Private ruling: GST and the apportionment methodology for a mixed supply
Date of advice: 15 March 2019
Published: May 2019

Ruling: Q1: Will the proposed methodology, for the price apportionment, agreed by the parties for the sale of a mixed supply be a fair and reasonable method of apportionment of the consideration? | A1: No.

Relevant facts and circumstances: You made a mixed supply of an enterprise that was part GST-free and part taxable

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-80

Reasons for decision: Summary: In this case, the sale made to you was a mixed supply of separately identifiable part (GST-free part of the identified enterprise and taxable part of land). To work out the value of the taxable part of a mixed supply, an entity must identify the parts of the supply and apportion the consideration to each of the parts. The value of the taxable part is 10/11th of the consideration for the taxable part, and the GST payable is equivalent to 1/11th of that consideration. The A New Tax System (Goods and Services Tax) Act 1999 (GST Act) specifies the valuation method to calculate the taxable value of a mixed supply. Subsection 9-80(2) of the GST Act has been reproduced below: (2) The value of the actual supply, for the purposes of subsection (1), is as follows: *Price of the actual supply x 10 10 + Taxable proportion where: taxable proportion is the proportion of the value of the actual supply that represents the value of the * taxable supply (expressed as a number between 0 and 1). The value of the taxable part is calculated as the proportion of the value of the total supply that the taxable part represents (i.e. the taxable proportion). | Detailed Reasoning - Example (from para 4.24 of the Supplementary Explanatory Memorandum): Andrea makes a supply for $104. The taxable proportion represents 40% of the total value of the supply. The value of the total supply is worked out as: $104 × 10 10 + 0.40 = $100 The value of the taxable part is $100 × 0.4 = $40. The Commissioner considers that any reasonable method may be used to apportion the consideration for a mixed supply but the method used must be supportable in the particular circumstances. Goods and Services Tax Ruling GSTR 2001/8 provides guidance on how to apportion the consideration for a supply that includes both taxable and non-taxable parts. Paragraph 12 of GSTR 2001/8 explains that where an entity makes a supply that is a combination of separately identifiable taxable and non-taxable parts, it needs to identify the taxable part of the supply. Then it can apportion the consideration for the supply and work out the GST payable on the taxable part of the supply. In particular, GSTR 2001/8 explains that where there is no legislative provision specifying the basis for apportionment, you may use any reasonable method (direct or indirect) to apportion the consideration for a mixed supply. However, the apportionment must be fair and reasonable in the circumstances of the case and not just the method that gives the best result. Goods and Services Tax Ruling GSTR 2002/5 explains when the 'supply of a going concern' is GST-free. Paragraph 169 of GSTR 2002/5 provides that if part of a supply is under the relevant arrangement and part is not, section 9-80 provides a method of apportionment of the GST-free part and the taxable part. With a mixed supply, each separable supply must be treated, for GST purposes, as an independent supply and the single consideration apportioned between the various supplies. If a supply is partly taxable and partly GST-free, or partly taxable and partly input taxed, the value of the taxable supply is worked out on a proportional value basis. Subsection 9-80 (1) of the GST Act states that "the value of the part of the actual supply that is a taxable supply is the proportion of the value of the actual supply that the taxable supply represents". Please note that ‘value’ is determined by reference to the consideration provided. This means that in this case to determine the value of the taxable part it is necessary to calculate the taxable proportion, that is, the proportion of the value of the actual supply that the taxable part represents. After carefully considering the circumstances and facts of this case we do not believe that the use of the current freehold value of the land as proposed represents the taxable proportion of the actual supply. Therefore, we consider that this is not a reasonable apportionment.