Edited version of your written advice

Authorisation Number: 1012786473794

Ruling

Subject: GST and progressive or periodic supplies

Question 1

Does Division 156 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to the supplies that AA makes under the Transaction Documents so that AAs' GST liability on those supplies arises as and when the First Fee is invoiced and received (whichever is the earlier)?

Answer

Yes.

Question 2

If and to the extent that Division 156 of the GST Act does not apply to the supplies made by AA under the Transaction Documents, does the Determination set out in Schedule 5 of public binding ruling GSTR 2000/29: Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25 apply such that attribution only occurs as and when the monetary consideration for a particular supply has been determined i.e. as and when the First Fee for a particular stage becomes payable and it is capable of being invoiced and received?

Answer

Not applicable.

Question 3

Is any non-monetary consideration received by AA by virtue of the works performed by BB under the Transaction Documents? In particular, does any non­monetary consideration arise in respect of the works undertaken by BB.

Answer

No.

Relevant facts and circumstances

BB entered into an agreement with AA known as the Subscriber Agreement (SA) which relates to AA customers (Subscribers). Following major changes to the manner in which BB and AAs intend to operate the project under the SA, the Parties entered into the Amended and Restated Agreement (ARA) and a number of other collateral agreements.

The ARA governs the terms on which BB will remunerate AA for the migration of Subscribers from the AA's facilities to those of BB).

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 9-75

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

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

Reasons for decision

Issue 1

Question 1

Summary

Division 156 of the GST Act applies to the supplies that AA makes under the Transaction Documents so that AA's GST liability on those supplies arises as and when the First Fee is invoiced and received (whichever is the earlier).

Detailed reasoning

Supply

A qualifying supply made for a period or on a progressive basis is treated, pursuant to Division 156 of the GST Act, as separate supplies.

A supply is made for a period when it is made over a specified length of time or for a time with an identifiable end point. This may be stated in the relevant contract, agreement or other similar document. However, a supply will not be for a period merely because there is a stipulated completion date.

If a contract for a supply of goods or services provides that they are to be delivered or completed by a specific date, the supply is not for a period. A supply for a period will be one which is made on a continuous basis until the stipulated end point occurs, or the period expires. An example of a supply or acquisition for a period is a contract for the supply of maintenance services for a period of 12 months.

A supply or acquisition is made on a progressive basis when the contract or agreement provides for stages of the supply during the course of the supply. A supply may also be a progressive supply where, under a contract, goods or services are to be supplied on an ongoing basis. An example of a supply or acquisition on a progressive basis is a contract for supply of property management services by a real estate agent.

According to the Transaction Documents, the supply of migrating Subscribers is made in stages.

In addition, BB will provide the consideration for this supply within each relevant specified stage in the form of the First Fee, payable in following each specified date. That is, each total First Fee is linked to phases of the migration for each particular stage. GSTR 2000/35 notes that consideration is supplied on a progressive basis when it is paid by instalments that reflect the stages of a supply or acquisition.

The First Fee is paid in stages that reflect the phases of the migration.

Also to be transferred to BB under the ARA are assets. These assets are to be transferred progressively as each allocated stage has transferred and all Subscribers from that stage have migrated.

The fact that the Purchase Price for the Assets is set distinctly separately from the major component of the consideration does not diminish, in this case, the fact that AA's supply to BB is on an ongoing basis as each of these assets is transferred in a manner that is reliant upon successful migration.

Paragraphs 111 and 112 of GSTR 2000/35 while dealing with construction rather than the supply contemplated in this case, distinguish the difference between a progressive change of title in property and a single change in title in property means under Division 156 of the GST Act:

111. Where a contract provides for the achievement of milestones in the construction of an item, and title in each completed stage of the item passes to the recipient during the course of construction, the contract is for a progressive supply. For example, if a contract for the construction of a ship provides for title in each completed stage of the ship to pass on receipt by the supplier of the respective milestone payments, then Division 156 applies.

112. Conversely, if a contract for the construction of a ship provides for milestone payments with title to the ship passing only on its delivery, then Division 156 does not apply.

AA's supply to BB is closer to that described in paragraph 111 than it is to paragraph 112; we consider that the supply of the Assets takes place within a greater progressive supply. The supply is progressive with consideration being paid at commensurate intervals.

Attribution

For supplies made on a progressive or periodic basis under Division 156 of the GST Act, GST is attributable under section 29-5 of the GST Act unless the progressive or periodic components of the supply are not readily identifiable in which case the components correspond to the proportion of the total consideration for the supply that the separate amounts of consideration represent.

We consider that given the computation process set out in the Transaction Documents and the fact that actual supply made by AA, particularly in respect of the first and second instalments, is not known until the following month will render that GST is attributable in accordance with paragraph 156-5(2) of the GST Act:

(2) If the progressive or periodic components of such a supply are not readily identifiable, the components correspond to the proportion of the total *consideration for the supply that the separate amounts of consideration represent.

This means that AA's' GST liability for any instalment of its supply is triggered at the earlier of a tax invoice being issued or any payment being received for that separate component.

If some other invoice other than a tax invoice is issued prior to a tax invoice (in the absence of payment being received), AA's liability will be triggered by the issue of the invoice.

Question 2

Not applicable.

Question 3

Summary

No non-monetary consideration is received by AA by virtue of the works performed by BB under the Transaction Documents with respect to the listed works undertaken by BB.

Detailed reasoning

There are a number of acts that will be undertaken by BB pursuant to the Transaction Documents that may, on first glance appear to be non-monetary consideration.

In the Goods and Services Tax Public Ruling GSTR 2001/6 it is noted that for a non-monetary payment to be consideration for a supply there must be a nexus between that non-monetary payment and the supply; the following issues are relevant:

a) certain acts can be disregarded as payments as they do not have an economic value and independent identity separate from the overall transaction;

b) the true character of the transaction must be considered to determine if the non­monetary consideration is a condition of the contract rather than consideration for supplies made under the contract;

c) things provided by the recipient of a supply to enable the supplier to make the supply do not necessary form consideration; and

d) it is the transaction that occurs that must be examined not what might have occurred had the arrangements been structured differently.

In the arrangements between AA and BB there are a number of acts, rights and obligations that are exchanged between the parties, however the underlying character of the transaction is the migration of the Subscribers from AA's facilities to BB's facilities.

It is against this overall background that the various supplies made by AA and the corresponding actions undertaken by BB under the Transaction Documents must be considered.