Private ruling: GST and settlement payments
Date of advice: 27 July 2020
Published: August 2020
Ruling period: 1 July 2020 till Quarter Ending 31 December 2022
Date scheme commenced: 1 July 2020

Ruling: Q1: Is the payment (Settlement Sum) received by the Trust from Entity A under the terms of the Deed of Settlement and Release consideration for a taxable supply? | A1: No. For an entity to make a taxable supply there must be a 'supply for consideration'. GSTR 2001/4: Goods and Services Tax: GST consequences of court orders and out-of-court settlement s (GSTR 2001/4) considers the GST consequences resulting from out of court settlement. Relevantly this ruling explains where and if, a sufficient nexus exists between a payment and a supply. The view outlined in paragraphs 100 to 109 of GSTR 2001/4 explains that in determining whether there is a nexus between a payment and a supply requires consideration of whether the payment has a connection to any previous supply, current supply or discontinuance supply. In this case the Commissioner considers the payment of the Settlement Sum received by the Trust from Entity A under the terms of the Deed of Settlement and Release is not consideration for a supply. As the payment is not consideration for a supply the payment of the Settlement Sum is not subject to GST.

Relevant facts and circumstances: The Trust entered into a lease agreement with Entity B (the Lease Agreement). Under the terms of the Lease Agreement the Lessor agreed to lease to the Trust (as Lessee) a property (the Premises). The Lessor subsequently assigned the Lease Agreement to Entity A. Entity A served notice on the Trust terminating the Lease Agreement pursuant a clause in the Lease Agreement. The Trust did not want to vacate the property and commenced action Entity, seeking amongst other things, an injunction to prevent Entity A from terminating the Lease Agreement. Without any admission of liability, both parties have negotiated a settlement agreement. A copy of the Deed and Settlement and Release has been provided for the purposes of this ruling request. Pursuant to the terms of the Deed of Settlement and Release, Entity A will make a payment of the Settlement Sum to the Trust.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5 | A New Tax System (Goods and Services Tax) Act 1999 9-5(a)