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Edited version of your written advice
Authorisation Number: 1012930502188
Date of advice: 18 January 2016
Ruling
Subject: GST and the supply of a right
Question
Will the Company make a creditable acquisition from Entity A of the rights to the outcomes and/or proceeds of the action undertaken for the Claims as defined in the Deed of Sale on Purchase for an input tax credit was attributable for the relevant tax period in accordance with Division 11 and 29 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
The Company is incorporated in Australia and is in the business of purchasing and enforcing legal rights and obligations of citizens as against Receivers and Managers, Administrators, Liquidators, Trustee in Bankruptcy, Solicitors and other professionals, companies and individuals.
The Company is registered for GST, reports on a quarterly basis and accounts on a non-cash basis for GST.
Entity A is a business person who was and remains in the business of property development in their own right, through various companies in their own right and as trustee of trusts, trusts and in joint venture arrangements with others.
Entity A is registered for GST, reports on a quarterly basis and accounts on a cash basis for GST.
Entity A does not have the resources, skill or the capacity to maintain the litigation to enforce their rights, title and interests in the Court Orders for Compensation and Damages hence, wishes to sell to the Company all of their rights, title and interest in the Court Orders for Compensation and Damages.
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 9-10
A New Tax System (Goods and Services Tax) Act 1999 section 11-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-10
A New Tax System (Goods and Services Tax) Act 1999 section 11-20
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
Reasons for decision
Acquisition
Pursuant to section 11-20 of the GST Act you are entitled to the input tax credit for any creditable acquisition that you make.
Section 11-5 of the GST Act provides for what is a creditable acquisition and states:
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 circumstances, the Company acquires a right which is an acquisition under paragraph 11-10(2)(e) 'of the GST Act, 'an acceptance of a grant, transfer, assignment or surrender of a right'. Furthermore, the Company will satisfy paragraphs 11-5 (a), (c) and (d) of the GST Act, in that, the Company acquires the right for a creditable purpose, as it is being acquired for use in the Company carrying on its enterprise, the Company is liable to provide consideration for the right, and the Company is registered or GST.
What remains to be determined is if the supply to the Company is a taxable supply as required by paragraph 11-5(b) of the GST Act.
A supply is taxable if it satisfies section 9-5 of the GST Act.
This section states:
You make a taxable supply if:
(a) You make a 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 the indirect tax zone; and
(d) You are registered or required to be registered.
However, the supply is not a taxable supply to the extent it is GST-free or input taxed.
In this situation, Entity A supplies a right which is a supply under paragraph 9-10(2)(e) of the GST Act, 'a creation, grant, transfer, assignment or surrender of any right'. Furthermore, Entity A will satisfy section 9-5 of the GST Act as he makes the supply for consideration, the supply is made in the course or furtherance of an enterprise that he carries on, the supply is connected with the indirect tax zone as it is done in Australia and Entity A is registered for GST.
Therefore, as the supply is a taxable to the Company paragraph 11(b) of the GST Act will be satisfied. Hence section 11-5 of the GST Act will be satisfied and the Company will make a creditable acquisition.
Subsection 29-10(1) of the GST Act provides for attributing the input tax credits for your creditable acquisitions and states:
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.
Therefore, you will attribute the input tax credit when you either pay any consideration or receive an invoice. However, to claim an input tax credit entitlement you must hold a tax invoice (subsection 29-10(3) of the GST Act).
Supply
The Company under the Deed provides a supply of management services to Entity A. This supply will be taxable where section 9-5 of the GST Act is satisfied. Please refer above for the definition of section 9-5 of the GST Act.
In this situation, the Company's management services is a supply of a service under paragraph 9-10(2)(b) of the GST Act. Furthermore, the Company will satisfy section 9-5 of the GST Act as it makes the supply for consideration, the supply is made in the course or furtherance of an enterprise that the Company carries on, the supply is connected with the indirect tax zone, as it is done in Australia, and the Company is registered for GST.
Subsection 29-5(1) of the GST Act provides for attributing the GST on your taxable supplies and 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.
Further information
If there is a situation that there is a change in consideration for a supply it will result in an adjustment event under Division 19 of the GST Act.
This will affect any input tax credits claimed and any GST liability reported. Please refer to Goods and Services Tax Ruling Goods and services tax: adjustments under Division 19 for adjustment events (GSTR 2000/19) for further information.