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Edited version of private advice
Authorisation Number: 1051727379321
Date of advice: 27 July 2020
Ruling
Subject: GST and settlement payments
Question
Is the payment (Settlement Sum) received by the Trust from Entity A under the terms of the Deed of Settlement and Release consideration for a taxable supply?
Answer
No.
For an entity to make a taxable supply there must be a 'supply for consideration'.
GSTR 2001/4: Goods and Services Tax: GST consequences of court orders and out-of-court settlements (GSTR 2001/4) considers the GST consequences resulting from out of court settlement. Relevantly this ruling explains where and if, a sufficient nexus exists between a payment and a supply.
The view outlined in paragraphs 100 to 109 of GSTR 2001/4 explains that in determining whether there is a nexus between a payment and a supply requires consideration of whether the payment has a connection to any previous supply, current supply or discontinuance supply.
In this case the Commissioner considers the payment of the Settlement Sum received by the Trust from Entity A under the terms of the Deed of Settlement and Release is not consideration for a supply.
As the payment is not consideration for a supply the payment of the Settlement Sum is not subject to GST.
This ruling applies for the following periods:
1 July 2020 till Quarter Ending 31 December 2022
The scheme commences on:
1 July 2020
Relevant facts and circumstances
The Trust entered into a lease agreement with Entity B (the Lease Agreement).
Under the terms of the Lease Agreement the Lessor agreed to lease to the Trust (as Lessee) a property (the Premises).
The Lessor subsequently assigned the Lease Agreement to Entity A.
Entity A served notice on the Trust terminating the Lease Agreement pursuant a clause in the Lease Agreement.
The Trust did not want to vacate the property and commenced action Entity, seeking amongst other things, an injunction to prevent Entity A from terminating the Lease Agreement.
Without any admission of liability, both parties have negotiated a settlement agreement. A copy of the Deed and Settlement and Release has been provided for the purposes of this ruling request.
Pursuant to the terms of the Deed of Settlement and Release, Entity A will make a payment of the Settlement Sum to the Trust.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 9-5
A New Tax System (Goods and Services Tax) Act 1999 9-5(a)