Private ruling: GST and mergers and acquisitions
Date of advice: 18 July 2022
Published: October 2022
Ruling period: 18 July 20XX to 18 July 20XX

Ruling: A1: Yes. | Q1: Are you making a supply to the shareholders under Division 72 of the of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A2: No. Based on the information provided you are not making a supply to the shareholders under Division 72 of the of the GST Act.

Relevant facts and circumstances: You are a company registered for the goods and services tax (GST). A third party proposed acquiring all the shares in the company. The company sought corporate, legal and tax advice to effect the Transaction. You advised that the company's overall enterprise consists of taxable and GST-free supplies and it has not breached the financial acquisitions threshold (FAT).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 72 | A New Tax System (Goods and Services Tax) Regulations 2019 Subsection 40-5.09(3)

Reasons for decision: Summary: In this ruling: | Detailed Reasoning - What is a creditable acquisition?: Section 11-5 provides 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, for GST. To claim the input tax credits for the acquisition of the Advisor Costs and Tax Advisory Costs section 11-5 needs to be satisfied. In this case, the company made acquisitions in respect of the Advisor Costs and Tax Advisory Costs. The Advisor Costs and Tax Advisory Costs were taxable supplies to the company. The Company is registered for GST and is liable to provide payment for the acquisitions. Therefore, paragraphs (b), (c) and (d) of section 11-5 are met. What remains to be determined is whether paragraph (a) of section 11-5 is also satisfied. The meaning of 'creditable purpose' is defined in section 11-15, which provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or is of a private or domestic nature. | Detailed Reasoning - Are the acquisitions made in carrying on your enterprise?: Goods and Services Tax Ruling GSTR 2008/1: when do you acquire anything or import goods solely or partly for a creditable purpose (GSTR 2008/1) provides in paragraph 64 that whether something is acquired in carrying on an enterprise requires a connection or link between the thing acquired and the enterprise. At paragraph 69 in relation to the connection between the thing acquired and the enterprise GSTR 2008/1 states: The Commissioner considers that in the GST context it is necessary to make an objective assessment as to whether there is a connection between the thing acquired and the enterprise, based on all the facts and circumstances. Paragraph 70 of GSTR 2008/1 provides some of the factors relevant to determining whether an acquisition is made in carrying on an enterprise and states: Whether an acquisition is acquired in carrying on an enterprise is a question of fact and degree, making it impractical to provide an exhaustive list of all the factors that may be relevant to determining whether an acquisition is made in carrying on an enterprise. However, some factors that would suggest that an acquisition is made in carrying on an enterprise include that: • the acquisition is incidental or relevant to the commencement, continuance or termination of the enterprise; • the thing acquired is used by the enterprise in making supplies; • the acquisition secures a real benefit or advantage for the commencement, continuance or termination of the enterprise; • the acquisition is one which an ordinary business person in the position of the recipient would be likely to make for the enterprise; • the acquisition does not meet the personal needs of individuals such as partners or directors; • the acquisition helps to protect or preserve the enterprise entity, structure or organisation; and • the acquisition is made by the entity in accordance with, or to satisfy, a statutory requirement imposed on the enterprise. You maintain that the Advisor Costs and Tax Advisory Costs incurred by the company from the merger with the third party are in the course or furtherance of carrying on its enterprise. | Detailed Reasoning - Do the acquisitions relate to making supplies that would be input taxed?: Next in determining whether paragraph (a) of section 11-5 is satisfied is establishing whether the relevant acquisitions relate to supplies that would be input taxed. In this case those supplies are the sale of shares in the company by the shareholders to the third party. | Detailed Reasoning - What is a financial supply?: Section 40-5 provides that a financial supply is input taxed. Financial supply has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations). The provision, acquisition or disposal of an interest in shares is a financial supply under item 10 in the table in subsection 40-5.09(3) of the GST Regulations. Section 40-5.06 of the GST Regulations provides that an entity is the financial supply provider of an interest if: • the interest was the entity's property immediately before the supply; • the entity created the interest when making the supply; or • the entity acquires the interest supplied (referred to as an acquisition-supply). You contend that in this Transaction, the shareholders of the company would be the financial supply providers as the shareholders were the entities that held the interests in the shares immediately before the disposal of those interests to the third party. Accordingly, the sale of shares in the company by the shareholders to the third party should not be considered as input taxed supplies made by the company itself, but rather, input taxed supplies made by the shareholders. Therefore, the acquisitions of Advisor Costs and Tax Advisory Costs by the company should not be considered as related to any input taxed supplies but are related to the overall operation of company's enterprise. The Commissioner confirms that sale of the shares to the third party were made by the shareholders and are not considered to be input taxed supplies made by the company. | Detailed Reasoning - Proposed restructure: Prior to the Transaction, the company and the third party explored the potential restructure of a company subsidiary. However, this did not proceed following commercial discussions with the third party and instead, the third party acquired the shares in the subsidiary directly. You advise that while the proposed restructure did not eventuate, given that the costs incurred are intended for a potential input taxed financial acquisition-supply, the input tax credits on such costs would not be allowed under paragraph 11-15(2)(a). Subsection 11-15(4) provides that, for the purposes of paragraph 11-15(2)(a), an acquisition that relates to making a financial supply is not treated as one that relates to making a supply that would be input taxed if the entity does not exceed the FAT. The company has confirmed that the FAT has not been reached and on that basis these costs should also be treated as general enterprise costs. As the company has advised that it has not exceeded the FAT, the company is entitled to full input tax credits for the Advisor costs and Tax Advisory costs related to the potential restructure of the subsidiary. The acquisitions made from the Advisor Costs and Tax Advisory Costs were not acquired for a private purpose or in connection with the entity making supplies that would be input taxed (apart from costs related to the potential restructure of the subsidiary). Therefore, the acquisitions are for a creditable purpose and the requirements section 11-5 are satisfied. | Detailed Reasoning - Division 72: Division 72 ensures that supplies and acquisitions from 'associates' without consideration are brought within the GST system. Division 72 also ensures that supplies made for inadequate consideration are valued at their proper value for GST purposes. Based on the information provided the Commissioner considers the acquisitions of Advisor Costs and Tax Advisory Costs are enterprise costs of the company and there is no supply by the company to the shareholders. Therefore, Division 72 does not apply in this case. | Detailed Reasoning - In summary: The sale of the shares in the company by the shareholders was a separate supply made by the shareholders and not a supply by the company. The acquisitions relating to the Advisor costs and Tax Advisory costs are an enterprise cost and the company is entitled to full input tax credits in relation to these acquisitions.

Subject: GST and mergers and acquisitions: Are you entitled to claim full input tax credits on the acquisitions comprising the Advisor Costs and Tax Advisory Costs? | unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | all terms marked by an *asterisk are defined terms in the GST Act.