Edited version of your private ruling

Authorisation Number: 1012513250230

Ruling

Subject: The Attribution Rules

Question

To which tax period is your decreasing adjustment, in relation to holdback payments made to a retailer of your products (Dealer X) attributable under section 29-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Your decreasing adjustment is attributable to the first tax period for which you give the Commissioner a GST return at a time when you hold an adjustment note

Relevant facts and circumstances

You, an Australian company are registered for goods and services tax (GST).

You are a wholesale distributer to authorised dealers in Australia.

You periodically make payments, known as 'holdback' payments, to authorised dealers as part of your ordinary business strategies.

Your holdback payments meet the description adopted in Goods and Services Tax Determination GSTD 2005/4 Goods and services tax: are 'wholesale holdback' and 'retail holdback' payments made by a motor vehicle manufacturer or importer of new motor vehicles to a dealer consideration for a supply? (GSTD 2005/4)

From 1 July 2000 to 30 June 2005 you treated holdback payments as subject to GST in accordance with the ATO view that these payments were in connection with a supply made by the dealers to you. You grossed up the payments to include GST and claimed equivalent input tax credits (ITC) on the basis you were making creditable acquisitions. You issued recipient created tax invoices (RCTI) to inform dealers of their GST liability and for your claim to ITCs.

From 1 July 2005, in accordance with your understanding of GSTD 2005/4 that these payments were out of scope, you ceased to gross up the payments for the GST and ceased to claim ITCs.

In October 2005 you were advised by Dealer X that they had received a private ruling to the effect that GSTD 2005/4 did not cover their particular circumstances and that the Commissioner had ruled that these payments were consideration for taxable supplies made by Dealer X to you.

In February 2006 you issued Dealer X an RCTI to adjust payments made during the period from 1 July 2005 to 31 January 2006 and claimed the relevant ITCs. From 1 February 2006 you treated payments to Dealer X as consideration for taxable supplies from Dealer X. This continued up to and including the September 2009 tax period.

On 18 September 2009 you were advised by Dealer X that they had changed their financing model to a 'bailment' model which would be covered by GSTD 2005/4. As a result, from 1 October 2009 holdback payments to Dealer X were treated similarly to all other dealers; the payments were treated as being out of scope in accordance with GSTD 2005/4.

On 22 November 2011 you were advised by Dealer X's legal representative of a private ruling dated 10 June 2009 that was issued to Dealer X. The Commissioner had considered the particular varying circumstances of the payments made to Dealer X from 1 July 2000 to 15 December 2008. The ruling advised that the Commissioner considered the holdback payments to Dealer X were connected to the acquisition of new vehicles from you. The payments decreased the consideration paid by Dealer X for the new vehicles and were adjustment events under Division 19 of the GST Act. The payments were not out of scope in accordance with GSTD 2005/4.

The ruling provided that holdback payments received in the same tax period in which the ITC related to the acquisition were attributable, would reduce the consideration paid and hence the ITC to which Dealer X would otherwise be entitled to claim. Holdback payments received in a subsequent tax period would result in an increasing adjustment for Dealer X under section 19-80 of the GST Act.

You state that you have never held an adjustment note or a document capable of being treated by the Commissioner as an adjustment note.

Assumption

The holdback payments to Dealer X effectively decreased the consideration received by you for the taxable supply to Dealer X during the periods in which they operated under an equitable mortgage arrangement. Accordingly, the payments give rise to a decreasing adjustment under section 19-55 of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 19-55.

A New Tax System (Goods and Services Tax) Act 1999 Section 19-80

A New Tax System (Goods and Services Tax) Act 1999 Section 29-10

A New Tax System (Goods and Services Tax) Act 1999 Section 29-20

A New Tax System (Goods and Services Tax) Act 1999 Section 29-25

Reasons for decision

Adjustments can arise because of adjustment events such as a change in the consideration for a supply. If the consideration for a supply is reduced, you have a decreasing adjustment for supplies under section 19-55 of the GST Act.

Division 29 of the GST Act tells you the tax periods to which your taxable supplies, creditable acquisitions, creditable importations and adjustments are attributable.

Section 29-20 of the GST Act relevantly provides that:

29-20 Attributing your adjustments

(1) An *adjustment that you have is attributable to the tax period in which you become aware of the adjustment.

…

(3) If:

(a) you have a *decreasing adjustment arising from an *adjustment event; and

(b) you do not hold an *adjustment note for the adjustment when you give to the Commissioner a *GST return for the tax period to which the adjustment (or any part of the adjustment) would otherwise be attributable;

then:

(c) the adjustment (including any part of the adjustment) is not attributable to that tax period; and

(d) the adjustment (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that adjustment note.

However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for an adjustment note does not apply.

Note: Definitions of asterisked terms are provided in the Dictionary under section 195-1 of the GST Act.

An adjustment is defined under section 195-1 of the GST Act as meaning an increasing or decreasing adjustment. A decreasing adjustment for supplies under section 19-55 of the GST Act is an adjustment to which section 29-20 of the GST Act applies.

This adjustment is attributable to the tax period in which you become aware of the adjustment. However, if you do not have an adjustment note when you give to the Commissioner a GST return for that tax period, the adjustment is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that adjustment note.

The tax period in which you become aware of the adjustment

The phrase 'the tax period in which you become aware of the adjustment' is not defined in the GST Act or in the Acts Interpretation Act 1901. It therefore takes its ordinary meaning. The Macquarie Dictionary Online defines 'aware' as cognisant or conscious and as informed and up to date. This definition implies that it may include relevant specific legal knowledge.

Some assistance is provided by the High Court in Deming No 456 Pty Ltd v Brisbane Unit Development Corporation Pty Ltd [1983] HCA 44; (1983) 155 CLR 129 where the majority (Mason, Deane and Dawson JJ) held at paragraph 23, CLR 151, that:

Indeed, the very words "becomes aware" strongly indicate that the statute is looking to the purchaser's actual knowledge of the failure which, by description, is a failure to comply with the statutory provisions. We conclude that the words "becomes aware of the failure" in s. 49(5) involve not only knowledge that a statement containing the specified material has not been given but an awareness that the fact that such a statement was not given constitutes a "failure" to do something which the Act says should be done.

In the context of section 29-20 of the GST Act, the words 'become aware of the adjustment' require you to have acquired actual (or possibly constructive) knowledge of the requisites contained in:

§ section 19-10 of the GST Act: that there was an adjustment event - being the provision of holdback payments by you to Dealer X, which had the effect of changing the consideration they paid to you for the supply.

§ section 19-40 of the GST Act: that there was an adjustment for the taxable supply by you to Dealer X, for which you were liable to pay GST.

§ section 19-55 of the GST Act: you have a decreasing adjustment because the corrected GST amount payable for the taxable supply by you to Dealer X is less than the previously attributed GST amount.

The private ruling issued on 10 June 2009 to Dealer X provided that the holdback payments were a change in consideration for the original supply by you rather than consideration for a separate supply by Dealer X. You state that you were not aware of the Commissioner's view until you were provided a copy of the private ruling by Dealer X on 22 November 2011.

We consider that it would be an odd result, and one inconsistent with section 29-20 of the GST Act, if you were treated as having had actual knowledge of an adjustment at the very same time you were treating, albeit incorrectly, these holdback payments as consideration for a separate taxable supply by Dealer X to you.

Accordingly, we accept that the tax period in which you became aware of the adjustment was the tax period ended 30 November 2011.

The adjustment note

Under subsection 29-20(3) of the GST Act, where you have a decreasing adjustment, the adjustment is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold the adjustment note.

You state that you do not hold an adjustment note at the time of the ruling application. You also state that there is no document capable of being treated by the Commissioner as an adjustment note.

As you have not created (and therefore do not hold) an adjustment note or a document that could be treated as an adjustment note within the meaning of section 29-75 of the GST Act at the time of the ruling application, your decreasing adjustment is attributable to the first tax period for which you give the Commissioner a GST return at a time when you hold an adjustment note.