Edited version of private advice

Authorisation Number: 1052059443115

Date of advice: 18 November 2022

Ruling

Subject: Input tax credit claims on property procurement and development services

Question 1

Is X as trustee for the XX Unit Trust making a creditable acquisition under section 11-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) of property procurement and development services under the Property Development Services Agreement (PSDA)?

Answer

Yes, the acquisition is a creditable acquisition.

Question 2

Is XX Unit Trust entitled to the input tax credit under section 11-20 of the GST Act on the acquisition of property procurement and development services under PSDA?

Answer

Yes, XX Unit Trust is entitled to the input tax credits as the property procurement and development services is a creditable acquisition.

Question 3

Will the Commissioner exercise his discretion pursuant to subsection 29-70(1B) of the GST Act to treat documents issued as a tax invoice for the purpose of claiming input tax credits in respect of the commissions and additional amounts paid?

Answer

Yes. We attach a separate notice of decision confirming that the Commissioner will exercise his discretion pursuant to subsection 29-70(1B) of the GST Act to treat documents as tax invoices.

The scheme commences on:

19 September 20XX

Relevant facts and circumstances

The XXX of which XX Unit Trust is a part of, is involved in the business of property development.

XX Unit Trust has been registered for GST since 1 July 20XX and accounts for GST on an accrual basis.

Y as trustee for YY Trust entered into the PDSA with the XXX and has been registered for GST.

Under the PDSA, YY Trust was engaged to provide property development and procurement services (Services) to XXX.

The PDSA was effective from 20XX. The PDSA was terminated on notice on 20XX, one day prior to the expiration of the ten year term of the PDSA.

In 20XX, XXX issued Proceedings in the court against YY Trust, seeking declarations with regard to the proper interpretation of the PDSA. There has been an ongoing dispute between XXX and YY Trust in relation to the proper interpretation of the PDSA.

In 20XX, the XXX issued separate Proceedings court against YY Trust, seeking declarations with regard to the proper interpretation of the PDSA with respect to further issues, relating primarily to the 20XX Service Fee and Termination Adjustment calculation.

Commissions

The Court determined that there were a number of projects that should be classified as "Introduced Projects" under the PDSA. The Court of Appeal reviewed the decision of the Court and removed certain projects from the list of "Introduced Projects" as mentioned in the ruling application.

Introduced Project is defined in the PDSA to mean a project that the XXX was made aware of by the Manager (YY Trust) or Executive Director before the termination of the PDSA for the purposes of acquisition, development or management.

In accordance with the PDSA, if the PDSA were terminated by either party, then following termination, the XXX were to pay to YY Trust a Commissions for any Introduced Projects completed after the date of termination of the PDSA.

The Commissions were to be calculated in accordance with the principles set out in Schedules to the PDSA for each Introduced Project completed in any financial year.

Pursuant to the PDSA, the XXX Profit for the final year of the term of the PDSA was to be reduced or increased by an amount equal to the unrealised capital gains/losses as at the date of termination of the PDSA (Termination Adjustment).

The court determined (and YY Trust agreed) that any amounts paid pursuant to the Termination Adjustment would be set off against any Commissions.

The lawyers for XXX wrote to the lawyers for YY Trust requesting that YY Trust issue a Tax Invoice for the payment of the Commissions. YY Trust has not provided tax invoices to XX Unit Trust for the Commissions to date.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15

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

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

Reasons for decision

Entities that are registered for GST are entitled to claim input tax credits for creditable acquisitions they make.

You make a creditable acquisition under section 11-5 of the GST Act 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.

The property procurement and development services acquired by XX Unit Trust was for a fully creditable purpose (s 11-5 (a) of the GST Act). XX Unit Trust is registered for GST (s 11-5 (d) of the GST Act) and carries on an enterprise of property development.

The PDSA is a contract between XX Unit Trust and YY Trust specifically to "formalise the arrangements for the provision of services" by YY Trust. YY Trust is registered for GST (s 11-5 (b) of the GST Act).

The only issue to be addressed relates to the consideration for the supply. Consideration is defined in section 9-15 to include:

(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

In clause 4.5 of the PDSA, if the PDSA were terminated by either party, then following termination, the XXX were to pay to YY Trust Commissions for any Introduced Projects completed after the date of termination of the PDSA.

The Commissions were to be calculated in accordance with the principles set out in Schedule to the PDSA for each Introduced Project completed in any financial year.

Pursuant to Schedule 2 to the PDSA, the XXX Profit for the final year of the term of the PDSA was to be reduced or increased by an amount equal to the unrealised capital gains/losses as at the date of termination of the PDSA (Termination Adjustment).

The Court determined (and YY Trust agreed) that any amounts paid pursuant to the Termination Adjustment would be set off against any Commissions.

XX Unit Trust's tax advisors prepared a calculation of the Commissions payable with respect to seven of the "Introduced Projects" that have been sold and settled since termination of the PDSA.

Section 11-5 (c) only requires that the XX Unit Trust was liable to provide the consideration. The facts clearly show that XX Unit Trust was liable to pay the consideration. Accordingly, XX Unit Trust is entitled to the input tax credits.

Should you make any further payments in relation to the 20XX-20XX years the payment will be an adjustment event under section 19-10 of the GST Act as the consideration for the supply would have changed.