Edited version of private advice

Authorisation Number: 1052076625584

Date of advice: 22 February 2023

Ruling

Subject: GST and mergers and acquisitions

Question

Do you make creditable acquisitions pursuant to section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to acquisitions you make that relate to a scheme of arrangement between you and Entity B pursuant to a Scheme Implementation Deed (SID) under which Entity B will acquire 100% of your ordinary shares from your shareholders?

Answer

Yes

Relevant facts and circumstances

You are an Australian resident entity. You have been registered for GST since December 20XX. You account for GST monthly on an accruals basis.

You typically make taxable supplies. You do not act as a 'financial supply provider' in the ordinary course of your enterprise.

Previously, you were a public company that was listed on the Australian Securities Exchange, and as such were owned by multiple shareholders (Your Shareholders). None of your shareholders were an 'associate' of yourself within the meaning of section 318 of the Income Tax Assessment Act 1936. That is, under section 318(2) of the Income Tax Assessment Act 1936 none of your shareholders sufficiently influenced, nor hold majority voting interest of more than 50% of the votes that may be exercised at a general meeting of the company. Therefore none of your shareholders are considered associates for the purpose of Division 72 of the GST Act.

You entered into a Scheme Implementation Deed (SID) with Entity B on a specified date.

The proposal to enter into a scheme implementation deed was unanimously recommended by your board, including independent directors. In deciding whether to enter into the scheme, the board of directors considered your current position, future prospects and shareholder outcomes.

Under the SID, you proposed a scheme of arrangement under which Entity B will acquire 100% of your ordinary shares from your shareholders.

Obtaining shareholder approval was a condition precedent to the scheme becoming effective. In addition, obtaining majority shareholder approval is also a statutory requirement under subparagraph 411(4)(a)(ii) of the Corporations Act 2001 (Cth) (Corporations Act).

In order for you to seek shareholder approval, you were required under section 412 of the Corporations Act to provide certain information to shareholders. You prepared a scheme booklet which was lodged with the Australian Securities and Investments Commission (ASIC) for review and issued to your shareholders prior to the scheme meeting.

The Federal Court of Australia made orders approving the scheme of arrangement under which Entity B will acquire 100% of the issued shares in yourself from your shareholders (the Transaction).

On a specified date, the scheme was completed and you were acquired by Entity B.

You were delisted from the ASX on a specified date at Your request under ASX Listing Rules Chapter 17 rule 17.11.

You made a number of acquisitions (Acquisitions) that related to the Transaction, specifically being:

•         transaction facilitation and related financial advisory services,

•         legal services,

•         professional registry and printing / mailing services, and

•         various other professional services acquired from third party vendors that were registered for GST.

All Acquisitions made by You were taxable supplies.

All Acquisitions made by You were supplied by third party providers under contracts that were executed directly between Yourself and the third party provider.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

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

A New Tax System (Goods and Services Tax) Act 1999 section 40-5

A New Tax System (Goods and Services Tax) Regulations 2019 section 40-5.09

Reasons for decision

Under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), 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

To claim input tax credits for your acquisitions section 11-5 of the GST Act must be satisfied. Your acquisitions were all taxable supplies to you for which you provided consideration. You are registered for GST. Therefore, paragraphs (b), (c) and (d) of section 11-5 of the GST Act are satisfied.

It falls then to whether paragraph 11-5(a) of the GST Act is also satisfied, that is, whether you have made those acquisitions for creditable purpose, in order to determine whether you have made a creditable acquisition.

Under subsection 11-15(1) of the GST Act, you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, paragraph 11-15(2)(a) of the GST Act provides that, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

Under section 40-5 of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act provides that 'financial supply' is defined by the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations). The provision, acquisition or disposal of an interest in securities, including shares, is a financial supply under item 10 of the table in subsection 40-5.09(3) of the GST Regulations.

Although the sale of shares constitutes a financial supply, you did not acquire, dispose of or issue any shares. The acquisition or disposal of shares takes place between your shareholders and Entity B. This means that your acquisitions are not prevented from being for creditable purpose under paragraph 11-15(2)(a) of the GST Act.

Goods and Services Tax Ruling GSTR 2008/1: when do you acquire anything or import goods solely or partly for a creditable purpose (GSTR 2008/1) provides guidance in determining whether an acquisition or importation is for a creditable purpose. Paragraph 64 of GSTR 2008/1 provides that, for something to be acquired in carrying on your enterprise, there must be a link between the thing acquired and the enterprise.

At paragraph 69, GSTR 2008/1 states that it is necessary to make an objective assessment as to whether there is a connection between the thing acquired and the enterprise, based on all the facts and circumstances. Paragraph 70 goes on to list the following factors as suggestive of an acquisition made in carrying on an enterprise:

•         the acquisition is incidental or relevant to the commencement, continuance or termination of the enterprise;

•         the thing acquired is used by the enterprise in making supplies;

•         the acquisition secures a real benefit or advantage for the commencement, continuance or termination of the enterprise;

•         the acquisition is one which an ordinary business person in the position of the recipient would be likely to make for the enterprise;

•         the acquisition does not meet the personal needs of individuals such as partners or directors;

•         the acquisition helps to protect or preserve the enterprise entity, structure or organisation; and

•         the acquisition is made by the entity in accordance with, or to satisfy, a statutory requirement imposed on the enterprise.

You contend that you have made acquisitions in order to secure a real benefit or advantage for the continuance of your enterprise. Additionally, you submit that you have made these acquisitions, in part, to satisfy a statutory requirement imposed upon you by section 181(1), Part 5.1 and section 412 of the Corporations Act.

The various acquisitions you have made in relation to the transaction allowed you to better understand the consequences of, and navigate, the transaction. Your acquisitions were also necessary to fulfill a statutory requirement imposed upon you.

Based on your circumstances, it is reasonable to conclude that your acquisitions have secured a real benefit or advantage for the continuance of your enterprise and were necessary to satisfy your statutory obligations. Therefore, the acquisitions are connected with your enterprise for the purpose of section 11-15(1) of the GST Act and, in turn, meet the requirements of section 11-5 of the GST Act for you to be making a creditable acquisition.

Under section 11-20 of the GST Act, you are entitled to the input tax credit for any creditable acquisition that you make. As your acquisitions are creditable, you are entitled to full input tax credits for those acquisitions.