Private ruling: Taxable supplies
Date of advice: 1 May 2026
Published: 27 July 2026
Ruling period: DD MM 20YY to DD MM 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Does the Company make a creditable acquisition from the Directors by paying for the Director's costs in respect of the first proceeding (relating to directors duties) under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Does the Company make a creditable acquisition of services in respect of the first proceeding (relating to directors duties) under section 11-5 of the GST Act? | A2: No. | Q3: Does the Company make a creditable acquisition of services in respect of the second proceeding (relating to trademark infringements) under section 11-5 of the GST Act? | A3: Yes.

Relevant facts and circumstances: In addition to the facts set out below, this scheme is to be read with reference to the case xxx. The Company is in the business of xxx and is registered for GST effective DD MM 20YY. First proceeding - directors duties In MM 20YY, the Plaintiff (a shareholder) commenced proceedings in the X Court against the Directors (also referred to as the Defendants), alleging director misconduct. The Directors engaged lawyers (or solicitors) to defend their case. In accordance with the Corporations Act 2001 (Corporations Act), the Company lawfully advanced and indemnified both the Directors' legal and non-legal costs (or costs) pending the court decision. There is no financing or litigation funding arrangement between the Company and the Directors. The total costs payable by the Company was $xxx. Since MM 20YY, the Company has claimed input tax credits on the acquisition of services in its quarterly returns. In MM 20YY, the court found in favour of the Defendants. Consequently, a costs order was issued ordering the Plaintiff to reimburse the Defendants for their costs on an indemnity basis, amounting to approximately $xxx. The Plaintiff engaged their solicitor to negotiate a reduction of this amount, and the parties agreed to a final settlement amount of $xxx. On DD MM 20YY, the Plaintiff paid $xx into the trust account of the Defendant's solicitor. As there were outstanding legal costs in relation to the proceedings, the lawyers retained $XX and transferred the remaining xxx to the Company's bank account. Second proceeding - trademark infringements On DD MM 20YY, the Company commenced separate proceedings in the X Court, regarding trademark infringements against <entity A>. <Individual A> set up <entity A> which operates a similar business to the Company. The Company engaged the barristers through their lawyers for legal services in relation to the trademark infringements proceedings. The lawyers did not issue a separate engagement letter to the Company in respect of the second proceeding. <Individual A>'s barrister requested out of court settlement with the Company and considering expensive legal costs and difficulty providing actual financial loss as a result of the infringements, the Company's barrister, advised that the Company accept the out of court settlement amount of $xxx. A copy of an invoice dated DD MM 20YY, issued by the lawyers to the Company for the cost of conducting their litigation matters for the second proceeding has been provided for reference. The total fees listed in the invoice issued by the lawyers was $xxx. The total costs payable by the Company in the course of the second proceeding was $xxx. The total out of court settlement amount paid by <entity A> to the Company was withheld by the lawyers to pay for the Company's outstanding invoices. This matter was finalised on DD MM 20YY. The total costs payable to the lawyers in relation to the second proceeding was $xxx. The lawyers allocated the remaining $xxx (from the out of court settlement amount of $xxx) to the outstanding legal costs for the first proceeding (relating to directors duties).

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 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 29-70

Reasons for decision: Summary: The Company does not make a creditable acquisition as the Directors do not make a 'supply' to the Company for the payment of their costs (in respect of the first proceeding) on an indemnity basis. | Detailed Reasoning - Detailed reasoning: Section 11-5 of the GST Act states that: • 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. (* denotes a term defined in section 195-1 of the GST Act) Paragraphs 9-5(c) and 9-5(d) are satisfied as the Company has paid for the Director's legal fees in relation to the first proceeding and the Company is registered for GST. What remains to be determined is whether the Company has acquired anything and whether the supply to the Company was a taxable supply pursuant to paragraphs 11-5(a) and 11-5(b) of the GST Act. As per section 195-1 of the GST Act 'thing' is defined to mean anything that can be supplied or imported. Supply is defined in section 9-10 of the GST Act as any form of supply whatsoever. It can include but is not limited to the supply of goods, services and the provision of advice or information. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) discusses the concept of 'supply.' Supply is important in relation to input tax credits because if a supply is not made, an entity cannot acquire anything for a creditable purpose, as required by paragraph 11-5(a) of the GST Act. You make an acquisition if you are the recipient of a supply and the use of the term 'thing' gives further emphasis to the breadth of the meaning of 'supply'. Paragraph 17 of GSTR 2006/9 states that because GST is intended to be broad based, a supply may manifest itself in various ways. For example, a supply may be mixed, composite or neither and an analysis of a transaction may indicate one or more supplies. However, the scheme of the GST Act is not so broad as to include: an entity making a supply to itself; a supply being made by more than one entity; a supply arising out of the creation of expectations alone without more; or a supply without the supplier providing something. The following propositions are relevant to the current circumstances: • Proposition 5: An entity will make a supply if it provides something to be passed from one entity to another; and • Proposition 6: 'Supply' usually, but not necessarily, requires something to be passed from one entity to another. | Detailed Reasoning - Proposition 5: Relevantly, paragraph 76 of GSTR 2006/9 states: 76. While an entity may make a supply by observing an obligation, even if that involves no more than refraining from doing something or tolerating some act or situation, there will be no supply where something occurs by operation of law without an entity providing something or without any obligation being placed on the entity to provide something. Examples of such situations are: • Shaw v. Director of Housing and State of Tasmania (No 2) [2001] TASSC 2 in which Underwood J held that a judgement creditor makes no supply on extinguishment of the obligation to pay the judgement sum; and • Region Pty Limited v. Commissioner of Taxation [2011] FCA 805 in which Emmett J analysed an action in conversion and found no supply was made when vesting of title in goods occurred by operation of law on satisfaction of the judgement in full. Paragraph 78 of GSTR 2006/9 further provides that the Commissioner considers that an entity does not make a paragraph 9-10(2)(g) obligation supply simply by having a legal obligation imposed on it by reason only of circumstances existing which brings the entity within the terms of obligation in question. | Detailed Reasoning - Proposition 6: Paragraph 92 of GSTR 2006/9 explains that 'supply' generally requires something to be passed from one entity to another is largely self-evident in a transaction based tax. | Detailed Reasoning - Application to the circumstances: Consistent with paragraph 76 of GSTR 2006/9, the payment by the Company occurs by operation of law. The Directors do not provide the Company with 'something' and there are no obligations placed on the Directors in return for the payment of services associated with defending their case in the first proceeding (relating to directors duties) commenced by the Plaintiff. There is nothing passing from the Directors to the Company and consequently, the Company does not make a creditable acquisition from the Directors by paying for the Director's costs in respect of the first proceeding under section 11-5 of the GST Act. | Detailed Reasoning - Question 2: Does the Company make a creditable acquisition of services in respect of the first proceeding (relating to directors duties) under section 11-5 of the GST Act? | Summary: The Company does not make a creditable acquisition of services in respect of the first proceeding (relating to directors duties) as it is not the recipient of the services and is considered to be a third party payer. | Detailed Reasoning - Detailed reasoning: The Company satisfies paragraph 11-5(c) and 11-5(d) of the GST Act as the Company provides consideration for the services in respect of the proceedings against the Plaintiff and the Company is registered for GST. What remains to be determined is whether the Company acquires the services for a creditable purpose and whether the supply is made to the Company respectively under paragraph 11-5(a) and 11-5(b) of the GST Act. Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation VID [2023] FCA 257 (Konebada case) considered the availability of input tax credits on invoices paid by Konebada Pty Ltd as trustee for the William Lewski Family Trust (Konebada) on legal services provided to members of the Lewski family and related entities (Lewski Family Group) as beneficiaries of the trust. Konebada entered into litigation funding agreements with lawyers providing the legal services to pay litigation costs incurred and, in return, to receive any litigation proceeds. Konebada paid the invoices issued by the lawyers. At first instance in the Federal Court, Hespe J ruled against Konebada on the enterprise issue and for Konebada on the acquisition issue. Konebada appealed to the Full Federal Court on the enterprise issue and the Commissioner filed a notice of contention for the acquisition issue. The Full Federal Court dismissed the appeal on the enterprise issue and declined to consider the notice of contention. Accordingly, Konebada was not entitled to input tax credits, as the acquisitions from the lawyers were not made in the course or furtherance of any relevant enterprise carried on by Konebada. The ATO's view as a result of the Konebada case is that input tax credits are not claimable in materially similar situations. An entity does not necessarily make an acquisition when it pays invoices issued by lawyers. Further, we do not consider that Konebada broadens the principles established in Commissioner of Taxation v Secretary to the Department of Transport (Vic) [2010] FCAFC 84 (Department of Transport) , as we do not consider that any pre-existing framework in the Department of Transport sense will necessarily exist in contexts where one entity merely pays for acquisitions made by another entity. GSTR 2006/9 also provides further information on whether an entity is the recipient of a taxable supply and discusses the concept of a 'third party payer.' Under proposition 14, a third party may pay for a supply but not be the recipient of the supply. The fact that a third party pays for the supply does not change the supplier's GST liability, however there are clear ramifications for the recipient of the supply in determining whether they have made a creditable acquisition. Paragraph 183 of GSTR 2006/9 explains that if you provide or are liable to provide consideration for a supply, but you are not the recipient of the supply, you are referred to as a 'third party payer'. As a third party payer you do not make a creditable acquisition in relation to your payment because the supply is not made to you as required by section 11-5. Making a payment for a supply that is made to another entity is not sufficient to make you the recipient of that supply. Example 11 (paragraphs 213 to 216 of GSTR 2006/9) also provides an example in relation to legal services and disbursements and states: Example 11: legal services and third party disbursements 213. L, a legal firm, is engaged by C, a client, to provide legal services. As part of the service agreement, prior to the provision of the legal services, C deposits money into L's trust account. The money is treated as an advance for later disbursements made by L on behalf of C and as security for payment for future services. 214. L then advises C to seek the service of a third party, T. C contracts with this third party directly. 215. L, acting as agent for C, pays for T's services using funds from the trust account. 216. The recipient of the supply of the services by T is C, not L. L is merely paying for a supply on behalf of C. As the recipient of the supply and the payer of consideration, C will make the creditable acquisition if all the other requirements of 11-5 are met. | Detailed Reasoning - Application to the circumstances: The view held in Konebada and outlined under proposition 14 in GSTR 2006/9 is applicable to the current circumstances as the Company does not 'acquire anything' when it pays for services supplied to the Directors. The Company is considered to be a third party payer as it provides consideration for a supply but is not the recipient of the supply. Under general law, an indemnity is an obligation to an entity (the creditor) assumed by another (the surety), under which the surety agrees to keep the creditor harmless from risks arising from dealings with a third party. In an indemnity, the surety assumes a primary obligation from the time the contract is made, whether or not the principal defaults. That is, the creditor can recover directly from the surety under an indemnity, without waiting for default by the principal. The indemnity provided under Corporations Act does not shift the recipient of the supply from the Directors to the Company. Also, as the Directors engaged and acquired the services to defend themselves against allegations of misconduct in their personal capacity as directors of the Company, and were individually listed as defendants in the proceedings, although the Company makes payment for the services, that alone is insufficient to make it the recipient of the services. The Directors are also the recipient of services associated with third party disbursements. Consistent with Example 11 in GSTR 2006/9, the lawyers acted as agent for the Directors when it engaged the third party suppliers (i.e. the barrister, the auditors and translators). Therefore, the Directors make the acquisition of services from third party suppliers, not the lawyers. Additionally, consistent with the reasoning provided above, the Company is also not the recipient of services associated with third party disbursements. The acquisition requirement of paragraph 11-5(a) of the GST Act are not met, as the Company does not acquire the services from the lawyers or the third party suppliers. Consequently, section 11-5 of the GST Act is not satisfied and we do not need to consider whether the Company acquires the services for a creditable purpose under paragraph 11-5(a) of the GST Act. The Company does not make a creditable acquisition of services for the payment of costs associated with the first proceeding and is not entitled to claim input tax credits. | Detailed Reasoning - Question 3: Does the Company make a creditable acquisition of services in respect of the second proceeding (relating to trademark infringements) under section 11-5 of the GST Act? | Summary: The Company makes a creditable acquisition of services in respect of the second proceeding (relating to trademark infringements). | Detailed Reasoning - Detailed reasoning: As per the reasoning outlined in Question 2, the Company satisfies paragraph 11-5(c) and 11-5(d) of the GST Act. The Company also satisfies the requirements under paragraphs 11-5(a) and 11-5(b) of the GST Act as the services were supplied to the Company in respect of the trademark infringements proceedings and initiated by the Company in the course of running its enterprise. Accordingly, the requirements of section 11-5 of the GST Act are satisfied and the Company makes a creditable acquisition of services in respect of the second proceeding (relating to trademark infringements).