Published: December 2013

Ruling: Q1: Is the settlement sum paid by you to another entity under the Deed of Settlement, consideration for creditable acquisitions? | A1: On the facts disclosed by you, of the total settlement sum paid by you under the Deed of Settlement, at least some may be referable to earlier supplies made to you. To the extent that the settlement sum is referable to those earlier supplies (which are taxable supplies made to you) it is consideration for a creditable acquisition. To the extent that the balance of the settlement sum is referable to a claim for damages it is not consideration for a taxable supply made to you and therefore not consideration for a creditable acquisition. | Q2: Are you currently entitled to claim an input tax credit for any creditable acquisition identified in question 1 above? | A2: No

Relevant facts and circumstances: You carry on an enterprise which involves the acquisition, development and sale of land. You have been registered for goods and services tax (GST) with effect from 1 July 2000 and account for GST on a non cash basis (accrual). Lawyers for the other entity, wrote to you and advised you they had been instructed to commence legal proceeding in the Supreme Court to enforce an agreement between you and the entity which was made before 1 July 2000 (Agreement). Pursuant to that Agreement damages were sought in the sum of X plus interest to be paid within 14 days failing which legal proceedings would be commenced. The sum of $X plus interest was not paid by you. By an action instituted in the Supreme Court by the entity a claim was made against you for $X plus interest. The facts are set out in the statement of claim S Cl 1 attached to the writ. S Cl 1 relevantly sets out the facts of the dispute between you and the entity. You confirmed in a letter that no supplies of services were made to you by the entity pursuant to the Agreement referred to in S Cl 1 prior to 1 July 2000. You treated the sale of the developed lots you sold as taxable supplies on which GST was payable. You accounted for the GST on those taxable supplies in the relevant activity statements. The entity, or any other party, had not invoiced you for the services performed pursuant to the Agreement nor had you paid any amount to the entity, or any other party, on account for the services performed pursuant to the Agreement. On a later date the entity commenced proceedings Statement of Claim S Cl 2 against a number of related parties including you for various matters. The trustees named in S Cl 2 commenced proceedings Statement of Claim S Cl 3 against the entity and the entity brought a counter-claim. Unlike S Cl 1, neither party involved in S Cl 2 and S Cl 3 sought monetary damages. In the course of the subsequent trial, in relation to proceedings S Cl 2 and S Cl 3, the parties agreed to settle all three disputes, including S Cl 1, on the terms set out in a Deed of Settlement. The Deed of Settlement provides for mutual releases from all claims and counter-claims and provides for the payment by you of the settlement sum. The Deed of Settlement provided for the payment of the settlement sum of $X to be paid by you. The Recitals to the Deed of Settlement sets out the details of all three claims. The Recitals refer to S Cl 1 and a claim for damages in the sum of $X being the proceeds to which the entity was entitled to from the sale of the lots by you for having carried out the work etcetera. Other paragraphs in the Recitals provide details in relation to S Cl 2 and S Cl 3. The Recitals to the Deed of Settlement state that the parties have agreed to settle the Proceeding and their dispute upon the terms of the Deed of Settlement. No clauses were identified in the Deed of Settlement in respect of the operation and effect of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) nor was the settlement sum dissected or apportioned. To date you have not requested a tax invoice from the entity in relation to the payment of the settlement sum you paid pursuant to the Deed of Settlement. You have not claimed any input tax credits in any GST return in relation to services made to you by the entity. You advise that the Australian Business Register (ABR) indicates that the entity was registered for GST with effect from 1 July 2000. Given that the Agreement referred to in S Cl 1 was entered into before 1 July 2000 you considered the potential implications of the GST Transition Act and in particular section 13 of the GST Transition Act (section 13). You contend that section 13 has no application on the basis that the letter referred to in the S Cl 1'does not amount to a written agreement'.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 section 9-10 | A New Tax System (Goods and Services Tax) Act 1999 section 9-15 | A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-10 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 subsection 29-10(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 29-10(3) | A New Tax System (Goods and Services Tax) Act 1999 subsection 29-10(4) | A New Tax System (Goods and Services Tax) Act 1 999 subsection 29-70(1B) | A New Tax System (Goods and Services Tax) Act 1999 subsection 93-5 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | A New Tax System (Goods and Services Tax Transition) Act 1999 subsection 6(4) | A New Tax System (Goods and Services Tax Transition) Act 1999 subsection 7(1) | A New Tax System (Goods and Services Tax Transition) Act 1999 subsection 12(1) | A New Tax System (Goods and Services Tax Transition) Act 1999 subsection 13(1) | A New Tax System (Goods and Services Tax Transition) Act 1999 subsection 13(2) | A New Tax System (Goods and Services Tax Transition) Act 1999 subsection 13(5)

Reasons for decision: Summary: The Deed of Settlement provides for the payment of the settlement sum which was not divided or dissected but was paid in two instalments pursuant to the Deed of Settlement. On the facts disclosed by you we consider that at least some of the settlement sum is referable to earlier supplies of services supplied to you. To the extent that at least some of the settlement sum has a sufficient nexus with earlier supplies that satisfy the requirements of taxable supplies, that amount will be consideration for creditable acquisitions for which you may be entitled to input tax credits. To the extent that the balance of the settlement sum is referable to a claim for damages then this amount is not consideration for a creditable acquisition and as such, you are not, to that extent, entitled to any input tax credits. Where there is no dissection of the settlement sum in the Deed of Settlement and the settlement sum has a sufficient nexus with a supply and an item of damages which is not a supply, the payment should be apportioned into amounts representing these relevant parts in order that the correct GST consequences result. The apportionment should be determined by the parties on a reasonable basis and to this end it will be necessary for you to obtain a tax invoice from the supplier. | Detailed Reasoning - Detailed reasoning: Section 7-1 of the GST Act provides that GST is payable on taxable supplies and entitlements to input tax credits arise on creditable acquisitions. Under section 11-20 of the GST Act you are entitled to input tax credits for any creditable acquisition you make. Section 11-5 of the GST Act provides that you make a creditable acquisition if: · you acquire anything solely or partly for a creditable purpose · the supply of the thing to you is a taxable supply (paragraph 11-5(b) of the GST Act) · you provide, or are liable to provide, consideration for the supply, and · you are registered, or required to be registered for GST. On the facts disclosed by you, you are and were at the relevant time registered for GST and in carrying on a property development enterprise it is expected that you would acquire acquisitions of development services. In addition, under the terms of the Deed of Settlement you paid the settlement sum to settle three disputes. The settlement sum, however, was undivided. The entity is and was at the relevant time registered for GST and according to S Cl 1 was carrying on the business of the development and sub-division of S Cl 1 refers to an agreement between you and the entity under which the entity was to carry out, coordinate and supervise all works necessary in relation to the development, subdivision and sale of your lots. The issue that arises in the present case under section 11-5 of the GST Act is whether the settlement sum or any part of it constitutes consideration for a taxable supply made to you such that paragraph 11-5(b) of the GST Act would be satisfied. If the entity did not make a taxable supply to you under the terms of the Deed of Settlement, all of the requirements of a creditable acquisition will not be satisfied and you will not be entitled to an input tax credit. Section 9-5 of the 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 Australia; 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. (* Asterisked terms are defined in the Dictionary in section 195-1 of the GST Act.) The GST consequences of an out-of-court settlement will depend on a number of matters, specifically: · whether the payment or any part of the payment under the settlement constitutes consideration for a supply made to you (and corresponding acquisition by you), and · if so whether the supply is in the nature of a taxable, input taxed, GST-free or out of scope supply. If a supply is input taxed, GST-free or out of scope it is not a taxable supply. These concepts are discussed and analysed in Goods and Services Tax Ruling GSTR 2001/4. That ruling focuses on the first requirement of a taxable supply in paragraph 9-5(a) of the GST Act that there is a 'supply for consideration' in relation to out-of-court settlements. GSTR 2001/4 explains at paragraph 21 that for there to be a 'supply for consideration' three fundamental criteria must be met: · there must be a supply · there must be a payment · there must be a sufficient nexus between the supply and the payment for it to be a supply for consideration. GSTR 2001/4 outlines three categories of supplies that may relate to out-of-court settlements: · an earlier supply, where the subject of the dispute is an earlier transaction in which a supply was made involving the parties · a current supply, which involves a new supply that may be created by the terms of the settlement, and · a discontinuance supply: created by the conditions for settlement ie surrendering a right to pursue further legal action, entering into an obligation to refrain from further legal action or releasing another party from further obligations in relation to the dispute. There may be more than one supply that relates to a settlement. In addition, the subject of the dispute may not be a supply at all. For example, 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 do not constitute a supply under section 9-10 of the GST Act (paragraphs 71 to 73 of GSTR 2001/4). This damage, loss or injury, being the substance of the dispute, cannot itself be characterised as a supply made by the aggrieved party. The entirety of the arrangement between the parties should be evaluated. Where the parties have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies (if any) that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purposes (paragraph 222 of Goods and Services Tax Ruling GSTR 2006/9). The first step is to identify any relevant supplies made on settlement of the claims made against you. Is there a supply The meaning of 'supply' is given in section 9-10 of the GST Act and in addition to the general words 'any form of supply whatsoever' in subsection 9-10(1) of the GST Act, subsection 9-10(2) of the GST Act includes, a supply of services, an entry into an obligation to do something or any combination of any two or more of the matters referred to in subsection 9-10(2) of the GST Act. However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money (subsection 9-10(4) of the GST Act). S Cl 1 similarly describes the arrangement between the parties claiming that pursuant to the Agreement, the entity carried out, coordinated and supervised all works necessary for you in relation to the development and subdivision of your land. Carrying out, coordinating and supervising all works necessary for you in relation to the subdivision and sales answers the statutory definition of a supply under section 9-10 of the GST Act. Other supplies The Deed of Settlement contains discontinuance supplies of the kind described in paragraph 51 of GSTR 2001/4. The Deed of Settlement includes releases, acknowledgements and In the present matter, what is being sued for under the rubric of damages as set out in the endorsement writ is the consideration payable under the Agreement In view of that non-payment, a claim has been made for damages as referred to in paragraphs 71 to 73 of GSTR 2001/4. The claim made in proceeding S Cl 1 and referred to in a paragraph of the Recitals to the Deed of Settlement reflects a demand for payment in respect of what GSTR 2001/4 refers to in paragraphs 45 to 47 as an earlier supply. Paragraph 47 of GSTR 2001/4 has the following example of an earlier supply: 47. Widget Company supplies toys to a retailer. A dispute between the parties over payment for the toys is subsequently resolved through an out-of-court settlement, with the retailer paying all monies owed. The supply of the toys, that is the subject of the dispute, is an earlier supply because it occurred before the dispute arose. Having regard to the Deed of Settlement and S Cl 1, it is clear the subject of the dispute between you and the entity constitutes an earlier supply of services which occurred before the dispute arose. It follows that the facts and circumstances of this case give rise to a number of things which satisfy the statutory definition of a supply namely the earlier supply which include the services of development, sub-division and sale of your lots and the discontinuance supply which include surrendering rights to discontinue further legal actions and releasing other parties from obligations. Consideration The term 'consideration' for a supply or acquisition is defined in section 195-1 of the GST Act to mean any consideration within the meaning given by section 9-15 of the GST Act in connection with the supply or acquisition. Under subsection 9-15(1) of the GST Act consideration includes: · any payment, or any act or forbearance, in connection with a supply of anything, and · any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. Subsection 9-15(2) of the GST Act provides that the payment, act or forbearance can be voluntary or made by someone other than the recipient of the supply. Paragraph 9-15(2A)(b) of the GST Act provides that it does not matter whether the payment, act or forbearance was in compliance with a settlement relating to proceedings before a court. There is no issue that the settlement sum you paid is a payment as paragraph 97 of GSTR 2001/4 confirms that in view of subsection 9-15(2A) of the GST Act the settlement sum paid by you is not precluded from being consideration for a supply. Sufficient Nexus It is not sufficient for there to be supplies and a payment. For the settlement sum to be consideration for any of the supplies identified there must be a sufficient nexus between the settlement sum and those supplies. A sufficient nexus between a payment made under an out-of-court settlement and a supply must exist to create the 'supply for consideration' relationship. The test is an objective one. The Commissioner explains in paragraph 96 of GSTR 2001/4: 96. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description which parties give to the arrangement, but by looking at all of the transactions entered into the circumstances in which the transactions are made. Looking into the circumstances in which the transactions were made, the settlement sum referred to in the Deed of Settlement is undivided. You contend that the settlement sum is referrable only to the claim as set out in the Recitals to the Deed of Settlement in relation to S Cl 1. You advise that this is because the other two proceedings S C l2 and S Cl 3 did not involve claims of money. We consider that, having regard to the Deed of Settlement, S Cls 1, 2, and 3, and the demand letter it is reasonable to conclude that there is a sufficient nexus between at least some of the total settlement sum paid and the earlier supplies of services made under the Agreement. If that is the case, then that part will constitute consideration for those earlier supplies of services by the entity. Paragraph 111 of GSTR 2001/4 states: 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. We consider that at least some of the settlement sum is directly referable to and in connection with the earlier supply of services that some of the balance is logically referable to the second monetary based claim being 'interest'. Whereas GSTR 2001/4 makes no reference to awards of payments of interest, Goods and Services Tax Determination GSTD 2003/1 considers the GST consequences of a payment of judgement interest. The payment of interest in the present case is analogous to what GSTD 2003/1 refers to as pre-judgement interest. That is, the interest component is based on a broader concept of compensation for being deprived of the use of the money. In Whitaker v Federal Commissioner of Taxation ( 1998) 38 ATR 219 at 227; 98 ATC 4285 at 4291, Lockhart J stated: 'The primary purpose of an award of pre-judgement interest is to compensate a successful plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period…' Applying the principles and concepts in GSTD 2003/1 there is not a sufficient nexus, in this case, between the payment of interest and any earlier supply relating to the dispute, nor to any current supply arising out of the out-of-court settlement which finalised the dispute. A claim for compensation is treated in a similar way to a claim for damages in that there is no supply and therefore no GST is payable. You contend that the balance of the settlement sum was paid to compensate the entity for the damages suffered by being deprived of payment for the services rendered in relation to the property development. If that is the case then it follows that the balance amount does not constitute consideration for a taxable supply made to you. As all the requirements for a creditable acquisition are not satisfied, the balance of the settlement sum is not consideration for a creditable acquisition. Discontinuance supply Discontinuance supplies are discussed in paragraphs 106 to 109 of GSTR 2001/4 which state: 106. Where the only supply in relation to an out-of-court settlement is a 'discontinuance' supply it will typically be because the subject of the dispute is a damages claim. In such a case, the payment under the settlement would be in respect of that claim and not have a sufficient nexus with the discontinuance supply. 107. In most instances, a 'discontinuance' supply will not have a separately ascribed value and will merely be an inherent part of the legal machinery to add finality to a dispute which does not give rise to additional payment in its own right. They are in the nature of a term or condition of the settlement, rather than being the subject of the settlement. 108. We do not consider that the inclusion of a 'no liability' clause in a settlement deed alters this position. 'No liability' clauses are commonly included in settlement agreements and we do not consider their inclusion to alter the substance of the original dispute, or the reason payment is made. 109. We consider that a payment under a settlement deed may have a nexus with a discontinuance supply only if there is overwhelming evidence that the claim which is the subject of the dispute is so lacking in substances that the payment could only be for the discontinuance supply In the present case there is no overwhelming evidence that the claim which is the subject of the dispute is so lacking in substance that the payment can only be for the discontinuance supply. It cannot be dismissed that some of the settlement sum may be consideration for the discontinuance supplies provided for in the Deed of Settlement. The better view (based on the reasoning above) is that at least some of the settlement sum has a nexus with the earlier supply of services with some of the balance referable to damages or interest. Under the terms of the Deed of Settlement the discontinuance supplies do not have a separately ascribed value and are merely an inherent part of the legal machinery to add finality to the disputes and as such, does not give rise to an additional payment of its own. Therefore, none of the settlement sum has a nexus with the discontinuance supplies. On that basis it appears no part of the settlement sum made under the Deed of Settlement is consideration for the discontinuance supply of the mutual releases etc. | Detailed Reasoning - Other requirements of section 9-5 of the GST Act: As at least some of the settlement sum has a sufficient nexus with the earlier supplies of services to constitute consideration for those supplies and the requirement of a 'supply for consideration' under paragraph 9-5(a) the GST Act is satisfied. However, for there to be a taxable supply all of the requirements of section 9-5 of the GST Act must also be satisfied. A supply is not a taxable supply to the extent that it is GST-free or input taxed. None of the supplies in connection with the settlement sum you paid which is referable to the earlier supplies of services are in relation to input taxed supplies. This could completely answer the question of whether the supplies made to you under the Agreement were taxable supplies but for the fact disclosed in the pleadings S Cl 1 that the agreement sued upon was entered before the relevant date in so far as it is in writing. This raises the issue of the operation of provisions of the GST Transition Act and in particular section 13 of that Act. | Detailed Reasoning - GST-free supplies: Under subsection 7(1) of the GST Transition Act, GST is payable on a supply to the extent that it is made after 1 July 2000. Subsection 6(4) of the GST Transition Act provides that a supply or acquisition of services is made when the services are performed. Part 3 of the GST Transition Act refers to agreements spanning 1 July 2000. Section 12 of the GST Transition Act applies if a person makes a supply under an agreement that provides that the thing supplied is to be supplied for a period, and that period begins before 1 July 2000 and ends on or after that date (subsection 12(1) of the GST Transition Act). If section 12 of the GST Transition Act applies, the supply is taken, for the purposes of the GST Transition Act, to be made continuously and uniformly throughout the period. For the purposes of section 12 of the GST Transition Act a supply by way of lease is taken to be a supply for the period of the lease. On the facts provided the Agreement does not appear to provide for the thing to be supplied for a period. Section 13 of the GST Transition Act provides that certain supplies are to be GST-free to the extent they are made before the earlier of 1 July 2005 or the date upon which a review opportunity as defined in subsection 13(5) of the GST Transition Act arises. In Goods and Services Tax Ruling GSTR 2000/16 (Withdrawn) the Commissioner considers the extent to which a supply made on or after 1 July 2000 which is identified in a written agreement made before 8 July 1999 will be GST-free under section 13 including whether a review opportunity arises under that agreement. The Ruling continues to apply to schemes to which it applied that had begun to be carried out before the withdrawal on 15 May 2013. Paragraph 15 of GSTR 2000/16 explains that an agreement will satisfy subsection 13(1) of the GST Transition Act if the agreement: · is a written agreement · specifically identifies a supply · identifies the consideration in money, or a way of working out the consideration in money, for the supply; and · was made before the relevant date. The relevant date is: · 8 July 1999, if the recipient of the supply would be entitled to a full input tax credit for the supply, or · 2 December 1998, if the recipient of the supply would not be entitled to a full input tax credit for the supply. If these conditions are satisfied, subsection 13(2) of the GST Transition Act provides that the supply is GST-free to the extent that it is made before the earlier of: · 1 July 2005. or · a review opportunity that arises on or after the relevant date. Paragraphs 17 to 19 of GSTR 2000/16 explain that various documents amount to an agreement for the purposes of subsection 13(1) of the GST Transition Act. An agreement to which section 13 applies must be an agreement which is legally binding on the parties to the agreement and the agreement must be a written agreement. S Cl 1 refers to an agreement that in so far it is oral is contained in a meeting between the parties before the relevant sate and in so far as it is in writing is contained in the letter. You have provided a copy of that letter. You contend that the letter does not amount to a written agreement for the purposes of section 13. The term review opportunity is defined in subsection 13(5) of the GST Transition Act as an opportunity that arises under an agreement for the supplier (acting either alone or with the agreement of one or more of the other parties to the agreement) to: · change the consideration directly or indirectly because of the imposition of GST · conduct, on or after 1 July 2000, a general review, renegotiation or alteration of the consideration, or · conduct, before 1 July 2000, a general review, renegotiation or alteration of the consideration that takes account of the imposition of the GST. You have advised that none of the supplies under the Agreement were made before 1 July 2000. If that is also the case then none of the settlement sum referable to the earlier supply is out of scope (that is, not subject to GST). However, if the pleadings refer to an oral agreement that was made before the relevant date and which was part performed prior to 1 July 2000 then supplies made prior to 1 July are not subject to GST. This is contrary to your view that none of the supplies were made prior to 1 July 2000. If, as you argue, the earlier supplies made to you satisfy all the requirements of taxable supplies then to the extent the settlement sum is referable to those earlier supplies made after 1 July 2000 it will constitute consideration for creditable acquisitions that may give rise to an entitlement to input tax credits. | Detailed Reasoning - Amount of input tax credits: Under 11-25 of the GST Act, the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. In the facts provided by you and on which this advice is based there is no evidence as to the proportion of the settlement sum that may be attributable to the pre July 2000 supplies (if any). In addition, the Deed of Settlement does not divide or dissect the settlement sum; nor clarifies the complete nature of the agreement which outlines the earlier supplies; nor the timing of those supplies. Therefore, it is not possible, in the absence of a tax invoice issued by the supplier to advise on the quantum of any potential input tax credits. Accordingly, you will need to obtain a tax invoice from the supplier to determine to what extent the amount of the settlement sum is referable to the earlier supplies and, to what extent it should be apportioned. This approach is supported by paragraphs 118 and 119 of GSTR 2001/4 which provide that where the settlement sum is undivided, even though the payments have a sufficient nexus with more than one supply, or to a supply and an item of damages which is not a supply, the payment should be apportioned into amounts representing these relevant parts in order that the correct GST consequences result. The apportionment should be determined on a reasonable basis by the parties involved. Where a payment is apportioned in a manner that cannot be justified in terms of reasonableness, the general anti-avoidance provisions of the GST Act may have application. Goods and Services Tax Ruling GSTR 2001/8 provides guidance on the apportionment of consideration for a mixed supply. The concepts of reasonableness referred to in GSTR 2001/4 are reiterated in paragraphs 25 to 27 of that ruling which state: 25. GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable. You need to apportion the consideration for a mixed supply between the taxable and non-taxable parts to find the consideration for the taxable part. 26. Apportionment must be undertaken as a matter of practical commonsense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances. 27. You should keep records that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply. | Summary: Notwithstanding that you may be entitled to input tax credits for the creditable acquisitions you made in relation to the earlier supplies, you cannot attribute (claim) those input tax credits in your GST return as you do not currently hold a tax invoice. It follows that since you do not hold a tax invoice you will need to request one from the supplier. | Detailed Reasoning - Attribution of input tax credits: As determined in question 1, at least some part of the settlement sum paid by you is consideration for a creditable acquisition but the actual proportion is yet to be quantified. You advise that you account for GST on an accrual basis in quarterly tax periods and that you have not requested a tax invoice from the entity. In relation to the attribution of input tax credits, subsection 29-10(1) of the GST Act provides that the input tax credit to which you are entitled for a creditable acquisition is attributable to: · the tax period in which you provide any of the consideration for the acquisition, or · if, before you provide any of the consideration an invoice is issued relating to the acquisition, the tax period in which the invoice is issued. However, subsection 29-10(3) of the GST Act provides that if you do not hold a tax invoice for a creditable acquisition when you give to the Commissioner a GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable : · the input tax credit (including any part of the input tax credit) is not attributable to that tax period, and · the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice. Section 195-1 of the GST Act defines an invoice as a 'document notifying an obligation to make a payment' and a tax invoice as: Tax invoice has the meaning given by subsection 29-70(1) and 48-57(1), and includes a document that the Commissioner treats as a tax invoice under subsection 29-70(1B). However, it does not include a document that does not comply with the requirements of section 54-50 (if applicable). You advise that no invoice was issued in relation to the supplies of earlier services prior to you receiving the demand letter from the lawyers acting for the entity. That correspondence is a document notifying you of an obligation to make a payment in the sum of $X plus interest failing which legal proceedings would be commenced. That document appears to satisfy the definition of an invoice and is referred to as a demand in writing (see particulars in S Cl 1). However, this document is not a tax invoice in which input tax credits can be claimed. Therefore, in order to be entitled to claim an input tax credit you need to obtain a tax invoice from the supplier. Section 29-70(2) of the GST Act provides that the supplier of a taxable supply must, within 28 days after the recipient of the supply requests it, give to the recipient a tax invoice for the supply. | Detailed Reasoning - Time limit on an entitlement to input tax credits: Under section 93-5 of the GST Act, an entity ceases to be entitled to an input tax credit for a creditable acquisition to the extent that the input tax credit has not been taken into account, in an assessment of a net amount of the entity, during the period of four years after the day on which the entity was required to give to the Commissioner a GST return for the taxable period to which the input tax credit would be attributable under subsection 29-10(1) or (2) of the GST Act. Section 93-15 of the GST Act provides that you are not entitled to an input tax credit for a creditable acquisition if: · GST has ceased to be payable (other than as a result of its payment) on the supply that is related to the creditable acquisition, and · at the time of the cessation, you did not hold a tax invoice for the creditable acquisition. This means that if GST has ceased to be payable in relation to any taxable supplies made to you and you do not hold a tax invoice you will not be entitled to input tax credits.

Subject: GST and out of court settlements