Private ruling: GST supplies and acquisitions
Published: January 2014

Ruling: Q1: Will the transfer of the assets, rights and liabilities by entity A to entity B during the course of the merger constitute taxable supplies for GST purposes? | A1: No | Q2: Will entity B be liable to pay GST on taxable supplies made by entity A that were not attributable to tax periods applying to entity A prior to the merger? | A2: Yes | Q3: Will entity B be entitled to claim input tax credits (ITCs) on creditable acquisitions made by entity A that were not attributable to tax periods applying to entity A prior to the merger? | A3: Yes | Q4: Will entity B be entitled to make adjustments, in accordance with Division 19 of the A New Tax System (Goods and Services Tax)Act 1999 (GST Act) GST Act, in relation to adjustment events arising after the merger in respect of supplies and acquisitions made by entity A? | A4: Yes. Entity B will be entitled to make adjustments in accordance with Division 19 in respect of supplies and acquisitions made by entity A to the extent that the adjustment was not attributable to a tax period applying to entity A prior to the merger. | Q5: Will entity B be entitled to make adjustments for unrecoverable debts in accordance with Division 21 of the GST Act, in relation to trade debtors transferred from entity A to entity B as part of the merger? | A5: Yes. Entity B will be entitled to make adjustments in accordance with Division 21 in respect of supplies and acquisitions made by entity A to the extent that the adjustment was not attributable to a tax period applying to entity A prior to the merger. | Q6: Will entity B be entitled to make adjustments under Division 129 of the GST Act in respect of acquisitions or importations originally made by entity A? | A6: Yes. Entity B will be entitled to make adjustments under Division 129 in respect of supplies and acquisitions made by entity A to the extent that the adjustment was not attributable to a tax period applying to entity A prior to the merger.

Relevant facts and circumstances: Entity A and entity B are body corporates established under state legislation. Both entities are registered for GST and account for GST on a non cash basis. A merger occurred and involved the amalgamation of entity A and entity B. After the merger, entity A will cease to exist. At the merger time, the assets, rights and liabilities of entity A will be vested in entity B.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 90

Reasons for decision: Summary: Under section 9-5 of the GST Act 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 for GST. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. Paragraph 9-5(a) of the GST Act requires that a supply is made for consideration. In order for a supply to be a taxable supply it must be a supply within the meaning of section 9-10 of the GST Act. The transfer of the assets, rights and liabilities of entity A to entity B does not necessarily result in the making of a supply for the purposes of the GST Act. However, if a supply does arise and consideration is received for that supply, Division 90 of the GST Act may apply to prevent that supply from being a taxable supply for GST purposes. Division 90 of the GST Act contains special rules on company amalgamations. This Division ensures proper account is taken of liabilities and entitlements under the GST system when companies amalgamate. The term amalgamation is defined in section 195-1 of the GST Act as: amalgamation means any procedure, under an *Australian law or a foreign law, by which 2 or more *companies amalgamate and continue as one company. In determining whether the merging of entity A and entity B is an amalgamation for the purposes of Division 90 of the GST Act, all of the elements in the definition must be satisfied. The term procedure is not defined in the GST Act. Therefore the ordinary meaning of the word is to be applied. The Macquarie Dictionary defines procedure as: 1. the act or manner of proceeding in any action or process; conduct. 2. a particular course or mode of action. 3. mode of conducting legal, parliamentary, or other business, especially litigation and judicial proceedings. We view the merger of entity A and entity B as a particular course of action and it is therefore a procedure. Australian law is defined in section 195-1 of the GST Act as having the meaning given by section 995-1 of the Income Tax Assessment Act 1997 , which states: Australian law means a Commonwealth law, a State law or a Territory law. The relevant merger is governed by the state legislation. Therefore the said procedure will be under an Australian law. 'Company' is defined in section 195-1 of the GST Act to include a body corporate. As entity A and entity B are bodies corporate, they both satisfy the definition of a company. The term amalgamate is not defined in the GST Act and therefore the term should be interpreted using its ordinary meaning. The Macquarie Dictionary defines the term as follows: 1. to mix so as to make a combination; combine; to amalgamate two companies. Having considered the terms of the merger, we view that in this case it is a combination, joining, merging or union of entity A and entity B. The definition of amalgamation in the GST Act also requires that the amalgamated companies continue as one company. Based on the presented facts, entity A will cease to exist and will be integrated into entity B. In conclusion, the merger of entity A and entity B will occur through a procedure under an Australian State law whereby two existing companies will be merged and will continue as one company. Accordingly, this merger is an 'amalgamation' under section 195-1 of the GST Act. Section 90-5 of the GST Act sets out the circumstances when a supply, made in the course of a company amalgamation, is not a taxable supply. Under subsection 90-5(1) of the GST Act, a supply made by an 'amalgamating company' to an 'amalgamated company', in the course of amalgamation, is not a taxable supply if the amalgamated company is registered or required to be registered for GST immediately after the amalgamation. In the context of an amalgamation, section 195-1 of the GST Act defines the term 'amalgamating company' to mean any company that amalgamates with one or more other companies under the amalgamation. We consider that entity A and entity B are amalgamating companies. Under section 195-1 of the GST Act, the term 'amalgamated company' is also defined in the context of an amalgamation to mean the single company that results from and continues after the amalgamation. This single company may be one of the amalgamating companies or it may be a new company. In this case, the 'amalgamated company' is entity B, as it is the single company that will result from this amalgamation. Therefore, a supply by entity A, an amalgamating company, to entity B, the amalgamated company, in the course of the amalgamation is not a taxable supply if entity B is registered or required to be registered immediately after the amalgamation. In this case, entity B is registered for GST and will remain registered for GST after the amalgamation. Therefore, entity A will not make a taxable supply pursuant to section 90-5 of the GST Act when it makes a supply of its assets, rights and liabilities to entity B in the course of the amalgamation. Section 90-20 of the GST Act states: (1) An *amalgamated company must pay the GST payable on a *taxable supply if: (a) apart from the *amalgamation, the GST would have been payable by any of the *amalgamating companies; and (b) the GST was not attributable, before the amalgamation, to a tax period applying to the amalgamating company. (2) This section has effect despite section 9-40 (which is about liability for GST). Section 90-20 of the GST Act requires the amalgamated company to take account of the amalgamating company's GST liabilities that were not attributable to a tax period prior to the amalgamation. Under section 90-20 of the GST Act, entity B (the amalgamated company) will account for GST on taxable supplies made by entity A (an amalgamating company) that are attributable to tax periods after the merger time. Entity B will not be liable for GST on taxable supplies that are covered by section 90-5 of the GST Act. Section 90-25 of the GST Act states: (1) An *amalgamated company is entitled to the input tax credit for a *creditable acquisition if: (a) apart from the *amalgamation, any of the *amalgamating companies would have been entitled to the input tax credit; and (b) the input tax credit was not attributable, before the amalgamation, to a tax period applying to the amalgamating company. (2) This section has effect despite section 11-20 (which is about who is entitled to input tax credits). Under section 90-25 of the GST Act, entity B, (the amalgamated company) will be entitled to input tax credits on creditable acquisitions made by entity A (the amalgamating company) that are attributable to tax periods after the merger time. | Detailed Reasoning - Questions 4, 5 and 6: Section 90-30 of the GST Act states: (1) An *amalgamated company has an *adjustment if: (a) apart from the *amalgamation, any of the *amalgamating companies would have had the adjustment; and (b) the adjustment was not attributable, before the amalgamation, to a tax period applying to the amalgamating company. (2) This section has effect despite section 17-10 (which is about the effect of adjustments on net amounts). The effect of section 90-30 is that entity B (the amalgamated company) will account for adjustments in relation to supplies, acquisitions and importations made by entity A (the amalgamating company) for adjustments that are attributable to tax periods which occur after the merger date. Adjustment is defined in section 195-1 of the GST Act to include an increasing or a decreasing adjustment. The definitions of increasing and decreasing adjustment in section 195-1 of the GST Act set out in a table the increasing and decreasing adjustments which arise under certain provisions in the GST law. The listed provisions in the definition of a decreasing adjustment includes an amount arising under sections 19-55, 19-85, 21-5, 21-20 and 129-40 of the GST Act. The listed provisions in the definition of increasing adjustment includes an amount arising under sections 19-50, 19-80,21-10, 21-15 and 129-40 of the GST Act. This means that entity B (the amalgamated company) is entitled to make adjustments for increasing or decreasing adjustments under the listed adjustment provisions for Divisions 19, 21 and 129 of the GST Act) for adjustments that entity A(the amalgamating company) would have had, provided that the adjustment is attributable to a tax period after the merger date.

Reasons for decision: All terms with an asterisk* denote terms that are defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).