Edited version of private advice

Authorisation Number: 1052014256981

Date of advice: 23 August 2022

Ruling

Subject: GST and non-monetary consideration

Question

Does the receipt of assets constructed by a customer result in a GST liability?

Answer

Yes. Where a supply of assets from a customer to you constitutes non-monetary consideration for a supply you make, you must remit GST on those supplies.

This ruling applies for the following periods:

From the tax period commencing 1 July 20XX to the tax period ending 30 September 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an entity that provides industry infrastructure. Customers have the option of undertaking construction of certain assets which they are required under the terms of your arrangements, to transfer to you.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 9-17

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

All legislative references made are to the A New Tax System (Goods and Services) Tax Act 1999 (GST Act) unless otherwise specified.

The following GST provisions are relevant:

Section 9-5 provides that a taxable supply is made if

(a) you make the 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 that it is GST-free or input taxed.

'Supply' is defined in section 9-10:

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of * real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a * financial supply;

(g) an entry into, or release from, an obligation:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g). ...

(4) However, supply does not include:

(a) a supply of *money unless the money is provided as *consideration for a supply that is a supply of money or *digital currency; or

(b) a supply of digital currency unless the digital currency is provided as consideration for a supply that is a supply of digital currency or money.

You make a creditable acquisition under section 11-5 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.

Section 29-5 is about attributing the GST on your taxable supplies:

(1) 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.

What supplies are made?

Under the agreement with customers they supply you with assets you use in your enterprise. These are a supply under section 9-10.

Section 9-15 sets out the definition of consideration. Subsection 9-15(1) relevantly provides:

(1) Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

The definition of 'consideration' is also drafted widely. This is highlighted by the fact that it is an inclusive or non-exhaustive definition. It is not limited to monetary consideration because 'any payment' set out in the paragraphs 9-15(1)(a) and (b) of the definition permit such an interpretation. Paragraph 12 of Goods and Services Tax Ruling GSTR 2001/6 'Goods and services tax: non-monetary consideration' (GSTR 2001/6) states:

12. A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as:

•         providing goods;

•         granting a right or performing a service (an act); and

•         entering into an obligation, for example to refrain from selling a particular product (a forbearance).

From this we can conclude that a 'payment' need not be made in monetary terms.

The surrender of the asset by the supplier does not 'find expression in money'. If it meets the definition of consideration, we can conclude that it is non-monetary consideration.

Paragraph 32 of GSTR 2001/6 indicates that where the transaction includes both monetary and non-monetary consideration, it is necessary to establish the value of the supply in monetary terms in order to apply GST. This must be established on an arms' length basis. In the normal course of events the parties are not associates.

In relation to identifying non-monetary consideration GSTR 2001/6 sets out at paragraph 47-48:

47. The definition of a taxable supply requires, among other things, that you make a supply for consideration. There needs to be a supply, a payment and the necessary relationship between the supply and the payment. Where one party makes a monetary payment to another, something of economic value is provided. The question is whether there is a sufficient nexus between the supply and the payment as consideration.

48. The same analysis applies in determining whether a good, service or thing is non-monetary consideration for a supply. However, due to the breadth of the definition of consideration (and the numerous promises that each party to a transaction usually makes), establishing what is the consideration for a supply is not always as simple as for monetary transactions. Nor is it always as clear if something of economic value is being provided.

From this, we conclude that there must be a connection between any consideration provided and the supply. If the consideration is not for an identified supply, it is not effective consideration. Similarly, if a supply is to be a taxable supply there must be a sufficient nexus between a supply and consideration: paragraph 9-5(a).

Additional key principles are that the connection between the payment and the 'thing' must be substantial. Determination of the nexus must be made with regard to the true nature of the transaction. The test in determining the nexus is an objective one but the motives of the parties are relevant: paragraph 72 GSTR 2001/6.

This is echoed in other ATO views. Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2) also discusses 'supply for consideration - establishing a sufficient nexus' from paragraph 15. At paragraph 15A it states that 'merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply'.

Therefore, to assess whether you have provided consideration for the supply you receive, it is necessary to analyse the transaction and agreement with your customer in a two-step process:

1. identify any relevant any payment, or any act or forbearance;
2. consider whether the payment, act or forbearance was 'in connection with' or for the inducement' of the supply.

In making this assessment, however, it is important to consider (GSTR 2001/6 at paras 81-82):

things such as acts, rights and obligations can often be disregarded as payments as they do not have economic value and independent identity separate from the transaction.

For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing.

You provide monetary consideration for the supply of the non-monetary consideration in the form of assets to you.