Private ruling: GST and supplies and acquisitions
Published: June 2012

Ruling: Q1: Does the supply of the X% interest in the Property by entity A to entity B satisfy the requirements of Subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, provided the interest in the Property is supplied as part of a single arrangement which includes the supply of an interest in the proposed joint venture (the Joint Venture). | Q2: Is the granting of the Option by entity A to entity B to purchase X% interest in the Property GST-free under paragraph 9-30(1)(b) of the GST Act? | A2: Yes, the granting of the Option by entity A to entity B to purchase X% interest in the Property and the Joint Venture under a single arrangement is GST-free. | Q3: Where the Option to purchase the interest in the Property is exercised by entity B, will the payments intended to be consideration for the grant of the Option under the Agreement constitute consideration for the granting of the Option? | A3: Yes. | Q4: Where the Option to purchase the interest in the Property is exercised by entity B, will the consideration for the supply of the X% interest in the Property include the Option Exercise Fee? | A4: Yes. | Q5: Is entity A's supply of Management services a taxable supply? | A5: Yes. | Q6: Is entity A's supply of Specified Services a taxable supply? | A6: Yes. | Q7: In the event that entity B does not exercise the Option, will the Option continue to be GST-free as a supply to which paragraph 9-30(1)(b) of the GST Act applies? | A7: Yes. | Q8: In the event that entity B does not exercise the Option, does a subsequent adjustment event arise in respect of the Option that requires GST to be remitted by entity A? | A8: No. | Q9: In the event that entity B does not exercise the Option, will any payment of up to the Specified Sum in relation to the required Specified Services under the Agreement be consideration for a taxable supply? | A9: Yes. | Q10: Will the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Total Consideration Not Known) Determination (No. 1) 2000 apply to limit the attribution of GST in any period to the greater of the amount of any invoices issued or the consideration received in that period, for consideration received in connection with both the supply of the Option by entity A and the transfer of the X% interest in the Property by entity A where the Option is exercised? | A10: No.

Relevant facts and circumstances: Entity A and entity B are registered for GST. On a specified date, entity A and entity B entered into an agreement (the Agreement) with terms scheduled to commence on a specified date. Under the Agreement, entity A granted entity B the sole, exclusive and irrevocable right and option (the Option) to: (a) an undivided X% interest in entity A's property (the Property), as defined in the Agreement, and (b) establish the Joint Venture with entity A by entering into the Joint Venture Agreement, and participate in such Joint Venture in accordance with the Joint Venture Agreement. To maintain the Option, and to be entitled to exercise the Option, the Agreement requires entity B to make certain payments to entity A as the Manager of the Project. These include: · payments intended to be consideration for the grant of the Option · payments for Project Expenditures which entity A would incur as the Manager until the Joint Venture Agreement is entered into, and · payment of the Management Fee to entity A for managing the Project. In the event that entity B elects not to exercise (withdraw from) the Option, the Agreement requires entity B to pay entity A, a specified sum (the Specified Sum), less the amount already paid in respect of the Project Expenditures up to the date of the withdrawal. The Agreement contemplates that the payment received by entity A will be consideration for a taxable supply made by entity A. The Agreement provides that entity B may, at any time from the commencement of the Option period decide not to exercise the Option and to withdraw from the Agreement. In this situation entity B would be released from all of its obligations under the Agreement. Upon withdrawal, entity B has to pay to entity A the Specified Sum less the aggregate amount of monies paid by entity B in respect of the Project Expenditures up to the date of the withdrawal. The Agreement provides that entity B can exercise the Option when it has contributed an amount in aggregate equal the Specified Sum in respect of the Project Expenditures to the Manager and has paid the Management Fee in accordance with this Agreement (Option Condition). The Agreement provides that as soon as reasonably practicable, entity A must notify entity B that the Option Condition has been satisfied. Under the Agreement, entity A is required during the option period and until the Joint Venture commences to: · keep the Property in good standing and satisfy all obligations and pay all fees, rent, rates and other similar charges · perform its obligations under or relating to the fulfilment of any contract which relates to the Agreement, the Property and the Project · conduct Specified Activities in accordance with its powers and duties in accordance with the Agreement · employ best efforts to preserve all the records pertaining to the Specified Activities, the Project Expenditures and all other activities undertaken in accordance with the Agreement · keep the Property free and clear of any encumbrance and not sell, assign or otherwise deal with or dispose of the whole or any part of its interest in the Property except where permitted under the Agreement · entity A acknowledges and agrees that entity B is entitled to lodge a caveat in respect of the Property during the Option Period · entity A agrees to make reasonable efforts to ensure that the structure of its business organisation, to the extent that the structure of entity A's business organisation relates to the Specified Activities undertaken pursuant to the Agreement, at the JV Commencement Date is similar in all material respects to what it is on the date of entry into the Agreement. Until entity B exercises the Option and certain approvals and regulatory conditions are complied with, the Agreement provides in relation to the relevant Property, that: All Property from the Commencement Date until the Joint Venture Conditions Precedent have been satisfied will be owned by entity A. Entity A must ensure that, from the Commencement Date until the date on which all the Joint Venture Conditions Precedent are satisfied all the Property is available for the purpose of Specified Activities and other activities undertaken in accordance or in connection with the Agreement. Each party to the Agreement must make available to the other parties as reasonably required by a party all the relevant information held by it or in which it has a beneficial interest relating to the Property as at the Commencement Date. Effective from the Commencement Date, each party shall be entitled to use the Option Period Intellectual Property. The Agreement provides that after the Commencement Date, entity A, and entity B shall establish and maintain a strategic committee. The role of the Strategic Committee is to monitor, during the Option Period, the progress of Specified Activities performed by entity A as the Manager on the Project and take certain decisions in accordance with the Agreement. At any meeting of the strategic Committee, entity B's members have in aggregate X% of the voting right. Pursuant to the Agreement, during the Option Period, entity A has to regularly provide certain reports and financial statements to entity B, including monthly financial statements in respect of the Project Expenditures incurred by entity A as the Manager in respect of the Specified Activities, the Property and other activities undertaken by entity A as the Manager under the Agreement. Pursuant to the Agreement, entity A is appointed as the Manager with respect to the Property, during the period between the Commencement Date and the JV Commencement Date. Entity A's functions, rights, powers and duties as the Manager are outlined in the Agreement. The Agreement sets out entity A's functions as the Manager, these include: · managing and controlling Specified Activities and the other activities undertaken in accordance or connection with the Agreement · exercising and discharging entity A's powers and duties under the Agreement in accordance with any project program and approved budget, and decisions made by the Strategic Committee · conducting Specified Activities in a good, workmanlike and commercially reasonable manner. The Agreement sets out entity A's rights, powers and duties as the Manager in the course of managing, supervising and conducting the Specified Activities and the other activities undertaken in accordance or connection with the Agreement. The Agreement provides that the performance of entity A's obligations as the Manager is subject to entity B making available the payments for the Project Expenditures in accordance with the Agreement. The Agreement provides that the Management Fee is calculated on a monthly basis and as a percentage of Project Expenditures actually incurred in the previous month. The Management Fee is payable from the Commencement Date in conjunction with the payment for the Project Expenditures. The Agreement states that unless otherwise provided for in the Agreement, all Project Expenditures incurred in accordance with an approved work program or an approved budget or as otherwise permitted in the Agreement during the Option Period are to be borne by entity B. Pursuant to the Agreement, on or before a specified day of each month entity A, as the Manager, must submit to entity B the amount to be paid by entity B to satisfy the Management Fee for the previous month, and the Specified Activities, and/or other activities to be conducted by entity A pursuant to the Agreement for the next month. The Agreement provides that entity B must pay these amounts to entity A, as the Manager, within a specified number of days of receipt of the billing statement. In relation to the establishment of the Joint Venture, the Agreement provides that the parties should use all reasonable endeavours to obtain the consents related to the JV Conditions Precedent within a specified period of time of the Option Exercise Date. Further, the Agreement specifies that Once the Joint Venture Conditions Precedent are satisfied, each of: · the Option Fee · the undertaking to incur the Project Expenditure, and · the undertaking to pay the Option Exercise Fee · will be treated as consideration for the transfer to entity B of the X% interest in the Property and establishment of the Joint Venture. The JV Conditions Precedent relate generally to obtaining certain consents and approvals required for the establishment of the Joint Venture and the transfer of the relevant property pursuant to the Agreement. The Agreement provides that on satisfaction, and/or waiver in writing by all parties to the Agreement, of the Joint Venture Conditions Precedent: · the X% interest in the Property shall be immediately transferred by, and from, entity A to entity B, and · entity A and entity B shall execute a copy of the Joint Venture Agreement within a specified period from the date on which the Joint Venture Conditions Precedent were satisfied. The terms of the Agreement indicate that the transfer of X% interest in the Property to entity B is conditional upon the Joint Venture Conditions Precedent being satisfied and the establishment of the Joint Venture. The Agreement provides that within a specified number of days from the Joint Venture Commencement Date: (a) entity B shall reimburse entity A for X% of the Project Expenditures and for the Management Fee calculated on such costs during the period between the Option Exercise Date and the JV Commencement Date, and (b) entity B shall pay to entity A, as the Option Exercise Fee, an additional sum of $Y. The Agreement also deals with allocation of the costs in respect of assets acquired before and after the Commencement Date. The Agreement considers the application of GST to supplies made under the Agreement and provides: · in respect of entity A's grant of the Option, the Option Fee will be GST-free in accordance with section 9-30(1)(b) of the GST Act · in respect of Project Expenditures incurred by entity A from the date of the Agreement: · entity A will be entitled to the input tax credits for the GST included in the price of the things acquired · entity A will make a taxable supply to entity B · in respect of entity A's supply of services as the Manager under this Agreement: · the supply will be taxable and subject to GST, and · the consideration for the supply will be the Management Fee · in respect of entity A's transfer of the X% interest in the Property (in the event that the Option is exercised), the supply will be GST-free as the supply of a going concern and the consideration for the supply will consist of the Option Exercise Fee · in respect of any payment that may be made by entity B in the event that the Option is not exercised, entity A will make a taxable supply to entity B in consideration of the payment. You advised that the intention of the parties is that the specified enterprise be continued jointly by the parties in the future in the form of a Joint Venture. A copy of the Joint Venture Agreement between entity A and entity B (JV Agreement) is attached to the Agreement. The JV Agreement provides that the objects and scope of the Joint Venture are to carry on the specified enterprise. The JV Agreement provides that the Joint Venture Activities include all the Specified Activities and all other activities involved in the acquisition, use, development, operation and maintenance of the Joint Venture Property and all other activities, undertakings, and operations engaged in by the Joint Venturers under the Agreement, including certain type of activities and associated activities. The JV Agreement specifies the percentage share of each party's interest in the Joint Venture. Upon the establishment of the Joint Venture entity B will acquire X% interest in the Joint Venture. The JV Agreement provides that the Joint Venture Interest means the following rights, liabilities and obligations of a Joint Venturer determined under the JV Agreement: (a) the obligation to contribute its percentage share of all Joint Venture Expenditure (b) the ownership of and the right to receive in kind and to dispose for its own account its percentage share of products produced by the Joint Venture (c) the beneficial ownership as a tenant in common of an undivided share in its percentage share of the Joint Venture Property, and (d) all other rights, liabilities and obligations accruing to or incurred by the Joint Venturers in or arising out of the JV Agreement in its percentage share. Under The JV Agreement, entity A is appointed as the Operator of the Joint Venture and agent of the Joint Venturers from the JV Commencement Date.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-10. | A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-20. | A New Tax System (Goods and Services Tax) Act 1999 (GST Act) subsection 9-30(1). | A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 38-325. | A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Division 29.

Reasons for decision: Summary: The supply of the X% interest in the Property when supplied with the X% interest in the Joint Venture under a single arrangement, satisfies the requirements of Subdivision 38-J of the GST Act. | Detailed Reasoning - Detailed reasoning: Section 9-5 of the GST Act 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 Australia; 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. (* Denotes a term defined in section 195-1 of the GST Act) Based on the information provided, the sale of the X% interest in the Property and the Joint Venture meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act for the following reasons: · entity A is making the supply for consideration · the supply is in the course of an enterprise that entity A is carrying on · the supply is connected with Australia, and · entity A is registered for GST. The sale of the X% interest in the Property and the Joint Venture is not input taxed under any provision of the GST Act or any other Act. Therefore, what remains to be considered is whether the sale is GST-free. | Detailed Reasoning - GST-free: Subdivision 38-J of the GST Act provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is GST-free if it is supplied under an arrangement for the supply of a going concern. Section 38-325 of the GST Act states: (1) The *supply of a going concern is GST-free if: (a) the supply is for *consideration; and (b) the *recipient is *registered or *required to be registered; and (c) the supplier and the recipient have agreed in writing that the supply is of a going concern. (2) A supply of a going concern is a supply under an arrangement under which: (a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and (b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier). In order to determine whether the sale of the interest in the Property and the Joint Venture is a GST-free supply of a going concern, firstly it needs to be determined whether the sale is a supply of a going concern as defined in subsection 38-325(2) of the GST Act. | Detailed Reasoning - Supply under an arrangement: Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) explains what is a 'supply of a going concern' for the purposes of the GST Act. Paragraphs 19 and 20 of GSTR 2002/5 explain what is meant by 'a supply under an arrangement' and state: 19. A supply is defined in section 9-10. The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. However, the things supplied under the arrangement must relate to the same enterprise, that is, the enterprise referred to in paragraphs 38-325(2)(a) and (b) (the 'identified enterprise'). 20. The supplier and the recipient may identify the arrangement and the supplies under the arrangement, which in aggregate, may comprise the 'supply of a going concern', in the written agreement which is required under paragraph 38-325(1)(c) or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply. (Refer to paragraphs 178 to 185 for more details). However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made. In this case, the Agreement and the JV Agreement evidence the arrangement for the purposes of subsection 38-325(2) of the GST Act. | Detailed Reasoning - Indentified enterprise: Subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier. The term 'enterprise' is defined in subsection 9-20(1) of the GST Act to included, an activity, or series of activities in the form of a business, or in the form of an adventure or concern in the nature of trade. Based on the information provided, entity A is carrying on the specified enterprise. This is the enterprise identified for the purposes of subsection 38-325(2) of the GST Act. Therefore, entity A is required to supply to entity B all of the things that are necessary for the continued operation of that enterprise. Paragraph 38-325(2)(a) - The supplier supplies to the recipient all of the things that are necessary for the continue operation of the enterprise Paragraph 80 of GSTR 2002/5 provides that a supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses. Paragraph 72 of GSTR 2002/5 states: 72. The term 'necessary' incorporates every attribute of an enterprise that is essential for the continued operation of the 'identified enterprise'. The things that are 'necessary' will depend on the nature of the enterprise carried on and the core attributes of that enterprise. At paragraph 75, GSTR 2002/5 states: 75. Two elements are essential for the continued operation of an enterprise: · the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and · the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion. Paragraph 141 of GSTR 2002/5 states: 141. The supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is carried on by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership. Further, paragraph 150 of GSTR 2002/5 states: 150. A supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating. Paragraph 195 of GSTR 2002/5 states: Going concerns and joint ventures 195. Whether or not a business structure is a joint venture is a matter of fact. If the business structure is a joint venture, then each joint venturer is an entity which is capable of conducting an enterprise. Provided that all of the requirements of section 38-325 are satisfied, it is possible for a joint venturer entity to make a GST-free 'supply of a going concern'. This may be when part or all of the enterprise conducted by the joint venturer is supplied, provided that what is supplied is all of the things that are necessary for the continued operation of the 'identified enterprise'. The Agreement provides that once the Joint Venture Conditions Precedent are satisfied entity A would supply to entity B X% interest in the Property free and clear of all Encumbrances and establish a joint venture by entering into the JV Agreement. | Detailed Reasoning - The Agreement defines Property.: Pursuant to the JV Agreement, upon the establishment of the Joint Venture, entity B will also acquire X% interest in the Joint Venture. The JV Agreement provides that the Joint Venture Interest means the following rights, liabilities and obligations of a Joint Venturer determined under the JV Agreement: (a) the obligation to contribute its percentage share of all Joint Venture Expenditure (b) the ownership of and the right to receive in kind and to dispose for its own account its percentage share of products produced by the Joint Venture (c) the beneficial ownership as a tenant in common of an undivided share in its percentage share of the Joint Venture Property, and (d) all other rights, liabilities and obligations accruing to or incurred by the Joint Venturers in or arising out of the JV Agreement in its percentage share. Based on the terms of the Agreement and the JV Agreement, we consider that entity A will supply all of the things that are necessary for the continued operation of the specified enterprise to entity B for the purposes of paragraph 38-325(2)(a) of the GST Act. Paragraph 38-325(2)(b) - The supplier carries on, or will carry on, the enterprise until the day of the supply The Agreement provides that during the period commencing on the Commencement Date and ending on the JV Commencement Date, entity A will: · keep the Property in good standing and satisfy all obligations and pay all fees, rent, rates and other similar charges · perform its obligations under or relating to the fulfilment of any contract which relates to the Agreement, the Property and the Project · conduct Specified Activities in accordance with its powers and duties in accordance with the Agreement · employ best efforts to preserve all the records pertaining to the Specified Activities, the Project Expenditures and all other activities undertaken in accordance with the Agreement · keep the Property free and clear of any encumbrance and not sell, assign or otherwise deal with or dispose of the whole or any part of its interest in the Property except where permitted under the Agreement · entity A acknowledges and agrees that entity B is entitled to lodge a caveat in respect of the Property during the Option Period · entity A agrees to make reasonable efforts to ensure that the structure of its business organisation, to the extent that the structure of entity A's business organisation relates to the Specified Activities undertaken pursuant to the Agreement, at the JV Commencement Date is similar in all material respects to what it is on the date of entry into the Agreement. Entity A has been appointed as the Manager with respect of the Project during the period between the Commencement Date and the JV Commencement Date. Entity A's functions, rights, powers and duties are set out in the Agreement. Further, pursuant to the JV Agreement, entity A will continue its functions as the Operator of the Joint Venture once the Joint Venture is established. Based on the terms of the Agreement and the Joint Venture Agreement, the supply would also meet the requirements of paragraph 38-325(2)(b) of the GST Act provided that entity A carries on the specified enterprise until the day that it supplies the X% interest in the Property and the Joint Venture to entity B. | Detailed Reasoning - Subsection 38-325(1): The supply of the X% interest in the Property and the Joint Venture will meet the requirements of paragraphs 38-325(1)(a) and 38-325(1)(b) of the GST Act as: · the supply is for consideration, and · entity B is registered for GST. The Agreement provides that in respect of entity A's transfer of the X% interest in the Property (in the event that the Option is exercised), the supply will be GST-free as the supply of a going concern. Further, the terms of the Agreement indicate that the transfer of the X% interest in the Property to entity B is conditional upon the Joint Venture Conditions Precedent being satisfied which would lead to the establishment of the Joint Venture. Accordingly, the supply also meets the requirement of paragraph 38-325(1)(c) of the GST Act. | Detailed Reasoning - Conclusion: The supply of the X% interest in the Property and the X% interest in the Join Venture under a single arrangement will be a GST-free supply of a going concern as it will meet all the requirements of section 38-325 of the GST Act. | Detailed Reasoning - Question 2: Is the granting of the Option by entity A to entity B to purchase X% interest in the Property GST-free under paragraph 9-30(1)(b) of the GST Act? | Summary: The granting of the Option by entity A to entity B to purchase X% interest in the Property and the Joint Venture under a single arrangement is GST-free under paragraph 9-30(1)(b) of the GST Act. | Detailed Reasoning - Detailed reasoning: Subsection 9-30(1) of the GST Act deals with supplies that are GST-free. Paragraph 9-30(1)(b) of the GST Act provides that the supply of a right to receive a supply that would be GST-free under Division 38 is GST-free. Paragraphs 187 to 189 of GSTR 2002/5 deal with the supply of an option to acquire a thing as a going concern. Paragraphs 188 and 189 state: 188. The supply of an option to acquire a 'supply of a going concern' is a supply of a right to receive a 'supply of a going concern'. Whether the supply of the option is GST-free will depend upon the wording of the option. The wording must have the effect that the supply made on the exercise of the option is GST-free, or the option will not be exercised. 189. When this principle is applied to the option to acquire a 'supply of a going concern', the parties to the option must agree that, on the exercise of the option, the supply will be a GST-free 'supply of a going concern'. The parties must specify that, on the exercise of the option, what is supplied will satisfy the conditions of section 38-325. The terms of the Agreement provide that the transfer of the X% interest in the Property to entity B will occur when the Joint Venture Conditions Precedent are satisfied and the Joint Venture is established. As stated earlier, the supply of the X% interest in the Property and the Joint Venture made in accordance with the terms of the Agreement will be a GST-free supply of a going concern as it will meet all the requirements of section 38-325 of the GST Act. Under the terms of the Agreement the parties acknowledge the GST treatment of the supplies and acquisitions made under the Agreement. The Agreement provides that in respect of entity A's transfer of the X% interest in the Property (in the event that the Option is exercised), the supply will be GST-free as the supply of a going concern. Based on the above we accept that entity A and entity B have agreed that the supply of the X% interest in the Property and the Joint Venture is a GST-free supply of a going concern. Accordingly, the supply of the Option is a GST-free supply pursuant to paragraph 9-30(1)(b) of the GST Act. | Detailed Reasoning - Question 3: Where the Option to purchase the interest in the Property is exercised by entity B, will the payments intended to be consideration for the grant of the Option under the Agreement constitute consideration for the granting of the Option? | Summary: Where the Option to purchase the interest in the Property is exercised by entity B, the payments intended to be consideration for the grant of the Option under the Agreement will constitute consideration for the granting of the Option. | Detailed Reasoning - Detailed reasoning: The price for a supply and acquisition is a contractual matter and is determined between the parties to the agreement. The Agreement indicates that the parties acknowledge that certain payments made pursuant to the Agreement are in respect of entity A's grant of the Option. Therefore, we accept that these amounts are consideration for the grant of the Option. | Detailed Reasoning - Question 4: Where the Option to purchase the interest in the Property is exercised by entity B, will the consideration for the supply of the X% interest in the Property include the Option Exercise Fee? | Summary: Where the Option to purchase the interest in the Property is exercised by entity B, the consideration for the supply of the X% interest in the Property and the Joint Venture will include the Option Exercise Fee. | Detailed Reasoning - Detailed reasoning: As stated above, determining the price is a contractual issue. The Agreement states that in respect of entity A's transfer of the X% interest in the Property (in the event that the Option is exercised), the consideration for the supply will consist of the Option Exercise Fee. Accordingly, we accept that the Option Exercise Fee is consideration for the supply of the X% interest in the Property. | Detailed Reasoning - Question 5: Is entity A's supply of Management services a taxable supply? | Summary: Entity A's supply of Management services to entity B is a taxable supply as the supply meets all the requirements of section 9-5 of the GST Act. | Detailed Reasoning - Detailed reasoning: Pursuant to the Agreement, entity A has been appointed as the Manager with respect of the Specified Activities during the period between the Commencement Date and the JV Commencement Date. As the Manager, entity A must manage, supervise and conduct Specified Activities and other activities that it is required to undertake in accordance and connection with the Agreement. The supply of entity A's services as the Manager meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act for the following reasons: · entity A is making the supply for consideration · the supply is in the course of an enterprise that entity A is carrying on · the supply is connected with Australia, and · entity A is registered for GST. Further, the supply of entity A's services is neither input taxed nor GST-free under a provision of the GST Act or a provision of another Act. The supply of entity A's services is therefore a taxable supply. | Detailed Reasoning - Question 6: Is entity A's supply of Specified Services a taxable supply? | Summary: Entity A's supply of Specified Services to entity B is a taxable supply as the supply meets all the requirements of section 9-5 of the GST Act. | Detailed Reasoning - Detailed reasoning: Pursuant to the Agreement, entity B is required to pay the Project Expenditures in connection with the Specified Activities. We consider this is a payment for the provision of the specified services to entity B. The supply of the specified services is a taxable supply as: · entity A is making the supply for consideration · the supply is in the course of an enterprise that entity A is carrying on · the supply is connected with Australia, and · entity A is registered for GST. Further, the supply of the specified services is neither input taxed nor GST-free under a provision of the GST Act or a provision of another Act. The supply of the specified services is therefore a taxable supply. | Detailed Reasoning - Question 7: In the event that entity B does not exercise the Option, will the Option continue to be GST-free as a supply to which paragraph 9-30(1)(b) of the GST Act applies? | Summary: In the event that entity B does not exercise the Option, the Option will continue to be GST-free as a supply to which paragraph 9-30(1)(b) of the GST Act applies. | Detailed Reasoning - Detailed reasoning: We consider that the words 'would be' in paragraph 9-30(1)(b) of the GST Act require the supplier to make an assessment of the GST status of a supply of a right to receive a supply at the time of the supply of the right. This requires the supplier to determine the GST status of the intended supply for which the right or option can be redeemed if the right to acquire is taken up by the recipient. Where the supplier has determined the GST status of the intended supply base on reasonable grounds, then this is sufficient for the purposes of the GST Act and an adjustment is not needed if the actual treatment of the acquisition of the intended supply differs from the intended treatment or where the right to receive the other supply is not exercised. Accordingly, if entity B does not exercise the Option, the supply of the Option will remain GST-free. | Detailed Reasoning - Questions 8: In the event that entity B does not exercise the Option, does a subsequent adjustment event arise in respect of the Option that requires GST to be remitted by entity A? | Summary: In the event that entity B does not exercise the Option, a subsequent adjustment event does not arise in respect of the Option that requires GST to be remitted by entity A. | Detailed Reasoning - Detailed reasoning: As explained above the GST status of the Option is determined by considering the GST status of the intended supply at the time that the Option is supplied. Accordingly, if the Option is not exercised there will be no adjustment under Division 19 of the GST Act. | Detailed Reasoning - Question 9: In the event that entity B does not exercise the Option, will any payment of up to the Specified Sum in relation to the required Specified Services under the Agreement be consideration for a taxable supply? | Summary: In the event that entity B does not exercise the Option, any payment of up to the Specified Sum in relation to the required Specified Services under the Agreement will be consideration for a taxable supply. | Detailed Reasoning - Detailed reasoning: In this instance the issue is whether entity A makes a supply for which the payment of the Specified Sum, less the amount already paid in respect of the Project Expenditures to the date of withdrawal (hereafter referred to as termination payment), is consideration, and if so, is the supply a taxable supply. 'Supply' is defined in section 9-10 of the GST Act. Subsections 9-10(1) and 9-10(2) state: 9-10 Meaning of supply (1) A supply is any form of supply whatsoever. (2) Without limiting subsection (1), supply includes any of these: a supply of goods; a supply of services; a provision of advice or information; a grant, assignment or surrender of *real property; a creation, grant, transfer, assignment or surrender of any right; a *financial supply; an entry into, or release from, an obligation: (i) to do anything; (ii) to refrain from an act; (ii) to tolerate an act or situation; (h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g). Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: Supplies (GSTR 2006/9) sets out the Commissioner's view on the meaning of 'supply'. The ruling sets out a number of propositions to assist in analysing a transaction to identify the supply or supplies made in the transaction. Proposition 5 provides that ' to make a supply' an entity must do something'. Goods and Services Tax Ruling GSTR 2009/3 Goods and services tax: cancellation fees (GSTR 2009/3), discusses the GST consequences of payments made when an arrangement under which a particular supply was intended to be made (intended supply) does not proceed or does not proceed in the manner originally contemplated. GSTR 2009/3 provides that a payment made on the termination of an agreement may be consideration for a release from an obligation to do anything, refrain from an act or tolerate an act or situation (release supply). | Detailed Reasoning - Release supply: Paragraphs 51 to 58 of GSTR 2009/3 discuss the concept of a release supply as follows: | Detailed Reasoning - Release supply: 51. A customer who has entered into a contract may not wish to, or may be unable to complete the contract. A term in the original contract may grant to the customer the right to terminate the contract upon payment of a cancellation fee in these circumstances. 52. Alternatively, the parties to the contract may enter into another contract under which one party (usually the supplier) upon payment of a cancellation fee agrees to release the other party (usually the customer) from performing the latter's obligations under the original contract. 53. An example of a clause that provides for a release from the performance of the customer's obligations under the contract is: If you no longer wish to continue this contract, you have the right to terminate it at any time by calling our customer service hotline. However, if you terminate this contract after the end of the cooling-off period and before the end of your contract term, you must pay us a cancellation fee. 54. In the circumstances outlined in paragraph 53 of this Ruling, the customer may terminate the agreement pursuant to a right set out in the terms of the arrangement. The termination is not a breach of the contract. The customer exercises their contractual right, for which they agree to pay a cancellation fee as consideration. 55. Without limiting subsection 9-10(1), a supply includes the supply of services, the creation or surrender of any right and the release from an obligation under paragraphs 9-10(2)(b), 9-10(2)(e) and 9-10(2)(g) respectively. In the context of the broad definition of supply, and having regard to the things included as supplies as set out in subsection 9-10(2), the Commissioner's view is that, if it is not consideration for any other supply, a cancellation fee may be consideration for the creation or surrender of rights and/or a release supply that occurs when an arrangement is cancelled, and/or a combination of these supplies under paragraph 9-10(2)(h). 56. The GST status of the release supply is not determined by the GST status of the intended supply. 57. The Commissioner's view outlined in paragraph 55 of this Ruling is different from a situation where a termination or cancellation payment changes the consideration for the supply. 58. If the termination payment or cancellation fee has a sufficient nexus with an earlier supply, the fee may change the consideration for the earlier supply but is not consideration for a release supply. The change in consideration gives rise to an adjustment event in relation to the earlier supply. For example, this may occur where an agreement for progressive and periodic supplies has been terminated because the making of the supply has already commenced or the supply has been made. This is different from the scenarios addressed in this Ruling where the intended supply has not been made at the time of release. As indicated in paragraph 58 of GSTR 2009/3, a payment will not be consideration for a 'release supply' if it has sufficient nexus with an earlier supply. | Detailed Reasoning - Earlier supply: Goods and Services Tax Ruling GSTR 2003/11 Goods and services tax: payment on early termination of a lease of goods (GSTR 2003/11) examines payments made on early termination of a lease of goods. However, it provides that, the principles discussed in that ruling may apply to payments made on early termination of other types of agreements, depending on the individual facts. Paragraphs 27 to 37 of GSTR 2003/11 deal with early termination by agreement in accordance with the original terms of the lease. Paragraphs 27 to 29 state: 27. This part of the Ruling considers early termination as a result of a party, usually the lessee, exercising a right to terminate in accordance with the original terms of the lease which allow for early termination at the option of that party without any default or other event occurring. 28. For example, the original terms of the lease may provide that the lessee may terminate the lease at any time, by giving written notice, returning the goods and making a termination payment to the lessor. 29. Where the lease is terminated in these circumstances, the termination payment is considered to change the consideration for the earlier supply of the goods by way of lease. Accordingly, there is an adjustment event in relation to that earlier supply. In this case, the termination payment is clearly specified as a payment that entity B must make if it chooses to withdraw from the Agreement. The payment is not as a result of a breach of the terms of the Agreement. Based on the views expressed in GSTR 2009/3 and GSTR 2003/11, we consider that the termination payment has sufficient nexus with the earlier supply of the Specified Services by entity A to entity B. The termination payment is additional consideration for the supply of the Specified Services and changes the consideration for these taxable supplies. Accordingly, there is an adjustment event under Division 19 of the GST Act. | Detailed Reasoning - Question 10: Will the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Total Consideration Not Known) Determination (No. 1) 2000 apply to limit the attribution of GST in any period to the greater of the amount of any invoices issued or the consideration received in that period, for consideration received in connection with both the supply of the Option by entity A and the transfer of the X% interest in the Property by entity A where the Option is exercised? | Summary: Please see Detailed reasoning below. | Detailed Reasoning - Detailed reasoning: The basic attribution rules are set out in Division 29 of the GST Act. The GST Act also contains special provisions which affect the attribution for supplies and acquisitions to which they apply. The Commissioner can also determine, under section 29-25 of the GST Act, particular tax periods different to the tax periods that would otherwise apply under the basic or special rules, to which GST on taxable supplies or input tax credits for creditable acquisitions or importations, or adjustments, of a specified kind must be attributed. These attribution rules are about when an entity is required to account for GST payable on taxable supplies, input tax credits for creditable acquisitions and creditable importations, and adjustments. In this case, as the supplies of the Option and the transfer of the X% interest in the Property and the Joint Venture are not taxable supplies, the attribution rules do not apply to these supplies.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Does the supply of the X% interest in the Property by entity A to entity B satisfy the requirements of Subdivision 38-J of the GST Act?