Private ruling: GST - mergers and acquisitions
Date of advice: 20 May 2025
Published: 28 July 2025
Ruling period: X July 20YY to X June 20YY
Date scheme commenced: DD May 20YY

Ruling: Q1: Do you make a creditable acquisition of services provided by the supplier under section 11-15 of the GST Act such that you are entitled to the input tax credits for the creditable acquisition that it makes? | A1: Yes. | Q2: If the answer is "No" to Question 1, do you make an acquisition of services provided by the supplier that can give rise to an entitlement to reduced input tax credits (RITCs) pursuant to Division 70 of the GST Act that is equal to 75% of the GST applicable on the acquisition of the services? | A2: Not applicable | Q3: Do you make a taxable supply to your shareholders under section 9-5 of the GST Act? | A3: Yes, you make a taxable supply to the shareholders who are associates. However, for the remaining shareholder who are not associates there is no taxable supply.

Relevant facts and circumstances: You are an Australian private company (hereafter referred to as 'You' or 'Company'). You carry on an enterprise of marketing products. You are registered for GST. On X December 20YY, 100% of the shares in the Company were sold by the shareholders. Prior to the share sale, you were owned by a few major shareholders. There were also a number of minority shareholders (collectively, the Shareholders). Some of the shareholders were 'associates' of the Company in accordance with section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). The remaining shareholders were not 'associates' pursuant to section 318 of the ITAA 1936. On X May 20YY, the supplier issued an engagement letter (Engagement Letter) to confirm their appointment as corporate advisor of the company, its related entities and its shareholders (together, 'the Client') The Engagement Letter defines 'proposed transaction' as the sale of the Company or the shareholders' interest in the company (Proposed Transaction). Pursuant to the Engagement Letter the supplier provided a number of services (collectively, the Services) regarding the implementation of Proposed Transaction. The Company and the supplier provided verbal updates to all of the Shareholders supported by copies of the Share Purchase Agreement. The Engagement Letter sets out the remuneration structure and the payment of a fee to the supplier. You are liable to pay a 'success fee' for the Services provided by the supplier under the Engagement Letter. A tax invoice was issued to you to pay the success fee for Services rendered by the supplier under the Engagement Letter. You paid the success fee. Up until completion of the transaction, the Company has not made any supplies that are input taxed. The Company has also not made any input taxed supplies since its shares were acquired.

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 9-15 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | 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

Reasons for decision: Summary: Your acquisition of services under the Engagement Letter are creditable acquisitions and you are entitled to claim input tax credits. | Detailed Reasoning - Detailed reasoning: Section 11-20 states that you are entitled to the input tax credit for any creditable acquisition that you make. Section 11-5 provides the requirements of a creditable acquisition and explains 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 a liable to provide consideration for the supply; and (d) you are registered or required to be registered for GST. Section 11-15 provides when something is acquired for a creditable purpose. The section states: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise. (2) However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be *input taxed; or (b) the acquisition is of a private or domestic nature. (3) .... (* denotes a term defined in section 195-1 of the GST Act) | Detailed Reasoning - Are your acquisitions made in the course or furtherance of carrying on its enterprise?: Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done in the form of a business, or in the form of an adventure or concern in the nature of trade. The definition of 'carrying on' an enterprise can be found in section 195-1: carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise. The issue of whether You are carrying on an enterprise is not in contention. We are satisfied that You are carrying on a business of marketing products. As such, the next issue to consider is whether the Services acquired by the Company, the consideration paid for those services being the 'success fee', meets section 11-15(1). Goods and Services Tax Ruling GSTR 2008/1 Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose? (GSTR 2008/1) provides at paragraph 64 that whether something is acquired in carrying on an enterprise requires a connection or link between the thing acquired and the enterprise. Paragraphs 69 and 70 of GSTR 2008/1 states: 69. 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. Although the subjective purpose of the entity making the acquisition is relevant, it is not determinative. 70. 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. Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies (GSTR 2006/3) provides guidance on when an acquisition or importation is made in 'carrying on your enterprise.' Paragraphs 51 and 52 of GSTR 2006/3 states: 51. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. The acquisition must be made in the course of the activities that constitute your enterprise. An acquisition is not made 'in carrying on your enterprise' if it is made for the purposes of that enterprise, but not if it is made for some other purpose. 52. The test for establishing whether you have made an acquisition in carrying on your enterprise is broader than the test for income tax deductibility. Under section 195-1, 'carrying on' is defined to include the commencement or termination of your enterprise. For example, usually the cost of a feasibility study incurred in commencing a business is not deductible for income tax purposes, while acquisitions for the same study conducted in the course of commencing an enterprise could be creditable acquisitions under the GST Act. The Services were acquired by You from the supplier, who were engaged by the Company to assist with the implementation of the Proposed Transaction. The Services extended to but were not limited to doing due diligence and research activities relating to the Proposed Transaction, which concerned the 'sale' of the Company by way of a share sale and purchase agreement by the Shareholders to the purchaser. Although, the Engagement Letter identifies that the supplier has been appointed as corporate adviser to the Client', which included your related entities and the Shareholders, the Company was invoiced and liable for payment of the Services. The Shareholders did not pay the supplier for any of the Services rendered pursuant to the Engagement Letter. You acquired the Services to ensure the best outcome for the continuation of your business and for your shareholders. Acquisitions made for such purposes can be made in the course of carrying on that business's enterprise, as the sale of a business ensures the continuation of the business's activities. On an objective assessment of the facts and circumstances of this case, it is accepted that your acquisitions under the Proposed Transaction, consideration for which is the 'success fee', are made in the course or furtherance of your enterprise pursuant to subsection 11-15(1). | Detailed Reasoning - Does your acquisition relate to making input taxed supplies?: In determining whether paragraph 11-15(2)(a) is satisfied, it must be established whether the relevant acquisitions relate to supplies that would be input taxed. The supplies in question are the sale of shares in the Company by the Shareholders. The sale of the shares will be a financial supply if it satisfies the requirements of section 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations). Financial supplies are input taxed as per section 40-5. Before considering if section 40-5.09 of the GST Regulations is applicable to these facts, it is necessary to first establish whether paragraph 11-15(2)(a) requires the 'supplies that would be input taxed' to onlybe made by the acquirer of the acquisition, or can the supplies be made by another entity. Paragraphs 101 to 106 of GSTR 2008/1 explain the requirements of paragraph 11-15(2)(a) in more detail: | Detailed Reasoning - Part B - Determining a connection between an acquisition and the making of supplies that would be input taxed: 101. In this section we explain the Commissioner's approach to determining whether an acquisition relates to the making of supplies that would be input taxed. If it is established that an acquisition is made in carrying on an enterprise, paragraph 11-15(2)(a) will preclude it being for a creditable purpose to the extent that it 'relates to' making supplies that would be input taxed. In this section of the Ruling, all of the examples assume that the acquisitions have been made in carrying on an enterprise. 102. Subject to paragraph 103 of this Ruling, if an entity does not make, has never made, and does not intend to make, supplies that would be input taxed, there is no need to consider whether paragraph 11-15(2)(a) applies. Instead, to establish whether an acquisition is for a creditable purpose, it is only necessary to ascertain whether the acquisition is made in carrying on the enterprise (see Part A at paragraph 54 of this Ruling). 103. If an entity makes, has made, or intends to make, input taxed supplies, it needs to consider whether paragraph 11-15(2)(a) applies to its acquisitions. Consideration of paragraph 11-15(2)(a) is also required if an entity acquires residential premises as defined in section 195-1 subject to an existing lease. Paragraph 11-15(2)(a) applies if acquisitions relate solely or partly to supplies that would be input taxed. 104. Unlike subsection 11-15(1), paragraph 11-15(2)(a) specifically focuses on the relationship between an acquisition and the making of supplies. The purpose of subsection 11-15(2) can be ascertained by its relationship with the other provisions of the GST Act. When viewed in the context of the adjustment provisions such as Division 129, it can be seen that the purpose of subsection 11-15(2) is to focus on the intended usage of an acquisition in so far as the acquisition relates to supplies that are to be made in the future. 105. If the acquisition relates to supplies that would be input taxed, paragraph 11-15(2)(a) precludes it from being for a creditable purpose. Division 129 then focuses on the actual usage of the acquisition and adjusts accordingly, depending on whether the actual usage relates to input taxed supplies. 106. Paragraph 11-15(2)(a) does not require tracing to a specific supply. Nevertheless, unlike subsection 11-15(1), it requires some form of connection to the supplies that the entity makes, made or intends to make. Consistent with the above discussion, paragraph 11-15(2)(a) requires the acquirer entity (in this case you) to be the entity that makes the supply that 'would be input taxed'. In this case the acquisition of Services was made by You in relation to the Proposed Transaction, which is the sale of the Company's shares held by the Shareholders and not the Company. Further. As the Company does not make input taxed supplies, paragraph 11-15(2)(a) does not apply. The acquisition is not of a private or domestic nature and as a result is not limited by paragraph 11-15(2)(b). | Detailed Reasoning - Conclusion: The Company's acquisition of Services from the supplier under the Engagement Letter satisfies the requirements of section 11-5 and therefore are creditable acquisitions to which you are entitled to claim input tax credits. | Detailed Reasoning - Question 2: If the answer is "No" to Question 1, do you make an acquisition of services provided by the supplier that can give rise to an entitlement to reduced input tax credits (RITCs) pursuant to Division 70 that is equal to 75% of the GST applicable on the acquisition of the services? | Detailed Reasoning - Detailed reasoning: Not applicable. | Detailed Reasoning - Question 3: Do you make a taxable supply to its shareholders under section 9-5 of the GST Act | Summary: You make a taxable supply to the shareholders who are associates pursuant to section 318 of the ITAA 1936 under section 9-5. | Detailed Reasoning - Detailed reasoning: Section 9-40 provides that goods and services tax (GST) is payable on taxable supplies. Section 9-5 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 the indirect tax zone; 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. | Detailed Reasoning - Do you make a supply to its shareholders?: The meaning of 'supply' is set out in section 9-10, which states: (1) A supply is any form of supply whatsoever. (2) Without limiting subsection (1), supply includes any of these: (a) a supply of goods; (b) a supply of services; (c) a provision of advice or information; (d) a grant, assignment or surrender or *real property; (e) a creation, grant, transfer, assignment or surrender of any right; (f) a *financial supply; (g) an entry into, or release from, an obligation; (i) to do anything; (ii) to refrain from an act; (iii) to tolerate an act or situation; (h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g). Subsection 9-10(2) does not limit subsection 9-10(1). Something that is not listed in subsection 9-10(2) but falls within subsection 9-10(1) will be a supply. Paragraphs 22 and 23 of GSTR 2006/9 outline 16 propositions which may be relevant to characterising and analysing supplies. The most pertinent of the propositions on these facts include: • Proposition 1: For every supply there is a supplier • Proposition 2: Generally, for every supply there is a recipient and an acquisition • Proposition 5: An entity will make a supply if it provides something of value to another entity • Proposition 6: 'Supply' usually, but not necessarily, requires something to be passed from one entity to another • Proposition 16: The total fact situation will determine the nature of a transaction, the entity that makes a supply and the recipient of the supply. Paragraphs 222 and 223 of GSTR 2006/9 explains the meaning of Proposition 16 in the following terms: 222. Where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies 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. 223. Australian courts have held that an arrangement between the parties will be characterised not merely by the description the parties give to the arrangement, but by looking at the transactions entered into and the circumstances in which the transactions are made. This was made clear by McTiernan J in Radaich v Smith (1959) 101 CLR 209 at 214: ... the parties cannot by the mere words of their contract turn it into something else. Their relationship is determined by the law and not by the label they choose to put on it. and by Gray J in Re Porter; Re Transport Workers Union of Australia (1989) 34 IR 179 at 184: A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it. ...the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck. Whether there is a supply by the Company to its Shareholders is determined by the relevant facts and circumstances of the arrangement. In accordance with our response to Question 1, we accept that the Services supplied by the supplier under the Engagement Letter were acquired by You to benefit the operation and continuation of your business and that the Shareholders have benefited from the Company's acquisition of these services Although there is no express agreement for you to on-supply the information you received from the supplier, the absence of an express agreement does not prevent a supply being made where the circumstances show something of value has been passed from one entity to another. The concept of supply is far broader than an entry into an obligation to provide something (whether that arrangement is set out in writing or not). Proposition 5 of GSTR 2006/9 makes it clear that if an entity merely provides something of 'value' to another entity, then that is sufficient for there to be a supply for the purposes of section 9-10. You provided verbal updates and information to the Shareholders supported by copies of the Share Purchase Agreement. The Services acquired were procured by you and necessary to the supply by the Company to its Shareholders, which is something of value for the parties involved. Based on the above analysis, we consider that You have made a supply to the Shareholders, within the meaning of section 9-10, by passing on the benefit of the services You received from the supplier in relation to the Proposed Transaction to the Shareholders to enable the Shareholders to make an informed decision about whether they should proceed with the Proposed Transaction. | Detailed Reasoning - Is the supply made to the shareholders for consideration under paragraph 9-5(a)?: Section 9-15 defines consideration for a supply to include any payment or act or forbearance, in connection with, in response to or for the inducement for a supply of anything. In this case, no consideration was provided by the shareholders to you in respect of your supplies. However, Division 72 provides a special rule such that paragraph 9-5(a) may be met. Relevantly, subdivision 72-A refers to supplies without consideration. Subsections 72-5(1) and (2) state: (1) The fact that a supply to your *associate is without *consideration, does not stop the supply being a *taxable supply if: (a) your associate is not *registered or *required to be registered; or (b) your associate acquires the thing supplied otherwise than solely for a *creditable purpose. (2) This section has effect despite paragraphs 9-5(a) and 84-5(a)(a) (which would otherwise require a taxable supply to be for consideration). Where supplies are made to an associate for no consideration or inadequate consideration, the special rules in Division 72 may bring such supplies within the GST system. The application of Division 72 is discussed in Goods and Services Tax Ruling GSTR 2003/9 Goods and services tax: financial acquisitions threshold (GSTR 2003/9). Paragraph 181 of GSTR 2003/9 states: 181. Under the special rules in Division 72 supplies and acquisitions between associates for no consideration or for inadequate consideration are brought into the GST system where the associated recipient does not make the acquisition solely for a creditable purpose. The associate provisions under the GST Act ensure that a supply to an associate that would be a sale (or some other particular kind of supply) if made without consideration will be taken to be a supply for consideration. Some of the shareholders are associates of the Company under section 318 of the ITAA 1936. The Company is making supplies to its shareholders. As you have shareholders that are associates and they are not making the acquisition for a creditable purpose, the supply meets the requirements of section 72-5. Consequently, paragraph 9-5(a) is satisfied. However, for the remaining shareholders that are not associates, section 72-5 does not apply, and paragraph 9-5(a) is not satisfied. | Detailed Reasoning - The other requirements of section 9-5: The other requirements of section 9-5 are satisfied. That is, the supply made by the Company to its shareholders is made in the course or furtherance of its enterprise, the supply is connected with Australia and the Company is registered for GST. | Detailed Reasoning - Conclusion: For the shareholders who are associates the requirements of section 9-5 are met and there is a taxable supply. However, for the remaining shareholders as paragraph 9-5(a) is not satisfied there is no taxable supply.

Reasons for decision: All references are to the A New Tax System (Goods and Services Tax) Act 1999 unless specifically stated. | Do you make a creditable acquisition of services provided by the supplier under section 11-5 such that you are entitled to the input tax credits for the creditable acquisition that you make?