Edited version of your written advice

Authorisation Number: 1012975603800

Date of advice: 29 February 2016

Ruling

Subject: WET and incapacitated entities

Question 1

Are you are liable for wine equalisation tax (WET) on any taxable dealings with wine owned by you during the period of which you are in receivership?

Answer

Yes, you are liable for WET during the period for which receivers have been appointed.

This ruling applies for the following periods:

20XX-20XX income year

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

• You operate a winery business.

• You have been placed into receivership under a Deed of Appointment of Receiver.

• The Deed of Appointment of Receiver states that the receiver will act as your agent.

• The receivers are in control of your business and assets for the purpose of realising the assets to repay secured creditors.

• Upon appointment of the receivers, property in your assets (including your wine) vests with you, not the receivers.

• You retain ownership of your assets.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 58,

A New Tax System (Goods and Services Tax) Act 1999 Division 147,

A New Tax System (Goods and Services Tax) Act 1999 Section 184-1,

A New Tax System (Wine Equalisation Tax) Act 1999 Section 5-5 and

A New Tax System (Wine Equalisation Tax) Act 1999 Subsection 5-5(2).

Reasons for decision

WET is imposed under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) on assessable dealings with wine.

The Assessable Dealings Table given in section 5-5 of the WET Act, sets out all the assessable dealings with wine that can be subject to WET.

Subsection 5-5(2) of the WET Act specifies that if an entity is registered or required to be registered for goods and services tax (GST), the time of an assessable dealing is on or after 1 July 2000, and no exemption applies, then:

• the dealing is a taxable dealing

• the entity specified in column 3 of the table is the entity liable to WET; and

• the WET becomes payable at the time of the dealing as specified in column 4 of the table.

The Assessable Dealings Table outlines various assessable dealings with wine and includes:

• AD1a, a wholesale sale of wine by an entity that manufactured the wine in the course of any business, with the entity liable for WET at the time of the sale being the seller

• AD2a, a retail sale of wine by an entity that manufactured the wine in the course of any business, with the entity liable for WET at the time of the sale being the seller, and

• AD3b, an application for own use by an entity that manufactured the wine in the course of any business, with the entity liable for WET at the time of the dealing being the applier.

Relevantly, it is the entity, as the seller or the applier that is liable for WET on the above assessable dealings with wine. We accept that you and the receivers are entities within the meaning of section 184-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), being a corporation sole and individuals.

Incapacitated entities and their representatives

Division 147 (now repealed) of the GST Act contained special rules relating to representatives of incapacitated entities. An incapacitated entity is an entity that is bankrupt or companies that are in liquidation or receivership and their representatives can include trustees in bankruptcy, liquidators or receivers.

The intention of Division 147 of the GST Act was to ensure that the representative of an incapacitated entity was personally liable for the GST payable and the other requirements (of the GST legislation) during the period of their appointment.

In 2008 however, the Federal Court handed down its findings in the PM Developments case. The Court found that a liquidator or other representative of an incapacitated entity is not liable for the GST liabilities that arise from transactions during the course of their appointment (unless the assets of the incapacitated entity are vested in the representative). Instead, the court found that the GST is a liability of the incapacitated entity. In effect the general law principals of agency apply and the liability rests with the incapacitated entity as the principal.

The ATO considers the effect of the decision in this case, in respect of the then Division 147, to include the following:

Where an asset of an incapacitated entity remains vested in the entity and the representative of the entity makes a supply of the asset as agent for the incapacitated entity and the supply is a taxable supply - it is the incapacitated entity and not the representative that has the liability for GST. The Tax Office understands that, other than in the uncommon case where assets of the company are vested in the liquidator, under the general law, a liquidator acts as agent of the company in realising the assets of the company, and that under the terms of their appointment receivers also commonly act as agent of the company in receivership.

…

Similarly, where a representative of an incapacitated entity, such as a trustee in bankruptcy, makes an acquisition in its own right and not as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the representative and not the incapacitated entity that is entitled to the input tax credit.

Subsequent to the outcome of the PM Developments case, the GST Act was amended to include Division 58, which provides that representatives of incapacitated entities are liable for GST on post-appointment transactions. Consequential amendments were also made to the fuel tax legislation, which meant that the legislative amendments to the GST Act with regards to incapacitated entities flow through to the fuel tax legislation.

However, no such amendment has been made to the WET Act. In the absence of a provision in the WET Act equivalent to Division 58 in the GST Act, the general law principles of agency therefore need to be considered (as in the PM Developments case).

Agency

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law, sets out the Commissioner's view about what is meant by agent/principal relationships (agency relationships). GSTR 2000/37 provides, amongst other things, that in an agency relationship:

12. The principal is bound by the acts of an agent as a result of the authority given to the agent. In cases of actual authority, the relationship between a principal and an agent is a consensual one so that no party can claim to be a principal's agent unless both parties consent to the creation of the agency.

…

15. When an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal. Also, a principal is not bound by acts that are not within the expressed, implied or ostensible authority conferred on the agent. However, the principal may ratify or confirm an unauthorised dealing.

Paragraph 28 of GSTR 2000/37 sets out the factors that indicate the existence of an agency relationship and provides as follows:

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

• any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

• any exercise of the authority that you are given to enter into legal relations with a third party;

• whether you bear any significant commercial risk;

• whether you act in your own name;

• whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

• whether you decide the price of things that you might sell to third parties.

Therefore, to determine whether the receivers are in fact acting as your agent, the following points are of relevance:

• The terms of the Deed of Appointment of Receiver specifically state that the receivers will be agents

• Upon appointment of the receivers, property in your assets vests with you, not the receivers

• The receivers are however in control of your business and assets for the purpose of realising the assets to repay the secured creditor, and

• You are responsible for the receiver's acts, omissions and defaults.

Based on the above, we accept that the receivers are acting as your agent during their period of appointment.

In the absence of legislation having the same effect as Division 58 of the GST Act and in applying the general law of agency, it is therefore you (as the principal) and not the receivers (as agents) that make assessable dealings with wine as the seller or the applier under section 5-5 of the WET Act.

Accordingly, you are liable for WET on any taxable dealings with wine that the receivers make as your agent, during their period of their appointment.