Edited version of private advice

Authorisation Number: 1052149050384

Date of advice: 3 August 2023

Ruling

Subject: GST - supply of shares

Question

Are the payments received by the Vendor from the Purchaser under the Shares Purchase Agreement consideration for an:

•         input taxed supply; or

•         mixed supply which is partly input taxed and partly subjected to GST?

Answer

The payments received by the Vendor under the Share Purchase Agreement are consideration for an input taxed supply of the Shares.

This ruling applies for the following period:

1 July 2022 till quarter ending 30 June 2023

The scheme commenced on:

1 April 2023

Relevant facts and circumstances

Entity X (the Vendor) is a company specialising in the development, construction, operation and general contracting. The Vendor is registered for GST.

Entity X owns all the shares in Entity A (the Company).

The Vendor and a Purchaser have entered into a Share Purchase Agreement under which the Vendor will sell the shares (Shares) in the Company.

Under the Share Purchase Agreement the Vendor will provide consideration which is represented by three payments known as:

•         Purchase Price

•         Development Costs

•         Other Fees.

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 40-5

Reasons for decision

Section 9-5 of the GST Act provides that you make a taxable supply where:

(a)  you make a supply for consideration;

(b)  the supply is made in the course or furtherance of an enterprise that you carry on;

(c)   the supply is connected with the indirect tax zone;

(d)  you are registered or required to be registered for GST

However a supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case the Vendor satisfies (b) to (d) set out above. Further it is not in dispute that under the Share Purchase Agreement the supply of the Shares is an input taxed supply and is not subject to GST. However what needs to be determined is whether all the payments received by the Vendor from the Purchaser relate to a supply other than the Shares, such that there is a mixed supply.

In this case it is considered that the terms of the Share Purchase Agreement do not give rise to any other supply. That is, the Share Purchase Agreement is for the supply of Shares to the Purchaser. On this basis the payments received by the Vendor consisting of the Purchase Price, Other Fee and Development Costs are consideration for the supply of the Shares. Our reasons are as follows:

GSTR 2006/9: Supplies (GSTR 2006/9) provides the Commissioners view on the characteristics of 'supply' in the context of a two-party transaction and in Part 2 discusses ten propositions that are considered relevant in analysing a transaction in relation to a supply with Part 3 building on the ten propositions. Part 3 discusses six further propositions which also apply to analysing more complex multi-party arrangements, commonly known as tripartite arrangements.

GSTR 2006/9 also considers the issue of payment for a supply and states at paragraph 180:

Sufficient nexus

180. In other GST rulings the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' those rulings take the view that:

•         the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

•         regard needs to be had to the true character of the transaction; and

•         an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Further paragraph 137 in GSTR 2006/9 it states:

137. The grant of a right or entry into an obligation may be a term or condition of a larger transaction. Where the grant of the right or entry into the binding obligation is the substance of the transaction it will be the subject matter of a supply.

GSTR 2008/1 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2008/1) describes the characteristics of a supply that contains taxable and non-taxable parts. It refers to such a supply as a 'mixed supply'. Relevantly at paragraph 11 and 12 in GSTR 2001/8 it states:

11. Where you make a supply that is identifiable as having more than one part and each part is taxable, you do not need to apportion the consideration for the supply. This is because GST is payable on the whole supply. Similarly, if all of the parts of a supply are identifiable as being non-taxable, GST is not payable on any part of the supply.

12. However, where you make a supply that is a combination of separately identifiable taxable and non-taxable parts, you need to identify the taxable part of the supply. Then you can apportion the consideration for the supply and work out the GST payable on the taxable part of the supply.

According to the circumstances in this case the Vendor has agreed to supply the Shares to the Purchaser for the Purchase Price and other amounts.

In this case there are a number of obligations that arise under the Share Purchase Agreement, however consistent with paragraph 137 in GSTR 2006/9 these obligations are not the subject matter of a supply. These are merely terms and conditions of the broader arrangement.

On this basis, we do not consider that the Share Purchase Agreement gives rise to any mixed supply. Consequently, as the only supply made by the Vendor is the Shares it is considered that the payment of the Purchase Price, Other Fees and Development Costs are consideration for the supply of Shares.