Edited version of private advice

Authorisation Number: 1052277742762

Date of advice: 19 August 2024

Ruling

Subject: GST and adviser services

Question 1

Is the payment made to MMM by EEE under the deed of settlement not treated as consideration for a supply because of section 78-35 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer 1

Yes, the payment is not consideration for any supply made by MMM or its insurers.

This private ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on:

XXXX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

MMM has been the 100% owner of AAA since 20VV. KKK is a wholly-owned subsidiary of AAA. Together, MMM, AAA, and KKK (the MMM entities) operate a mine in Australia (the Mine).

The MMM entities (and others) were the named insured in Industrial Special Risks Insurance Policy No. BBB (the Policy) in respect of the Mine. There was a market of insurers subscribing to the Policy (the Insurers).

Following the failure at the Mine in late 20XX, the MMM entities lodged an insurance claim for losses and damages, and received a payment from the Insurers.

In 20XX, a subrogated recovery action was filed by the Insurers in the Supreme Court of XXX, against a consulting engineering firm, EEE.

In 20XX, the MMM entities and EEE entered into a Deed of Settlement and Release in relation to the recovery action. Under the terms of settlement, EEE will pay an amount of $X in full and final settlement of the subrogated proceedings.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 78-35

Reasons for decision

Ordinarily, a payment of money is consideration for a supply made by the entity receiving the payment.

However, section 78-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that:

if, in settlement of a claim made by an insurer in the insurer's exercising of rights of subrogation in respect of an insurance policy, an entity that is not insured under the policy makes one or more of the following:

•                     a payment of money;

•                     a payment of digital currency;

•                     a supply;

the payment or supply is not treated as consideration for a supply made by the insurer (whether or not the payment or supply is made to the insurer) or by the entity insured.

Accordingly, section 78-35 of the GST Act will apply if:

•                     a claim has been made by an insurer in the exercise of rights of subrogation in respect of an insurance policy; and

•                     the claim has been settled; and

•                     the settlement involved an entity which is not insured under the policy making a payment of money or the provision of a supply.

The claim brought in the Supreme Court of XXXX has been settled and EEE, which is not insured under the insurance policy, has made a payment in settlement of that claim. Accordingly, the payment of the money is covered by section 78-35 of the GST Act and is deemed not to be consideration for any supply. As such, there are no GST consequences arising out of the payment of the settlement amount.