Edited version of your written advice

Authorisation Number: 1012682294106

Ruling

Subject: GST and the in specie distribution of Partnership assets

Issue 1

Question 1

Are the taxable supplies made by the Partnership of the in specie distributions of partnership assets to each of the partners, Partner A and Partner B, attributable under sub-section 29-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to the tax period of August 20XX when the in specie distributions occurred?

Answer

Yes.

Question 2

If the answer is yes to Question 1:

(a) Are the 'creditable acquisitions' made by PARTNER A and PARTNER B respectively of the former partnership assets as a result of the in specie distributions on termination of the Partnership attributable under subsection 29-10(1) of the GST Act to the tax period of August 20XX when the in specie distributions occurred?

(b) Does the Commissioner's legislative determination under subsection 29-10(3) of the GST Act apply to waive the requirement for PARTNER A and PARTNER B to hold a tax invoice at the time of lodgement of the August 20XX Business Activity Statement (BAS) for the 'creditable acquisitions'?

(c) Will the Commissioner exercise the discretion under subsection 29-70(1B) of the GST Act to treat certain contractual documents as a tax invoice for the 'creditable acquisitions' in August 20XX?

Answer

(a) Yes

(b) No

(c) Yes

Question 3

If the answer is 'no' to Question 1, does the Commissioner's determination under section 29-25 of the GST Act apply to cause the GST on the Partnership taxable supplies in relation to the in specie distributions to be attributable to the tax period of November 20YY?

Answer

No, the answer to question 1 is 'yes' therefore the GST on the taxable supply of the in specie distribution by the Partnership is attributable to the August 20XX tax period.

Question 4

If the answer is 'no' to Questions 2(a), (b), and (c), are the 'creditable acquisitions' made by PARTNER A and PARTNER B in relation to the in specie distributions attributable under subsection 29-10(3) of the GST Act to the tax period of November 20YY?

Answer

No, the answer to question 2(a) and (c) is 'yes', the Commissioner will exercise his discretion to treat certain contract documents as tax invoices therefore the creditable acquisitions made by PARTNER A and PARTNER B in relation to the in specie distributions are attributable to the August 20XX tax period rather than the November 20YY tax period.

Issue 2

Question 1

Will the Commissioner treat this private ruling application as a Voluntary Disclosure (VD) and consider the remission requests for any General Interest Charge (GIC) and administrative penalties that the Commissioner may seek to impose for the Partnership not attributing the taxable supply to the August 20XX tax period?

Answer

Yes

Relevant facts and circumstances

• PARTNER A is registered for GST and has an ABN.

• PARTNER B is registered for GST and has an ABN.

• PARTNER A, and PARTNER B all account for GST on a non-cash basis.

• PARTNER B sold its 50% interest in its operations to PARTNER A, such that the operation was from that time owned by PARTNER B and PARTNER A as tenants in common in equal shares.

• PARTNER A and PARTNER B entered into a general law partnership referred to as the 'Partnership', with the purpose of managing the Partnership operation in respect to the equipment held as tenants in common by the parties. That is, these assets were not held by or contributed to the Partnership but were only 'managed' by it. The Partnership is registered for GST. The equipment held as tenants in common are not the subject matter of this private binding ruling.

• During the period after the commencement of the partnership all equipment acquired and installed for operational extension to the Partnership business were, however, commissioned by the Partnership through Partnership Pty Ltd (as agent for the Partnership). That is, all equipment acquired and installed was accounted for in the Partnership's books. These assets were therefore held by the Partnership and are hereinafter referred to as the 'Partnership acquired assets'. The Partnership acquired assets are the subject matter of this private binding ruling.

• PARTNER A and PARTNER B decided to terminate their arrangements and business dealings with the Partnership and entered into the Partnership Exit Agreement (the exit agreement), to give effect to the termination.

• The termination of the sharing arrangements occurred on 31 August 20XX. PARTNER A's and PARTNER B's interests in the tenancy-in-common assets and Partnership acquired assets were 'partitioned' at law so that each of PARTNER A and PARTNER B became the sole owner of the equipment allocated on the respective parties' sites from the date of termination. The partition was as follows:

1. PARTNER B became the sole owner of the equipment located on PARTNER B allocated sites (PARTNER B assets) with PARTNER A relinquishing its interest in the equipment located on the PARTNER B sites; and

2. PARTNER A became sole owner of the equipment located on PARTNER A's allocated sites, with PARTNER B relinquishing its interest in the equipment located on PARTNER A allocated sites.

• No monetary consideration was provided or received by PARTNER A or PARTNER B as result of the allocation and partition of the equipment between themselves.

• From the termination date of 31 August 20XX, PARTNER A and PARTNER B were able to use their allocated equipment on their sites for their sole benefit and could operate, maintain, replace and dispose of their allocated equipment as they saw fit, without accounting to the other party or to the Partnership.

• No invoices or tax invoices were issued by the Partnership to PARTNER A or PARTNER B at the time of the termination in respect of the Partnership acquired assets that were distributed in specie on the partitioning of the equipment as there were differing views between PARTNER B and PARTNER A on the GST treatment of the transaction and the relevant market value of the assets involved.

• The parties contend that there were numerous factors which made it impractical and commercially difficult to determine and agree the value of the taxable supply in August 20XX.

• PARTNER B and PARTNER A both sought and obtained separate and independent advice from legal and tax advisors on the GST treatment of the transaction. There were significant conflicting conclusions between PARTNER A and PARTNER B as to what the correct market value of the assets should be.

• PARTNER A and PARTNER B then arranged for an independent market valuation of the Partnership acquired assets so that the Partnership could assign a value to the taxable supplies of the in specie distributions and comply with GST Public Ruling GSTR 2003/13 General law partnerships (GSTR 2003/13). The valuation was completed in November 20YY.

• In November 20YY on completion of the valuation the Partnership issued the following tax invoices:

2. a tax invoice to PARTNER A in the amount of $xxx plus $yyy GST (total invoice of $zzzz) for the in specie distribution of PARTNER A's share of the Partnership acquired assets; and

3. a tax invoice to PARTNER B in the amount of $xxx plus $yyy GST (total invoice of $zzzz) for the in specie distribution of PARTNER B's share of the Partnership acquired assets.

• The Partnership did not receive any GST exclusive monetary consideration for the in specie distributions to PARTNER A and PARTNER B.

• PARTNER A and PARTNER B both made a payment of the GST amount to the Partnership so that it could account and pay its GST liability in respect to the in specie distributions to PARTNER A and PARTNER B.

• An extract of the exit agreement containing clause x on the Allocation of Equipment, clause y on Consideration and clause z on Purpose was provided with this private ruling request.

• The Partnership attributed its taxable supply of the in specie distributions in the November 20YY BAS, while PARTNER A and PARTNER B attributed their creditable acquisition of the in specie distributions in the November 20YY BAS.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

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

A New Tax System (Goods and Services Tax) Act 1999 Section 29-5

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

A New Tax System (Goods and Services Tax) Act 1999 Section 29-70

Reasons for decision

Issue 1

Question 1

Summary

Partnership is making a taxable supply when it makes in specie distributions of partnership assets to the partners (PARTNER A & PARTNER B).

As the non-monetary consideration was received in August 20XX when the distribution was made (even though the monetary value of the consideration is in dispute at the time), the taxable supply was attributable to August 20XX under paragraph 29-5(1) (a) of the GST Act.

Detailed reasoning

Section 9-5 of the GST Act defines what is a taxable supply and states;

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.

Please note that the * marks a defined term in Section 195-1 of the GST Act.

Paragraph 85A of Goods and Service Tax Ruling (GSTR) 2003/13 provides that in specie distribution of partnership property by a partnership to a partner is a supply made in the furtherance of the partnership's enterprise and is for consideration.

It states;

In specie distributions during the operation of the partnership

85A. The Commissioner considers that an in specie distribution of partnership property by a partnership to a partner is a supply made by the partnership. The supply is made in the course or furtherance of the partnership's enterprise and is for consideration.

Paragraphs 85B to 85G of GSTR 2003/13 provide that an in specie distribution of partnership property to a partner is in the course or furtherance of an enterprise of the partnership as the application of an asset in an enterprise establishes the necessary connection between the supply of the asset and the relevant enterprise.

Further paragraph 135 of GSTR 2003/13 provides that anything done in connection with the termination of an enterprise is treated as done in the course of carrying on that enterprise. Paragraph 135 states:

135. The Commissioner considers that where an asset is distributed in specie to a partner it is a supply made by the partnership in the course or furtherance of the partnership's enterprise.90A The GST Act specifically provides that anything done in connection with the termination of an enterprise is treated as done in the course of carrying on that enterprise. Accordingly, there can be no doubt that all supplies of assets made whilst the business of the partnership is being wound up are in the course of the enterprise that the partnership carries on.

Sub-section 9-15(1) of the GST Act defines consideration as;

(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.

The in specie distribution of partnership property by the Partnership to the partners reduces the partner's entitlement or claim over the assets of the partnership and the partner's wider interest in the partnership. This is the non-monetary consideration provided by the partners to the Partnership in return for their share of the partnership property. Paragraph 85N of GSTR 2003/13 states;

85N. The in specie distribution of property by a partnership to a partner has the effect of discharging a claim that the partner has over the assets of the partnership. Consequently, when an in specie distribution is made the partner's entitlement or claim over the assets of the partnership is proportionately reduced. The Commissioner considers that the partner's entitlement or claim over the assets of the partnership forms part of the partner's wider interest in the partnership. Therefore, the consideration for an in specie distribution from a partnership is the proportion of the partner's interest in the partnership. It is expected that the GST inclusive market value of this proportion of the partner's interest in the partnership, that represents consideration for the in-specie distribution49F would be reflected by the value of the property distributed and may be represented by:

(a) an amount debited to the capital account of the partner;

(b) an amount debited to the current account of the partner; or

(c) a combination of amounts debited to both the partner's capital account and current account.

In these circumstances the Partnership receives from the partners the non-monetary consideration as outlined above when the distribution of property is made in August 20XX and monetary consideration for the amount of the GST liability when the tax invoice are issued in November 20YY.

The basic attribution rules are set out in Division 29 of the GST Act. 

Under subsection 29-5(1) of the GST Act, where you account for GST on a non-cash basis, the basic attribution rules are that the GST payable on a taxable supply is attributable to the tax period in which you receive any of the consideration, or an invoice is issued, whichever is the earlier. 

Section 29-25 of the GST Act provides that the Commissioner may determine particular attribution rules. Paragraph 29-25(2) (e) of the GST Act refers to situation where a supply or acquisition occurring before the supplier or recipient knows the total consideration.

Goods and Services Tax Ruling 2000/29 (GSTR 2000/29) provides guidance on the attribution rules. It explains that the Commissioner's Determination is used only in circumstances when it is inappropriate to apply the basic attribution rules.

Paragraphs 5, 58, and 59 of GSTR 2000/29 state as follows:

5. In particular the Ruling sets out the reasons for, and the effect of the Commissioner making determinations under section 29-25, for the following supplies and acquisitions:

… (iv) supplies and acquisitions for which consideration is received or provided, or an invoice is issued, before the total consideration is known, ….

Determination of particular attribution rules under section 29-25

58. The Commissioner may, under section 29-25, determine, in writing, the tax period or periods to which GST payable, input tax credits and adjustments for taxable supplies, creditable acquisitions and creditable importations of certain kinds are attributable. The Commissioner can only make a determination under section 29-25, specifying a different tax period to that which would otherwise apply, if satisfied that the application of the basic attribution rules and any relevant special rules under the GST Act would produce an inappropriate result.

59. The Commissioner can make these determinations only in the circumstances described in subsection 29-25(2).

Paragraph 92 of GSTR 2000/29 states as follows

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

92. The particular attribution rule is for supplies and acquisitions where some consideration is received (or provided), or an invoice is issued, but the total consideration for the supply or acquisition has not been ascertained because it depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier

On a certain date, PARTNER A and PARTNER B entered into a general law partnership referred to as the 'Partnership', with the purpose of managing the shared Partnership operations. During the period all equipment acquired and installed for operational extensions to the Partnership business were commissioned by the Partnership.

In October 20XX, the partners decided to terminate their sharing arrangement and business dealing with the Partnership and entered into the Partnership Exit Agreement (the Exit Agreement) to give effect to the termination.

The termination of the sharing arrangement occurred on 31 August 20xx. PARTNER A's and PARTNER B interests in the Partnership acquired equipment were 'partitioned' at law so that each of PARTNER A and PARTNER B became the sole owner of the equipment allocated on respective partner's sites from the date of termination. The partitions were as follows:

• PARTNER A became sole owner of the equipment located on PARTNER A allocated sites with PARTNER B relinquishing their interest in the Partnership acquired equipment located on PARTNER A allocated sites; and

• PARTNER B became sole owner of the equipment located on PARTNER B allocated sites with PARTNER A relinquishing its interest in the Partnership acquired equipment located on PARTNER B allocated sites.

Consideration for GST purposes is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply or acquisition.

In the above partition, each partner received a taxable supply from the partnership of the other partner's share of the Partnership equipment located on their respective sites. In return the partners provided non-monetary consideration to the Partnership in the form of dilution of their respective interest in the Partnership. In addition the partners provided further monetary consideration to the partnership in November 20YY for the GST proportion of the transaction.

Application of the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination (No. 1) 2000 (the Commissioner's Determination)

Subclause 3(1) of the Commissioner's Determination states:

This Determination applies where:

(a) you make a taxable supply;

(b) you do not know the total consideration for the supply when any

consideration is received for the supply or an invoice is issued relating to

the supply; and

(c) the ascertainment of the total consideration depends on a future event or

events that is not entirely within your control;

  and either:

(d) an invoice is issued relating to the supply; or

(e) any consideration is received for the supply.

The Commissioner's Determination applies in certain circumstances where the total consideration is unknown in the tax period when GST would normally be payable.

Paragraphs 147 to 148 of GSTR 2000/29 state as follows:

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

The nature of the relevant transactions

147. Sometimes consideration is received or provided before the total consideration for the supply or acquisition is known, the consideration being unascertainable because it is dependent on a future event or events.

148. For example, in some industries, particularly agricultural industries where produce is pooled, goods may be removed by or delivered to a recipient before the total consideration for the supply is ascertained. It is a characteristic of this type of supply that final determination of the consideration is dependent on factors including:

•  quantitative analysis of the goods, such as measurement of weight or volume;

•  qualitative analysis of the goods; and

•  market conditions and prices.

The Partnership acknowledges that it made a taxable supply of interests in Partnership acquired equipment to the partners. The parties contend that the exact monetary value of the consideration for the supplies was only known in November 20YY, and that the Commissioner's Determination applies to attribute the supplies to the November 20YY tax period.

In addition, the Partnership did not issue a tax invoice to PARTNER A and PARTNER B prior to November 20YY. On this basis, the Partnership contends that their liability in respect to the GST should be deferred until the tax period in which all the parties agreed about the total consideration for the supply, that is, the Partnership should remit the GST on its supplies on its GST return for the November 20YY tax period.

If we follow these contentions, we would have to reach a conclusion that the GST liability on the supplies only arises if and when an agreement is reached between all the parties about the monetary value of the consideration.

We consider that the total consideration provided is known to both parties in August 20XX. The total consideration was agreed, but not quantified in a monetary amount. The Partnership received the total consideration from the partners in the form of a reduction in the proportion of the partner's interest in the partnership in August 20XX.

What was unknown was the monetary value of that consideration.

Paragraph 9-75(1)(b) of the GST Act provides that if the consideration is not expressed as an amount of money, then the value of the taxable supply is the GST inclusive market value of that consideration.

Paragraphs 168 to 170 of GSTR 2000/29 state as follows:

168. This determination only applies if the consideration for a supply or acquisition is not known at the time some of the consideration is received or provided, or an invoice is issued, because the amount of the consideration depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier.

169. It is not accepted that you do not know the consideration for a supply simply because there is a possibility that the amount of the consideration for the supply may change.

170. This determination only applies where the total consideration for the supply is expressed as an amount of money.

The Partnership did not issue a tax invoice to the partners in August 20XX. The parties were unable to agree on a GST-inclusive value for the relevant rights and interests over the assets, until November 20YY, when an independent professional valuation of the equipment occurred. The fact that the parties could not quantify the GST inclusive market value of the consideration is not a future event which is beyond the supplier's control. This is a contractual matter to be negotiated between parties at the time the Exit agreement was entered into.

In addition, the consideration from the partners to the Partnership was not expressed as an amount of money, it was non-monetary consideration. Hence the Commissioner's Determination is not applicable to the attribution of the Partnership GST liability to the November 20YY tax period with respect to the supplies.

How do the attribution rules apply to the consideration received by the partnership? 

Goods and Services Tax Ruling 2001/6 (GSTR 2001/6) discusses non-monetary consideration. Paragraph 166 of GSTR 2001/6 explains that the basic rules for attributing GST payable apply whether or not the consideration for a taxable supply is monetary and/or non-monetary. Paragraph 4 of GSTR 2001/6 explains that this ruling provides reasonable methods of valuing non-monetary consideration and when this valuation should be done.

Paragraphs 138 and 139 and 144 of GSTR 2001/6 state as follows:

Reasonable valuation of non-monetary consideration

138. Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply. In most circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value.

139. As the GST inclusive market value of consideration will be shown as the price on any tax invoice that the supplier issues, the onus for determining the GST inclusive market value of the consideration rests with the supplier.

144. You may determine the GST inclusive market value of non-monetary consideration for a taxable supply by applying a method that produces a reasonable GST inclusive market value of the consideration. There will be situations where the methods used by parties differ according to their particular circumstances. Examples of reasonable methods include:

•   the market value of an identical good, service or thing;

•   the market value of a similar good, service or thing;

•   the market value of the supply; or

•   a professional appraisal

The parties considered that taxable supplies were being made in August 20XX and obtained their own market value of the equipment. However, the parties did not agree on their respective valuations. Eventually the parties agreed to jointly engage an accounting firm to provide a market valuation of the relevant equipment. This market valuation was accepted by the parties in November 20YY.

Paragraphs 159-162 of GSTR 2001/6 state as follows:

Time when the GST inclusive market value of non-monetary consideration is worked out

159. In general, the market value of things fluctuates over time. Therefore, the time when the market value of non-monetary consideration is worked out will usually affect the value.

160. The GST Act does not specify the time when the market value of non-monetary consideration is to be ascertained for the purposes of working out the value of the supply under paragraph 9-75(1)(b). We consider that the time must be reasonable in the circumstances of a particular transaction. Depending on the circumstances, it may be:

•   when parties enter into a binding agreement;

•   when economic risk is transferred; or

•   when a recipient assumes effective control.

161. You need to be able to demonstrate that these times, or another time at which you value the consideration, is reasonable in your particular circumstances.

162. The process of valuing non-monetary consideration can be done before or after the appropriate time as long as it reflects the GST inclusive market value at the time when it should be determined. For example, if you value non-monetary consideration for the purposes of entering into an agreement and that value reasonably reflects the value as at the time the agreement is made, you can use it to work out the value of your supply. However, it is not reasonable to use this value if you enter the agreement on the basis that the market value has changed from a value established before you entered the agreement.

The partners and the Partnership entered into the Exit Agreement and economic risk and effective control of the relevant assets were transferred in August 20XX. Hence the reasonable time to determine the market value of the assets is August 20XX although the process of valuing can be done before or after this time.

In accordance with paragraphs 163 and 164 of GSTR 2001/6 any changes in the value of the assets at a later date will not impact on the Partnership GST liability.

In conclusion, it is considered that the total consideration for the Partnership supplies to the partners is known and that the basic attribution rules as set out in Division 29 of the GST Act apply in relation to the GST liability.

As the Partnership accounts for GST on a non-cash basis, all of the GST payable in respect of the supplies is attributable to the August 20XX tax period when the Partnership made the supply and received the non-monetary consideration from the partners. The Partnership needed to determine the market value of the non-monetary consideration as at August 20XX in order to ascertain and account for their GST liability in August 20XX.

Question 2

Summary

(a) The creditable acquisition made by PARTNER A and PARTNER B of the relinquishment of their respective interest in the Partnership under the legal partition is attributable under subsection 29-10(1) of the GST Act to the tax period of August 20XX when the legal partition occurred. However, as the partners did not hold a valid tax invoice for the creditable acquisition at the time they lodged a GST return the creditable acquisition is not attributable to the tax period of August 20XX under sub-paragraph 29-10(3)(a) of the GST Act.

(b) The Commissioner's legislative determination under subsection 29-10(3) of the GST Act will not apply to waive the requirement for a tax invoice for August 20XX.

(c) In these circumstances, it is reasonable for the Commissioner to exercise the discretion under subsection 29-70(1B) of the GST Act to treat certain contractual documents as a tax invoice for the creditable acquisition to be attributed in August 20XX.

Detailed reasoning

(a) Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act defines a creditable acquisition as

You make a creditable acquisition if:


(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

In this case PARTNER A and PARTNER B have acquired their interest in the Partnership equipment on their sites solely for the creditable purpose of carrying on their enterprises. The supply of the interest to the partners is a taxable supply, and they provided consideration (discharge of claim partner has over assets in the partnership) for the supply and the partners are registered for GST. Therefore the partners' acquisition of their interest in Partnership assets on their respective sites are creditable acquisitions.

Section 29-10 of the GST Act provides for attributing input tax credits for creditable acquisitions to a particular tax period. Section 29-10 states;

(1)  The input tax credit to which you are entitled for a *creditable acquisition is attributable to:

(a) the tax period in which you provide any of the *consideration for the acquisition; or

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

……

(3)  If you do not hold a *tax invoice for a *creditable acquisition when you give to the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:

(a) the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and

(b) the input tax credit (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 tax invoice.

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 a tax invoice does not apply.

(4)  If the *GST return for a tax period does not take into account an input tax credit attributable to that tax period:

(a) the input tax credit is not attributable to that tax period; and

(b) the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.

In this case the partners made a creditable acquisition in the August 20XX tax period as they provided consideration (discharge of claim partner has over assets in the partnership) in this period. However, the partners did not hold a tax invoice for the acquisition until the November 20YY tax period where each of the partners was issued with a tax invoice by the Partnership for an amount of $xxxx which included a GST amount of $yyyy. Therefore under subsection 29-10(3) of the GST Act, the partner's creditable acquisition was not attributable until the November 20YY tax period when they first held a tax invoice for the acquisition.

(b) Subsection 29-10(3) of the GST Act requirement for a tax invoice to attribute a creditable acquisition does not apply in certain circumstances as determined in writing by the Commissioner.

Goods and Services Tax Ruling GSTR 2013/1 (GSTR 2013/1) provides the Commissioner's view on the requirements for a tax invoice and paragraph 3 of the ruling states;

3. This Ruling does not consider in detail the operation of subsection 29-10(3). However, it does include a summary of the circumstances where the Commissioner has determined under subsection 29-10(3) that an input tax credit is attributable to a tax period without the recipient being required to hold a tax invoice. The summary is included at Appendix 2 of this Ruling.

Appendix 2 of GSTR 2013/1 (Appendix 2) provides information to help you understand the circumstances in which the Commissioner has determined in writing that a tax invoice is not required to attribute an input tax credit to a tax period. The table in Appendix 2 contains the following circumstance which is most relevant to your situation.

Paragraph 118 of Appendix 2 advises you should refer to the legislative instrument before relying on it to ensure you meet the requirements as set out in the instrument.

The relevant legislative instrument for an acquisition where total consideration is not known is WTI 2013/4.

WTI 2013/4 states;

……

3. Waiver of requirement to hold a tax invoice

Where the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination (No. 1) 2000 legislative instrument applies and an input tax credit would otherwise be attributable to a tax period to the extent:

(a) of the amount of the consideration stated in an invoice issued in that tax period;

or

(b) of the consideration provided in that tax period (if an invoice is not issued or the consideration provided is greater than the amount on the invoice);

the recipient is not required (under subsection 29-10(3) of the GST Act) to hold a tax invoice before the input tax credit for the creditable acquisition is attributable to that tax period if the requirements provided by this instrument are satisfied.

4. Waiver from holding a tax invoice requirements

At the time the recipient gives its GST return for the tax period to the Commissioner, the recipient holds:

(a) an invoice for a creditable acquisition, that shows an interim amount payable and meets the information requirements set out in clause 5; or

(b) a document for a creditable acquisition, issued when the total consideration for the supply or supplies is known, that shows the remainder of the amount payable, and the document meets the information requirements set out in clause 5.

5. Document information requirements

The invoice or the document referred to in paragraphs 4(a) and (b):

(a) meets the requirements of paragraphs 29-70(1)(a) and 29-70(1)(c) of the GST Act other than subparagraph 29-70(1)(c)(iii) of the GST Act; and

(b) contains enough information to enable the following to be clearly ascertained from the invoice or document:

(i) what is supplied, including the quantity (if applicable); and

(ii) where subclause 4(a) applies, the amount payable or paid rather than the total price of what is supplied; or

(iii) where subclause 4(b) applies, the remainder of the consideration payable.

The above instrument applies when the total of the monetary consideration is unknown at the time of supply, however an interim amount is ascertained. In this situation the recipient can attribute the interim amount to the period of supply and attribute the rest of the consideration to the period when the consideration is known.

In this case the consideration provided for the acquisition is the partner's discharge of a claim that the partner has over the assets of the partnership. This is non-monetary consideration that is provided at the time of supply. What is not known and in dispute at the time is the monetary value of the consideration.

GSTR 2000/29 provides guidance on how the Commissioner will determine particular attribution rules under section 29-25 of the GST Act. Paragraph 92 of GSTR 2000/29 outlines how the Commissioner will apply the special attribution rule where the total consideration is unknown at the time of supply, it states;

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

92. The particular attribution rule is for supplies and acquisitions where some consideration is received (or provided), or an invoice is issued, but the total consideration for the supply or acquisition has not been ascertained because it depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier.

PARTNER A and PARTNER B entered into a general law partnership (Partnership) with the purpose of managing the Partnership business. During this period all equipment acquired and installed for extensions to the Partnership business were done through the Partnership.

In October 20XX, PARTNER A and PARTNER B decided to terminate the sharing arrangement and business dealings with the Partnership and entered into the Partnership Exit Agreement (the Exit Agreement) to give effect to the termination.

The termination of the sharing arrangement occurred on 31 August 20XX where the Partnership acquired assets were 'partitioned' at law so that each partner (PARTNER A and PARTNER B) became the sole owner of the Partnership equipment located on the respective partners' sites from 31 August 20XX. The partition was as follows:

• PARTNER A became sole owner of the equipment located on PARTNER A's allocated sites (Partner A assets) with PARTNER B relinquishing its interest in the Partner A assets.

• PARTNER B became sole owner of the equipment located on PARTNER B's allocated sites (Partner B assets) with PARTNER A relinquishing its interest in the Partner B assets.

Consideration for GST purposes is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply or acquisition.

In the above partition, PARTNER A and PARTNER B acquired their share of the Partnership assets and provided the total of the non-monetary consideration for the acquisition with the discharge of the partner's rights and interest over the Partnership acquired assets in August 20XX.

The Commissioner's Determination applies in certain circumstances where the total consideration is unknown in the tax period when GST would normally be payable.

Paragraphs 147 to 148 of GSTR 2000/29 state as follows:

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

The nature of the relevant transactions

147. Sometimes consideration is received or provided before the total consideration for the supply or acquisition is known, the consideration being unascertainable because it is dependent on a future event or events.

148. For example, in some industries, particularly agricultural industries where produce is pooled, goods may be removed by or delivered to a recipient before the total consideration for the supply is ascertained. It is a characteristic of this type of supply that final determination of the consideration is dependent on factors including:

•  quantitative analysis of the goods, such as measurement of weight or volume;

•  qualitative analysis of the goods; and

•  market conditions and prices.

The in specie distribution of property by a partnership to a partner is a taxable supply. All the parties contend that the exact value of the consideration for the supply is only known in November 20YY, and that the Commissioner's Determination applies.

The Partnership did not issue a tax invoice to PARTNER B and PARTNER A prior to November 20YY as there was a dispute between the parties on the monetary valuation of the in specie distributions.

We consider that the total consideration is known to both parties in August 20XX. The total consideration was agreed, but not quantified in a monetary amount. The Partnership received the total consideration from the partners in the form of the partner's discharge of their interests in the Partnership acquired assets. The Partnership acquired assets were transferred to the partners in August 20XX.

What is unknown is the monetary value of the consideration. Once the monetary value of the consideration becomes know tax invoices are issued and further monetary consideration is provided by the partners to cover the partnership's GST liability on the transactions.

Paragraph 9-75(1)(b) of the GST Act provides that if the consideration is not expressed as an amount of money, then the value of the taxable supply is the GST inclusive market value of that consideration.

Paragraphs 168 to 170 of GSTR 2000/29 state as follows:

168. This determination only applies if the consideration for a supply or acquisition is not known at the time some of the consideration is received or provided, or an invoice is issued, because the amount of the consideration depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier.

169. It is not accepted that you do not know the consideration for a supply simply because there is a possibility that the amount of the consideration for the supply may change.

170. This determination only applies where the total consideration for the supply is expressed as an amount of money.

The partners did not receive a tax invoice from the Partnership in August 20XX. The parties were unable to agree on a GST-inclusive value for the relevant rights and interests over the assets, until November 20YY, when an independent professional valuation of the equipment was completed. The fact that the parties could not quantify the GST inclusive market value of the consideration is not a future event which is beyond the supplier's control. Rather this is a contractual matter to be negotiated between the parties at the time the Exit agreement was entered into.

In addition, the total consideration from the partners was not expressed as an amount of money as required under paragraph 170 of GSTR 2000/29, it was non-monetary consideration. Hence the Commissioner's Determination is not applicable to the attribution of PARTNER A's and PARTNER B's creditable acquisition in August 20XX.

(c) Sub-section 29-70(1B) of the GST Act allows the Commissioner to treat particular documents as valid tax invoices. It effectively gives the Commissioner the discretion to treat documents that would not normally be tax invoices as tax invoices.

GSTR 2013/1 provides the Commissioner's view on Tax invoices. Paragraphs 51 to 54 of GSTR 2013/1 outline the circumstances where the Commissioner may exercise the discretion to treat a document as a tax invoice and states;

51. The Commissioner has the discretion to treat a document that does not satisfy the tax invoice requirements as a tax invoice.²⁸ This discretion can also be used to treat a document that does not meet the requirements for a recipient created tax invoice as a tax invoice. The Commissioner will exercise this discretion on a case by case basis.

52. There are a number of factors that the Commissioner will consider in the exercise of this discretion which are explained in Law Administration Practice Statement PS LA 2004/11. These factors are not exhaustive and there may be other circumstances that are relevant in a particular case.

53. When the Commissioner exercises the discretion to treat a document as a tax invoice, that document is a tax invoice as defined in section 195-1. This treatment applies for the purposes of both the supplier and recipient. The document for which the discretion has been exercised is treated as a tax invoice for the taxable supply from the date it was created.

54. However, this does not mean that the supplier had, before the exercise of the discretion, complied with their obligation to issue a tax invoice within the required time.

Practice Statement PS LA 2004/11 provides guidance to ATO staff on how to administer the Commissioner's discretion under sub-section 29-70(1B) of the GST Act to treat documents as tax invoices.

Paragraph 10 of PS LA 2004/11 outlines when the exercise of the discretion should be considered and states;

10. Exercise of the Commissioner's discretion should be considered in situations where:

• there is a creditable acquisition

• a recipient is required to hold a tax invoice to claim an input tax credit (ITC) but the document held does not meet the requirements of a tax invoice - (see paragraph 17 for when the recipient is not required to hold a tax invoice)

• the request is within the 4 year time limits under Division 93 (which broadly imposes a four-year time limit on the claiming of ITCs); and

• it is reasonable to exercise the discretion on the basis of the relevant facts and circumstances, and the exercise of the discretion would not be inappropriate or unnecessary.

Paragraph 27 of PS LA 2004/11 outlines when exercising the discretion may not be appropriate and states;

27. In some circumstances it might not be appropriate for officers to consider the exercise of the discretion. This may be the case, for example, if:

• there is evidence of fraud or evasion by the entity making the request; or

• there is other relevant GST compliance work being undertaken in relation to the same entity and it is appropriate for the discretion to be considered during that other work.

In this case the consideration for a supply was made at the time of the supply through the mutual relinquishment of the partner's claims to the Partnership assets as a result of the in specie distribution from the partnership. Tax invoices were not issued at the time of the supply due to a dispute between the parties over the monetary value of the consideration. This was settled by a third party in the November 20YY tax period which resulted in valid tax invoices being issued to both partners.

In these circumstances it is appropriate for the Commissioner to exercise his discretion under sub-section 29-70(1B) of the GST Act to treat the exit contract documents as a tax invoice based on the following factors;

• the partners made reasonable attempts to obtain a valid tax invoice from the supplier at the time but a dispute over the valuation of the supply resulted in the invoice not being issued at that time,

• there is sufficient evidence that the supply to the partners was a creditable acquisition,

• the partners have a good compliance history and were aware at the time that they did not have a valid tax invoice and therefore jointly applied for this private binding ruling,

• the partners have good record keeping systems, their inability to claim an input tax credit for this creditable acquisition is not related to them being unable to keep adequate records,

• the partners knowledge, skills and experience of tax invoice requirements are at a very high level however this is not relevant to this situation.

The decision is also supported by the fact that all the information to ascertain that a creditable acquisition was made at the time was available through the Exit contract with the exception of the monetary value of the consideration. The monetary value was confirmed in a later period by an independent third party, this resulted in the issue of valid tax invoices. The exercise of the discretion is appropriate and reasonable in consideration of the nature of the transactions and considerable compliance costs PARTNER A and PARTNER B will incur if it is not exercised.

Question 3

Summary

The answer to question 1 is yes, therefore the Commissioner's determination under section 29-25 of the GST Act to cause GST on the Partnership taxable supplies of the in specie distributions be attributable to the tax period of November 20YY does not apply.

As the answer to question 1 is yes, the GST on the taxable supply is attributable to the August 20XX tax period.

Question 4

Summary

The Commissioner has exercised his discretion to treat the exit contract documents as a tax invoice therefore the creditable acquisitions by PARTNER A and PARTNER B are attributed to the August 20XX tax period. This question on whether the creditable acquisition is attributable to the November 20YY tax period under subsection 29-10(3) of the GST Act is no longer relevant.

Issue 2

Question 1

Summary

No shortfall arises or penalty and GIC applies. We will treat this PBR request as a VD for the Partnership for not attributing their taxable supplies in August 20XX, however there is no shortfall as the Commissioner has exercised his discretion to treat the exit contract documents as a tax invoice therefore PARTNER A and PARTNER B can also attribute the input tax credit for their creditable acquisitions (same value as the taxable supply) in August 20XX.

Detailed reasoning

In the interest of minimising compliance costs we have decided not to amend the August 20XX and November 20YY BAS as the adjustments will not result in a shortfall or have any other net revenue effect.

The Partnership has requested that administrative penalties and GIC not be imposed. The Commissioners policy on remitting administrative penalties is contained in Law Administration Practice Statement 2006/8 "Remission of shortfall interest charge and general interest charge for shortfall periods" and in PS LA 2012/5 "Administration of penalties for making false or misleading statements that result in shortfall amounts". However, as no shortfall exists there is no penalty and GIC remission to be considered.