Edited version of your written advice

Authorisation Number: 1012998532720

Date of advice: 29 April 2016

Ruling

Subject: Vendor finance agreement and creditable acquisitions

Question 1

Is the acquisition of rights by Company A Pty Ltd, set out in the License for the Territories of the Australian state, under a vendor finance agreement, a creditable acquisition under s11-5 of the A New Tax System (Goods and Services Tax) 1999 (GST Act)?

Answer

No, the acquisition is not a creditable acquisition.

Relevant facts and circumstances

You are registered for GST and account for GST on an accruals basis.

You have entered into a series of agreements with a number of entities.

You wish to establish whether you have an entitlement to input tax credits and have been directed to ATO ID 2004/711 in support of your claim.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) 1999 section 11-5.

Reasons for decision

Entitlement to claim input tax credits

Under section 11-20 of the GST Act you are entitled to claim an input tax credit for any creditable acquisition that you make. Section 11-5 of the GST Act provides that 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 for GST.

In accordance with the vendor finance agreement, the purchase of the rights will be financed by the vendor and shall be treated as paid in full and all obligations in respect thereof shall be taken as discharged.

It further provides that the amount of each repayment shall not exceed a percentage of defined profits received by you in any Payment Period.

These terms of the vendor finance agreement are such that any payment is contingent on a future event, namely that you achieve a particular defined profit result from the exploitation of the rights that you've acquired.

That is, until that future event occurs, there is no presently existing obligation for you to pay anything. This is supported by the vendor finance agreement, which provides that the vendor has no recourse for any outstanding amount at the end of the term, save for the percentage of defined profit in any payment period. Additionally, the Lender's rights of recourse against the Borrower roll over into the next term on the End Date.

To the extent that the any payments relating to the rights are contingent, we do not consider they are consideration.

An obligation to make a payment is a reference to a current obligation. It is not a reference to a promise to pay at some time in the future or on the happening of some event. A promise of that sort does not crystallise into an obligation to pay until the time has come or the event has happened.

The Agreements clearly state that the purchase price is payable only from defined profits. It clearly states that you have no liability to the vendor for the payment of the purchase price otherwise than from defined profits. Even then, it was only to be paid from a percentage of the defined profits under your control.

The vendor finance agreement does not lead to the conclusion that the supply has been made for consideration. Even if money were lent by the vendor to you under that agreement, it does not change the fact that you are not under any obligation to give the vendor any consideration for the supply of the rights and will never be if you never receive sufficient defined profits.

Construed together, the Agreements show that you have not provided consideration nor will you be, liable to pay consideration for the supply of rights and we distinguish these facts from ATO ID 2004/711 which does not contemplate contingencies.