Private ruling: Goods and services tax and characterisation of Fees
Date of advice: 21 September 2015
Published: September 2015

Ruling: Q1: Are the Fees received by you from Entity A under the Deed, following completion of the share sale transaction, additional consideration for the input taxed sale of shares in Entity A by you? | A1: Yes. The Fees received by you from Entity A under the Deed, following completion of the share sale transaction, is additional consideration for the input taxed sale of shares in Entity A by you. | Q2: In the alternative, are the Fees received by you from Entity A following completion of the share sale transaction, consideration for a separate taxable supply being the inducement supply to enter into the share sale transaction by you? | A2: No. The Fees received by you from Entity A following completion of the share sale transaction, is not consideration for a separate taxable supply being the inducement supply to enter into the share sale transaction by you.

Relevant facts and circumstances: You are a listed Australian holding company which owns a foreign based fund manager. You also owned all the issued share capital in Entity A, an Australian based fund manager. Entity A acts as the trustee or responsible entity for a group of managed investment schemes and investment funds. Prior to the sale of shares in Entity A by you, Entity A made dividend payments out of its retained profits to you in your capacity as the 100% shareholder of Entity A. Entity A also made payments to Entity B which is your wholly-owned subsidiary, to reimburse Entity B for the provision of staff, premises and other administrative operating costs. You do not hold an Australian Financial Services Licence and therefore do not provide investment advisory or other fund management services to Entity A, either before or after the sale of Entity A shares. Entity A, in its capacity as trustee or responsible entity for the Funds, receives certain fees from each Fund pursuant to the terms of that Fund's trust deed or constitution. You entered into a Share Sale Agreement (SSA) with the Purchaser under which you sold all the shares in Entity A to the Purchaser. The Purchaser is required to pay you the Purchase Price for the shares as per the SSA. The completion of the share sale transaction occurred on XX XX XXXX. The Purchaser, Entity A and you agreed to execute the Deed immediately after the share sale. Pursuant to the terms of the SSA, you and the Purchaser cannot complete the share sale transaction without executing the Deed. The Deed sets out the agreement between you, Entity A and the Purchaser in respect of certain managed investment funds (Funds) set out in Annexure A to the Deed following the completion of the share sale transaction. Under the Deed, following the completion of the share sale, the parties have agreed that Entity A will pay you Fees in respect of certain Funds, until the Funds are wound up by Entity A. The Fees are payable on a periodic basis. You and Entity A were members of the same GST group until the sale of shares in Entity A. However, after the share sale, you are no longer part of the same GST group. The management and operation of Entity A and the Funds will transition to the Purchaser following the completion of the share sale transaction. You created an internal memorandum documenting the valuation and accounting treatment required for the sale of Entity A's shares by you. This memorandum was reviewed and agreed by your auditors as part of their external audit of your Group's financial statements. The memorandum identified the various components of the Purchase Price which included the Fees.

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 subsection 9-15(1) | A New Tax System (Goods and Services Tax) Act 1999 section 40-5 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | A New Tax System (goods and Services Tax) Regulations 1999 Regulation 40-5.09

Reasons for decision: Summary: Given the answer to Question 1 above and the facts of this case, we do not consider that the Fees received by you from Entity A following completion of the share sale transaction would constitute consideration for a separate taxable supply being the inducement supply to enter into the share sale transaction by you to the purchaser.

Reasons for decision: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: | You make a taxable supply 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. | (Words denoted by asterisks are defined in section 195-1 of the GST Act) | The sale of shares by you in Entity A meets all the requirements of the positive limbs of section 9-5 of the GST Act as set out above. | However, section 40-5 of the GST Act provides that a financial supply is input taxed and financial supply has the meaning given by A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations). Regulation 40-5.09 provides that the acquisition or disposal of securities is a financial supply. Accordingly the sale of shares in Entity A by you is an input taxed supply. | You have asked us to determine if the Fees received by you from Entity A after the sale of the Entity A's shares forms part of the consideration for the sale of shares in Entity A by you to the Purchaser. In doing so you submit that the payment can be viewed as either: | • additional consideration to you for the supply of shares, or alternatively | • consideration for a separate taxable supply by you. This taxable supply is identified as the inducement to enter into the sale transaction. | Consideration is defined in section 195-1 of the GST Act as follows: | consideration , for a supply or acquisition, means any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition. | Subsection 9-15(1) of the GST Act provides that consideration includes any payment, or any act or forbearance, in connection with a supply or anything and any payment or any act or forbearance, in response to or for the inducement of a supply of anything. | Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) discusses what constitutes consideration for a supply. Relevantly, paragraph 68 of GSTR 2001/9 states: | 68. In determining whether a payment is consideration under subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made. | GSTR 2001/6 also provides that the term 'in connection with' has been held to be broader in scope than 'for' and in determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction by looking at all of the transactions entered into and the circumstances in which the transactions are made. The motive of the supplier and the recipient also may be relevant in determining whether the consideration was made for the supply (see paragraph 69, 71 and 72 of GSTR 2001/6) | Based on the facts as outlined above, we agree that there is sufficient nexus between the payment of the Fees by Entity A and the sale of shares by you to the Purchaser. The Fees therefore constitutes additional consideration for the input taxed sale of shares in Entity A by you.