, we are of the view that in respect of the Deed of appointment it is the secured creditors who appointed the Receivers who are the recipients of the supplies made by the Receivers (i.e. the Receivers services).

Question 2

A financial supply is defined in subsection 40-5(2) of the GST Act as follows:

Financial supply has the meaning given by the regulations.

Regulation 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) states:

(1) The provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if:

(a) the provision, acquisition or disposal is:

(i) for consideration; and

(ii) in the course or furtherance of an enterprise; and

(iii) connected with Australia; and

(b) the supplier is:

(i) registered or required to be registered; and
(ii) a financial supply provider in relation to supply of the interest.

Therefore, in order to decide whether the assignment is a financial supply as per the above definition, what must be established first is whether the rights, title and interests in the Receivers' indemnity in respect of the 2001 to 2006 Schemes comes within the definition/meaning of an "interest" mentioned in subregulation (3) or (4) of Regulation 40-5.09 of the GST Regulations.

Regulation 40-5.02 of the GST Regulations defines an 'interest' as anything that is recognised at law or in equity as property in any form. Further item 2 in the table in subregulation 40-5.09(3) of the GST Regulations, provides that a debt is considered an interest for the purposes of subregulation 40-5.09(1) of the GST Regulations.

Consequently what remains to be determined in this case is whether the rights, title and interest in the Receivers' indemnity is a debt for the purposes of item 2.

The term 'debt' is defined in Goods and Services Tax Ruling GSTR 2002/2, Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) as follows.

Debt

An amount due from one entity to another or a presently existing obligation to pay an ascertainable amount at a future time.

In this case we consider that the rights, title and interests in the Receivers' indemnity has the characteristics of a debt as it represents an amount due from one entity to another. Accordingly, on the understanding that the remaining requirements of Regulation 40-5.09 of the GST Regulations are satisfied by the Receivers, the assignment of the rights, title and interests in the Receivers indemnity will satisfy the definition of a financial supply.

A financial supply is an input taxed supply.