Private ruling: GST - out of court settlement
Date of advice: 20 April 2026
Published: 15 June 2026
Ruling period: X XXX 20XX to quarter ending XX XXX 20XX
Date scheme commenced: 1 March 20XX

Ruling: Q1: Is the Settlement Amount payable to the Entity under the Deed of Settlement and Release (Settlement Deed) consideration for a taxable supply made by the Entity? | A1: No. | Q2: Is the Settlement Amount payable to the Entity under the Settlement Deed treated for GST purposes as an adjustment to the consideration previously paid by the Entity for any previous acquisition of services from Entity X (Service Company)?

Relevant facts and circumstances: The Entity is carrying on an enterprise and is registered for GST The Entity acquires service from the Service Company under a Services Agreement. These services are taxable supplies by the Service Company and acquired by the Entity. The Entity and the Service Company are in dispute regarding the performance of the Services Agreement. Namely: • The Entity alleged that the Service Company had breached its obligations under the Services Agreement. • The Service Company alleged that the Entity had breached its obligations under the Services Agreement. The Entity and Service Company entered a Settlement Deed to resolve the dispute. Pursuant to the Deed, the Service Company paid the Entity $XX (Settlement Amount).

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 section 9-5(a) | A New Tax System (Goods and Services Tax) Act 1999 section 19-10 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Detailed Reasoning - Detailed reasoning: Entities are liable for GST on any taxable supplies that they make. Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the 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, and (d) you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. | Detailed Reasoning - Supply: Goods and Services Tax Ruling GSTR 2001/4 Goods and Services Tax: GST consequences of court orders and out-of-court settlements (GSTR 2001/4) explains how a payment that is made in compliance with an out-of-court settlement should be treated for GST purposes. Relevantly this ruling explains where and if, a sufficient nexus exists between a payment and a supply. According to paragraph 43 of GSTR 2001/4 a supply related to an out-of-court settlement may have occurred prior to the settlement (and in fact have been the subject of the dispute in the first place), or it may be created by the terms of the settlement itself. There may be more than one supply that is related to a settlement. In addition, the subject of the dispute may not be a supply at all. Further paragraph 44 explains that supplies that are related to an out-of-court settlement fall within three categories of supply. They are: ­ Earlier supplies, being supplies made prior to the out-of-court settlement where both the supplier and the recipient have some dispute regarding supplies. ­ Current supplies, being supplies created by the terms of the settlement, and ­ Discontinuance supplies which may be characterised as: (i) surrendering a right to pursue further legal action [paragraph 9-10(e)]; or (ii) entering into an obligation to refrain from further legal action [paragraph 9-10(2)(g)];or (iii) ; releasing another party from further obligations in relation to the dispute [paragraph 9-10(2)(g)]. Paragraph 51 of GSTR 2001/4 explains that in general (it is suggested in most if not all cases), the terms of a settlement, in finalising a dispute, will ensure no further legal action in relation to that dispute, provided that the terms of the settlement are complied with. This often takes the form of a plaintiff releasing a defendant from some (or all) of the existing claims and from further claims and obligations in relation to that dispute. Further, paragraphs 71 to 73 state: | Detailed Reasoning - Where the subject of a claim is not a supply: 71. Disputes often arise over incidents that do not relate to a supply. Examples of such cases are claims for damages arising out of property damage, negligence causing loss of profits, wrongful use of trade name, breach of copyright, termination or breach of contract or personal injury. 72. When such a dispute arises, the aggrieved party will often assert its right to an appropriate remedy. Depending on the facts of each dispute a number of remedies may be pursued by the aggrieved party in order to ensure adequate compensation. Some of these remedies may be mutually exclusive but it is still open to the aggrieved party to plead them as separate heads of claim until such time as the matter is resolved by a court or through negotiation. 73. The most common form of remedy is a claim for damages arising out of the termination or breach of a contract or for some wrong or injury suffered. This damage, loss or injury, being the substance of the dispute, cannot in itself be characterised as a supply made by the aggrieved party. This is because the damage, loss, or injury, in itself does not constitute a supply under section 9-10 of the GST Act. Paragraphs 100 to 109 of GSTR 2001/4 explains that in determining whether there is a nexus between a payment and a supply requires consideration of whether the payment has a connection to any earlier supply, current supply or discontinuance supply. In paragraphs 110 and 111 of GSTR 2001/4 it states: Damages 110. With a dispute over a damages claim, the subject of the dispute does not constitute a supply made by the aggrieved party. If a payment made under a court order is wholly in respect of such a claim, the payment will not be consideration for a supply. 111. If a payment is made under an out-of-court settlement to resolve a damages claim and there is no earlier or current supply, the payment will be treated as payment of the damages claim and will not be consideration for a supply at all, regardless of whether there is an identifiable discontinuance supply under the settlement. In this case the Commissioner considers the character of the payment is that of damages. As such the payment of the Settlement Amount under the terms of the Settlement Deed is not consideration for a supply by the Entity. As there is no supply there cannot be a taxable supply under section 9-5 of the GST Act. | Detailed Reasoning - Detailed reasoning: Division 19 of the GST Act provides for adjustments that can arise because of adjustment events. They are events such as a cancellation of a supply or acquisition, or a change in the consideration for a supply or acquisition. Paragraph 126 of GSTR 2001/4 explains that the GST consequences of a payment made under a court order or out-of-court settlement may be: (i) attribution of GST payable or input tax credit in the tax period the payment is made; or (ii) attribution of increasing or decreasing adjustments in respect of changes to the consideration for a supply; or (iii) no attribution or adjustment action required. According to paragraph 132 in GSTR 2001/4, no attribution or adjustment action is required in respect of a settlement payment made under a court order or out-of-court settlement where the payment is not consideration for a supply. In this case, the Entity acquires services from the Service Company. Whether the Settlement Amount represents an adjustment to the consideration payable for a previous supply is determined by reference to the terms of the Settlement Deed. In this case we accept that the Settlement Amount payable under the Settlement Deed to the Entity does not represent a change in the consideration for any previous supply acquired by the Entity from the Service Company. Rather, as explained in our response to question 1, the character of the payment is that of damages awarded following legal proceedings to settle a dispute. As the payment of the Settlement Amount does not change the original consideration payable under the Services Agreement, there is no adjustment event under section 19-10 of the GST Act.