Private ruling: Whether you are entitled to GST credits relating to payments made by third parties to your barrister for legal expenses that you incurred
Date of advice: 1 November 2017
Published: March 2018

Ruling: Q1: Are you entitled to an amount of $X of GST credit (also known as input tax credit) relating to payments made by third parties to your barrister for legal expenses that you incurred? | A1: No. You are not entitled to any amount of GST credit (input tax credit).

Relevant facts and circumstances: You have been registered for Goods and Services Tax (GST) from at all relevant times, account for GST on a cash basis and report quarterly. You have been on the Register of Legal Practitioners and Law Practices and have been carrying on an enterprise as a sole trader lawyer at all relevant times. You have advised that you were sued as a member of the association. You have advised that you were not sued in relation to carrying on your enterprise as a sole trader lawyer. You were the Public Officer of the association at all relevant times. You engaged a lawyer (barrister) to act for you and other parties (4 th to 10 th Defendants) in the litigation. You were the 11 th Defendant. You have stated that you engaged the barrister as the principal and not as agent for any other person or entity. The 4 th to 10 th Defendants were also sued and were your clients in the litigation. You have provided a copy of a court ruling which names you as solicitor for the 4 th to 11 th Defendants. Legal expenses were incurred for the barrister’s services for the litigation Your barrister was registered for GST at the time the legal expenses were incurred. You have advised that “I had an agreement with [barrister] that I would not be personally liable for his fees as instructing solicitor to him in the litigation”. Payment was to be limited to any funds received from the liquidator of the association. You have advised that there was no formal written agreement with your barrister and this verbal agreement was recorded in an email but you no longer have a copy of this email. On the basis of a letter from you to the liquidator and a response, you were not entitled to receive any monies arising from the liquidation of the association. You, your barrister, the 4 th to 10 th Defendants and other parties to the litigation entered into a Deed of Settlement. One of the things agreed to under the Deed of Settlement was the application of funds arising from the liquidation of the association. You have provided to us an undated and unsigned copy of this Deed of Settlement but not an executed Deed of Settlement. You, your barrister and various other parties entered into a Deed (deed) on a particular date. The deed stated in part: 2. The 4 th -11 th Defendants covenant with each other and with [your barrister and another barrister] to forthwith lodge a proof of debt with the liquidators to the Association for repayment of all monies advanced by them to the Association. 3. The 4 th -11 th Defendants covenant with each other and with [your barrister and another barrister] that all monies to be received by them consequent upon lodging proofs of debt or otherwise pursuant to the proposed Deed of Settlement shall be paid to [you] to be held in trust by him and to be disbursed by him solely and irrevocably in accordance with the terms of this Deed. 4. The 4 th -11 th Defendants hereby covenant with [your barrister and another barrister] to pay each of them the sum of [$Y] in consideration of: (a) [another barrister] acting in the proceeding for the 1 st Defendant; (b) [your barrister] acting in the proceeding for the 4 th -11 th Defendants; and [your barrister and another barrister] covenant with the 1 st and 4 th -11 th Defendants to receive such sum, provided it is paid in full, in discharge of their fees for acting in the Proceeding. The liquidator paid $Z, to your barrister in accordance with the deed except that it was paid directly rather than to you to be held in trust for your barrister. You have provided a tax invoice and adjustment note (tax invoice) on behalf of your barrister which states that the total of legal expenses incurred was $Y, including GST, and an amount of $Z was paid which reduced the amount owing. An adjustment was then made reducing the price of the supply to $Z, including GST of $X, so that the resulting balance of the account was nil. You submitted an application for a private ruling asking if you are entitled to amount of $X in GST credits (also known as input tax credits) relating to payments made by third parties to your barrister for legal expenses. You received a partly favourable decision. You submitted an objection to the private ruling. The outcome of the objections process is that we are reconsidering your application for a private ruling due to a new material fact. This is that you were acting as solicitor for the 4 th to 10 th Defendants in the litigation. A check of the Register of Legal Practitioners & Law Practices of the Victorian Legal Services Board shows you listed as a legal practitioner currently.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● Section 9-15 | ● Section 11-5 | ● Section 11-20

Reasons for decision: Summary: You are not entitled to an input tax credit because you did not make a creditable acquisition. The barrister’s supply of services to you was not a creditable acquisition because you did not provide any consideration and you were not liable to provide any consideration. | Detailed Reasoning - Detailed reasoning: Section 11-20 of the GST Act states that you are entitled to the input tax credit for any creditable acquisition that you make. Section 11-5 of the GST Act states that you make a creditable acquisition if ● you acquire anything solely or partly for a creditable purpose; and ● the supply of the thing to you is a taxable supply; and ● you provide or are liable to provide consideration for the supply; and ● you are registered or required to be registered for GST. By engaging the services of the barrister as principal you became liable to provide consideration for the supply of the barrister’s services. By entering into the informal costs agreement with the barrister, you were no longer personally liable for the legal expenses incurred for the barrister’s services for the litigation. You did not provide any consideration and you were not liable to provide consideration as you had no entitlement to monies arising from the liquidation of the association. The 4 th to 10 th Defendants had a liability to provide consideration for the barrister’s fees. Entering into the Deed meant that the 4 th to 10 th Defendants had a liability to provide consideration for the barrister’s fees. The subsequent payment to the barrister of monies payable by the liquidator to the 4 th to 10 th Defendants provided consideration that discharged their liability not yours. Your acquisition of the barrister’s services was not a creditable acquisition because you do not satisfy paragraph 11-5(c) of the GST Act and, as such, you have no entitlement to an input tax credit under section 11-20 of the GST Act.