Private ruling: GST and apportionment of the consideration for a mixed supply
Published: December 2013

Ruling: Q1: Is the apportionment methodology set out below a fair and reasonable method to apportion the milestone payments between taxable and non-taxable components of the supply so as to allow entity A (A) to correctly account for GST? | A1: Yes.

Relevant facts and circumstances: A is registered for GST. A is a non-resident entity based overseas. A entered into a contract (Contract) with B for construction of a specified plant. The contract price is approximately $X. The contract price for the construction of the plant is to be paid in a number of instalments when certain milestones are met.

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 29-5 | A New Tax System (Goods and Services Tax) Act 1999 section 96-5 | A New Tax System (Goods and Services Tax) Act 1999 section 96-10 | A New Tax System (Goods and Services Tax) Act 1999 section 156-5

Reasons for decision: Summary: The apportionment methodology proposed by A is considered to be a fair and reasonable method to apportion the milestone payments between taxable and non-taxable components of the supply. | Detailed Reasoning - Detailed reasoning: The previous ruling provided that the offshore services supplied by A are not connected with Australia. The previous ruling accepted that A's overall supply under the Contract is within the ambit of subsection 96-5(1) of the GST Act as some supplies by A are connected with Australia and other supplies are not. Therefore, subsection 96-5(2) of the GST Act would apply to treat the supplies that are connected with Australia as if they were a separate supply that is connected with Australia and subject to GST. Subsection 96-5(3) of the GST Act would treat the supplies that are not connected with Australia as if they were a separate supply that is not connected with Australia. Section 96-10 of the GST Act provides how to work out the value of the part of the supply that is connected with Australia. The value of the part of the supply that is connected with Australia is the proportion of the whole supply that is connected with Australia multiplied by the value of the whole supply. Section 96-10 of the GST Act states: | Detailed Reasoning - 96-10 The value of the taxable components of supplies that are only partly connected with Australia: (1) If a supply (the actual supply ): (a) is, because of section 96-5, to be treated as separate supplies; and (b) the part of the actual supply that is *connected with Australia is a *taxable supply, or is partly a *taxable supply and partly a supply that is *GST-free or *input taxed; the value of that part of the actual supply is worked out as follows: (c) work out the value of the actual supply, under section 9-75, as if it were solely a taxable supply; and (d) work out the proportion of that value of the actual supply that the taxable supply represents; and (e) multiply that value by the proportion in paragraph (d). (2) If that part of the actual supply is partly a *taxable supply and partly a supply that is *GST-free or *input taxed, this section does not affect the operation of section 9-80 in working out the value of so much of that part of the actual supply as is a taxable supply. (3) This section has effect despite section 9-75 (which is about the value of taxable supplies). To work out the proportion of the value of the actual supply that the taxable supply represents a conclusion as to the value of the taxable supply has to be made. Goods and Services Tax Ruling GSTR 2001/8 (GSTR 2001/8) is about apportioning the consideration for a supply that includes taxable and non-taxable parts. GSTR 2001/8 provides that the value of the taxable part of the supply has to be determined by having regard to the facts and circumstances and taking a particular commonsense approach. Paragraphs 92 to 95 of GSTR 2001/8 state: | Detailed Reasoning - Reasonable methods of apportionment: 92. Where, as in the case of supplies covered by section 9-75, there is no legislative provision specifying a basis for apportionment, you may use any reasonable method to apportion consideration to the separately identifiable taxable part of a mixed supply. However, the apportionment must be supportable by the facts in the particular circumstances and be undertaken as a matter of practical commonsense. 93. What is a reasonable method of apportioning the consideration for a mixed supply depends on the circumstances of each case. In some cases, there will be only one reasonable method you may use. 94. Depending on your circumstances, you may use a direct or indirect method when apportioning the consideration for a mixed supply. 95. The method you choose should be based on a consideration of all the circumstances and not because it gives you a particular result. … We consider that the apportionment method proposed by A to determine the price of the taxable and non-taxable part of each milestone payment is fair and reasonable.

Previous ruling request: A applied for a private ruling on a specified date. We issued a private ruling to A on a specified date (previous ruling) in which we ruled that: | · Certain supplies (offshore services) supplied by A are not connected with Australia. | · Certain supplies (onshore services) supplied by A are connected with Australia. | · Division 156 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to the milestone progress payments that relate to onshore supplies. | · As the elements of section 156-5 of the GST Act are satisfied, the GST payable is attributable in accordance with section 29-5 of the GST Act as if each progressive component of the supply was a separate supply. Further the ruling stated that each milestone payment could reflect payment for both onshore and offshore supplies. | · GST is applicable to the milestone payments to the extent that the payments relate to onshore supplies. GST is not applicable to the milestone payments to the extent that the payments relate to offshore supplies. | · The Contract is within the ambit of subsection 96-5(1) of the GST Act as some supplies by A are connected with Australia and other supplies are not. Therefore, subsection 96-5(2) of the GST Act applies to treat the supplies that are connected with Australia as if they were a separate supply that is connected with Australia and subject to GST. Subsection 96-5(3) of the GST Act would treat the supplies that are not connected with Australia as if they were a separate supply that is not connected with Australia. | Current ruling request: A has provided details of an apportionment methodology to apportion the GST across each milestone payment.