Edited version of your written advice

Authorisation Number: 1012679271819

Ruling

Subject: Representative's liability for GST payable

Question 1

Are you, Receivers and Managers of Entity A, liable for GST, pursuant to section 58-10(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), in relation to the Sub-Lease of the Property, for tax periods 1, 2 and 3A or 3B?

Answer

You are not liable for GST payable on the Sub-lease supply for periods 1 or 2 or 3A.

However, you are liable for GST payable on the Sub-Lease supply for period 3B.

Relevant facts and circumstances

On ddmmyyyy, the Property owner entered into various agreements with Entities A and B

Under the agreements, Entities A and B were responsible for, among other things, the design, construction, financing and operation of the Property which was opened on or about the start of period 1.

External debt financing for the Project was obtained by Entity C.

Entity C on-lent the debt funding obtained to Entity A. These funds were used by Entity A to pay for development, construction and associated financing costs. Entity A also provided debt finance to Entity B, which used these funds to pay for its costs to operate the Property.

To enable Entities A and B access to undertake the necessary works to design, construct and operate the Property, the Property owner and Entity A entered into a Deed of Agreement to Lease (Agreement to Lease) on ddmmyyyy.

Further to the Agreement to Lease executed between Entity A and the Property owner, Entities A and B entered into a Deed of Agreement to Sub-Lease (Agreement to Sub-Lease) on ddmmyyyy.

The Lease and Sub-Lease have been drawn up, but not executed.

Entity B registered for GST from ddmmyyyy.

Entity A registered for GST from ddmmyyyy.

You, in your capacity as Receivers and Managers of Entity B, are registered for GST, accounting on a cash basis.

Agreement to Lease

Pursuant to clause xxxx of the Agreement to Lease, the Property owner granted a licence to Entity A to provide access to the construction area.

Later, the Property owner and Entity A agreed to enter into, and be bound by the terms of, a lease (Lease) in relation to the Operations Area.

Agreement to Sub-Lease

Pursuant to clause xxxx of the Agreement to Sub- Lease, Entity A granted a corresponding licence to Entity B to provide access to the construction area.

Later, Entities A and B agreed to enter into, and be bound by the terms of, a sub-lease (Sub-Lease) in relation to the Operations Area.

The agreement to Sub-Lease and the Sub-Lease conveyed the required legal interests in the Operations Area to enable Entity B to operate the Operations Area in accordance with clause the agreements.

The rent payable by Entity B to Entity A under the Sub-Lease was specified.

Payments between Entity A and Entity B

Both Entities A and B accounted for GST on an accruals basis, reporting quarterly.

Construction was completed in Period 1. From completion, Entity A was entitled to collect all revenue from the use of the Operational Area and was obligated to, among other things, pay from that revenue, all operating costs, repairs and maintenance to the toll road and financing costs pursuant to the agreements.

Midway through Period 3 (Appointment Date), you were appointed receivers and managers over both Entities A and B. On the same day, Voluntary Administrators were also appointed. The various Media Releases, etc stated that you maintained control over the Operational Area.

You informed Entities A and B that they should continue to operate under the terms of the existing Agreement to Sub-Lease.

Following your appointment, you identified that Entity A had not paid the quarterly rent payable to Entity B under the Sub-Lease. You recorded journal entries on Journal Date to reflect Entity A's obligations under the Sub-Lease (including interest on the outstanding amounts). The inter-entity debt facility was increased by the relevant amounts.

Later, on Invoice Date, you also issued tax invoices for the relevant periods.

You have lodged the BAS for the Journal Date period to reflect these transactions.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 27-39

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

A New Tax System (Goods and Services Tax) Act 1999 section 31-5

A New Tax System (Goods and Services Tax) Act 1999 section 58-5

A New Tax System (Goods and Services Tax) Act 1999 section 58-10

A New Tax System (Goods and Services Tax) Act 1999 section 58-55

A New Tax System (Goods and Services Tax) Act 1999 Division 156

A New Tax System (Goods and Services Tax) Act 1999 section 156-17

A New Tax System (Goods and Services Tax) Act 1999 section 195

Reasons for decision

In this ruling,

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Under section 58-5, any supply, acquisition or importation made by an entity in the capacity of a representative of another entity that is an incapacitated entity is a supply, acquisition or importation by the other (incapacitated) entity.

"Incapacitated entity" is defined in section 195-1 to include:

...

(c) an entity that has a representative

"Representative' is defined in section195-1 to include:

...

(c) a receiver

...

On Appointment Date, you were appointed receivers and managers over Entities A and B.

Accordingly, you meet the definition of representative and Entity A (Receivers and Managers appointed) meets the definition of incapacitated entity (IE).

Under paragraph 58-10(1)(a), a representative is entitled to any input tax credits that an incapacitated entity would be entitled to, to the extent that the making of the acquisition to which the GST input tax credit relates is within the scope of the representatives responsibility or authority for managing the incapacitated entity's affairs.

As explained in ATO Interpretative Decision ATO ID 2012/7 Goods and Services Tax: GST and liability for a supply made by an incapacitated entity prior to the appointment of a representative, the mere subsequent receipt by the representative of the consideration for the supply that was made by the incapacitated entity before the appointment of the representative does not have the effect of bringing the 'making' of the supply within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Under section 58-10, what is important is whether the supply is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Paragraph 58 of Goods and Services Tax Ruling GSTR 2000/35 Goods and services tax: Division 156 - supplies and acquisitions made on a progressive or periodic basis states that a supply or acquisition by way of lease is treated as a periodic or progressive supply or acquisition to which Division 156 applies.

Under subsection 156-17(2), a supply that is made:

• for a period or on a progressive basis; and

• for consideration that is to be provided on a progressive or periodic basis;

is treated, for the purposes of Division 58, as if each progressive or periodic component of the supply were a separate supply.

Paragraph 26 of Goods and Services Tax Determination GSTD 2004/4 Goods and services tax: can consideration for a supply be provided or received without transferring money (such as where the parties only make book entries recording their agreement that the supply is paid for)? explains that where, as in this instance, a supply is made by a supplier who also provides a credit facility to the recipient of the supply, payment for the supply can be reflected by an increase in the amount owing in relation to the debt facility. Book entries to reflect payment for the Sub-Lease (including interest) were made on ddmmyyyy.

Therefore, it is accepted that you, as Receiver Manager of Entity A, received consideration on Journal Date for the relevant quarters.

Tax periods 1 and 2

The access to the Operations Area was supplied by Entity A and acquired (by Entity B) on a quarterly basis. As you were not appointed until midway through Period 3, the Sub-Lease supplies for tax periods 1 and 2 were not within the scope of your responsibility or authority for managing the IE's affairs. Therefore, you are not liable for the GST payable on those supplies.

The IE is liable for the GST payable on those supplies. However, pursuant to section 29-5(1), the IE could not attribute the GST payable on these supplies until it received consideration, or issued an invoice, for the supply.

The IE received consideration for the supply on Journal Date. The tax invoices were raised later on Invoice Date. Therefore, the IE will attribute the GST payable on these supplies to the Journal Date Period.

March 2013 Quarter

Pre-appointment

Under section 27-39, the tax periods for Entities A and B ended on End Date, ie the day before you were appointed. For the period 1 mmyyyy to End Date (Period 3A), the supply of the Sub-Lease was made before you were appointed. Consequently, the continuing supply of the Sub-Lease, for Period 1A, was not within the scope of your responsibility or authority for managing the IE's affairs. Therefore, you are not liable for the GST payable on that supply.

The IE is liable for the GST payable on that supply. However, pursuant to section 29-5(1), the IE could not attribute the GST payable on these supplies until it received consideration, or issued an invoice, for the supply.

The IE received consideration for the supply on Journal Date. The tax invoice was raised later on Invoice Date. Therefore, the IE will attribute the GST payable on this supply to the Journal Date Period.

You have already lodged the BAS for the IE for this period. However, an amendment is required to reflect that the IE is only liable for the GST payable for period 3A.

Post appointment

Following your appointment, there was a continuing supply of the Sub-lease by Entity A (RM appointed) to Entity B (RM appointed). Upon your appointment, you had the opportunity to repudiate the Agreement to Sub-Lease. You informed Entities A and B that they should continue to operate under the terms of the existing Agreement to Sub-Lease. Accordingly, the continuing supply of the Sub-Lease by Entity A was within your scope or authority for managing the affairs of Entity A.

As the continuing supply of the Sub-Lease by Entity A after End Date was within your scope or authority for managing the affairs of Entity A, you are liable for the GST payable on that supply. This is consistent with example 1.6 in the Explanatory Memorandum to Tax Laws Amendment (2009 Measures No. 5) Bill 2009, which illustrates that, but for the fact that the entire month was prepaid, the representative would have been entitled to an input tax credit, on a pro-rata basis, for the month of appointment. Similarly, a representative is liable for the GST payable on the supply, on a pro-rata basis, for the period of appointment.

Consequently, you are liable for the GST payable for the period Appointment Date to 31 mmyyyy (Period 3B). As you report on a cash basis, pursuant to subsection 29-5(1), you attribute the GST payable on this supply to the tax period when you receive consideration for the supply.

You received consideration on Journal Date and the tax invoice was raised later, on Invoice Date. Therefore, you attribute the GST payable on this supply to the Journal Date Period. You have already lodged a BAS for this period. However, you may need to amend the BAS to reflect this decision.