Private ruling: GST and the Retransfer Scheme
Published: June 2012

Ruling: Q1: Does the entity ('the Entity') make a supply in accordance with section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when assets, employees instruments and liabilities are transferred to the individual local councils' businesses pursuant to an agreement ('Scheme') or a retransfer notice? | A1: No.

Relevant facts and circumstances: Background Several years ago, a State government of the Commonwealth (the State) amalgamated and restructured various state-based retail and distribution of a specific service ('Service') through a variety of measures. The State government enacted a State Act (the Act) which provides the legislative authority for the vast majority of the restructure measures. One of the measures was to remove responsibility for the Services from individual local councils' businesses and instead placed the responsibility for those Services with a number of newly established organisations. The Entity is an organisation which assumed responsibility for the service business previously operated by a number of individual local councils' businesses. The Act was amended to provide for a once-only opportunity for individual local councils' businesses (whose the Service business had been transferred to the newly established organisations) to opt-out of the arrangement and re-establish their own Service business. Where they decided to opt-out, the Act required the transaction to be completed at the end of a particular date. Recently, the individual local councils' businesses decided to withdraw from the Entity. The Retransfer Scheme Under the Act, the Entity and all of the individual local councils' businesses must enter into an agreement (the Scheme) to retransfer, as nearly as practicable, to each individual local councils' business the assets, employees, instruments, liabilities and other things that the individual local councils' business transferred to the Entity at the end of a particular date. The Entity's Service business is to be retransferred to the individual local councils' businesses through the Scheme made pursuant to a section of the amended Act. The Scheme does not provide for consideration made to the Entity for the transfer of assets and other things back to the individual local councils' businesses. On the transfer day the Entity will not have any assets including monies and the individual local councils' businesses will allocate sufficient resources and provide sufficient funding to allow the Entity to perform its functions after the transfer day and prior to the dissolution day and to effect its dissolution. It is intended that the retransfer of the Service business back to the respective individual local councils' businesses will occur at a particular date. Retransfer The retransfer process is the exact process (except in reverse) that was used to transfer in the assets from the individual local councils' businesses to the Entity. The original transfer process of the assets was effected through the same mechanism: · completion of transfer scheme by individual local councils' businesses, · Gazette notice by the Minister, and if necessary, · retransfer notice/retransfer direction. From the end of a particular date the Entity ceases to be a service provider. The individual local councils' business becomes a service provider for its local government area. The Entity and all of the individual local councils' businesses must enter into an agreement (the Scheme) to retransfer at the end of a particular date to each individual local council's business the assets, employees, instruments and liabilities that the individual local councils' businesses transferred to the Entity earlier, as nearly as practicable. The parties to the Scheme must give the Minister a statement certifying all of the assets, liabilities and instruments that the individual local council's businesses are to receive under the Scheme. As soon as practicable after receiving the statement, if the Minister is of opinion that the certification statement given complies with the content requirement under Act, the Minister must publish a gazette notice. The gazette notice states, amongst other things, that the Scheme has been made and the Scheme has effect from the day the notice is published but the transfer will not take place until the end of a particular date. The transfer has no effect until the Minister publishes a gazette notice about it as required under the Act. However, should the Minister be of the opinion that the something done under the retransfer ought to have done differently or something ought not to have been done under the Scheme, the Minister may, by gazette notice (the retransfer notice) do everything or anything to ensure the transfer happens and rectify and undo anything the Minister considers ought not to have done or ought to have done differently. Alternatively, or in addition to a retransfer notice, the Minister may give direction (retransfer direction) to parties of the Scheme to execute an instrument, disclose information or anything the Minister considers necessary to ensure the effective retransfer of the business. Note: The Entity specifically requests that any retransfer under a retransfer direction is outside the scope of this PBR request and the Commissioner is not being requested to provide any opinion in this respect. The Transfer Under the Scheme the Entity will transfer to the individual local councils' businesses: · Service infrastructure and other assets · Liabilities · Land and interest in land · Contracts and related matters · Intellectual property rights · Regulatory instruments

Relevant legislative provisions: The A New Tax System (Goods and Services Tax) Act 1999 Section 7-1 | Section 9-5 | Section 9-10

Reasons for decision: Summary: The Entity does not make a supply in accordance with section 9-10 of the GST Act when its assets, employees, instruments and liabilities are transferred to the individual local councils' businesses pursuant to a Scheme or a retransfer notice. | Detailed Reasoning - Detailed reasoning: Under subsection 7-1 of the GST Act) GST is payable on taxable supply and taxable importation. Section 9-40 of the GST Act further provides that an entity must pay the GST payable on any taxable supply that it makes. The term 'taxable supply' is defined in section 9-5 of the GST Act. This section provides the requirements for a supply to be taxable. You make a taxable supply if: (a) you make the supply for *consideration; and … Therefore, we need to consider whether the Entity is making a supply in retransferring its assets, employees, instruments and liabilities to the individual local councils' businesses. If the answer is in the negative, there will be no taxable supply and there will be no GST to be paid by the Entity in relation to the retransfer. The term 'supply' is defined in section 9-10 of the GST Act to mean: 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) a supply of goods; (b) a supply of services; (c) a provision of advice or information; (d) a grant, assignment or surrender of *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; or (ii) to refrain from an act; or (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). * asterisk denotes a defined term in the Act. Goods and Services Tax Ruling GSTR 2006/9 examines the meaning of 'supply' in the GST Act. Part 2 of this Ruling looks at how to identify and characterise supplies in the context of the transactions in which they are made. This Part uses ten propositions to assist in analysing a transaction to identify the supply or supplies made in that transaction. However, it should be noted that the propositions are not universal as they may have exceptions or be qualified either by the operation of particular provisions of the GST Act, or by the facts and circumstances of a transaction. Of relevance to this case is Proposition No 5: To 'make a supply' an entity must do something. 71. In overseas jurisdictions the term 'supply' has been held to take its ordinary and natural meaning, being 'to furnish or to serve' or 'to furnish or provide'. The Commissioner picks up this meaning in considering the meaning of supply in the GST Act at paragraph 41 of GSTR 2004/9 a ruling which is about the assumption of liabilities: "In adopting the ordinary and natural meaning of the term, 'to furnish or provide', it follows that an entity must take some action to 'make a supply'. This approach is consistent with the use of active phrases throughout the examples of supplies in subsection 9-10(2), such as the normalised verbs: 'a provision'; 'a grant'; 'a creation'; 'a transfer'; 'an entry into'; and 'an assignment'." 72. The use of the word 'make' in the context of section 9-5 was considered by Underwood J in Shaw v. Director of Housing and State of Tasmania (No. 2) ('Shaw') in relation to the payment of a judgment debt. His Honour was of the view that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply. He considered the actions of the judgment creditor with respect to the extinguishment of the debt when the judgment debtor made the payment of the judgment sum to meet the judgment debtor's obligations. 73. The Commissioner agrees with Underwood J's decision that there was no supply by the judgment creditor, as the judgment creditor did not do any act or thing to extinguish the obligation when the judgment debtor paid the judgment debt. However paragraph 74 of GSTR 2006/9 states in part: … that an entity can still make a supply even if the supply is made under the compulsion of statue if the entity takes some action to cause a supply to occur. His Honour went on to compare a supply, resulting from a positive act against a situation where there is no supply because nothing is done. Paragraphs 80 to 91 of GSTR 2006/9 discuss the vesting in government authority and provide that various government authorities are empowered by legislation to acquire an interest in real property. One of the common mechanisms employed by legislation is the vesting of the interest in the government authority and extinguishing any previous interests in the real property. Paragraphs 81 and 82 of GSTR 2006/9 provide that: 81. An example of vesting is provided by section 20 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), where the required acquisition notices are gazetted, the relevant land is: · 'vested in the authority of the State acquiring the land'; and · 'freed and discharged from all estates, interests, trust, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land'. The entity whose interest in the land is extinguished is compensated for the loss of that interest… 82. The effect of the gazettal notice is that the legal ownership of the land, described in the notice, is vested in the authority acquiring the land, and that the land becomes freed from any other interests. The entity's interest in the land, whether legal or equitable, is extinguished. When land vests in an authority in consequence of a gazettal notice, it is necessary to examine the relevant facts and circumstances to determine whether or not the owner makes a supply of the land to the authority. In cases where land vests in the authority as a result of the authority seeking to acquire the land, and initiating the compulsory acquisition process pursuant to its statutory right, then the owner does not make a supply because it takes no action to cause its legal interest to be transferred or surrendered to the authority. We need to consider, in relation to the retransfer, whether the Entity has done anything, or take any action to cause the supply to be made i.e. 'make a supply'. In this circumstance, the Entity will transfer all of the assets, liabilities, employees, instruments and other things to the individual local councils' businesses under the Scheme. The nature and scope of the agreement is limited by the Act · the parties to the retransfer scheme must give the Minister a statement certifying all of the assets, liabilities and instruments that the individual local councils' businesses are to receive under the Scheme · the rights and liabilities of the Entity become the rights and liabilities of the individual local councils' businesses · all legal proceedings relating to the assets, rights or liabilities pending by or against the transferor are taken to be proceedings pending by or against the relevant individual local councils' businesses · the individual local councils' businesses have all the entitlements and obligations of the Entity in relation to those assets, rights and liabilities that the Entity would have had but for the Scheme, whether or not those entitlements and obligations were actual or potential at the time the retransfer took effect · the extinguishment of participation rights and partnering agreement. The Scheme has no effect until the Minister is of opinion that the certification statement given complies with the content requirement under the Act, and publish a gazette notice, The Scheme does not provide for consideration made to the Entity for the transfer of assets and other things back to the individual local councils' businesses. On the transfer day the Entity will not have any assets including monies and the individual local councils' businesses will allocate sufficient resources and provide sufficient funding to allow the Entity to perform its function after the transfer day and prior to the dissolution day and to effect its dissolution. Although there is a requirements under the Act that the Entity and the individual local councils' businesses must enter into an agreement, (the Scheme), the nature and content is limited by the Act. Furthermore, the entry into an agreement between the Entity and the individual local councils' businesses will have no effect till the gazettal of the scheme by the Minister and only then the retransfer will occur. The creation of the Scheme is not considered to be a positive act by the Entity or the individual local councils' businesses that lead to 'making' a supply. It is considered that the transfer under the Scheme is effected and made by the gazettal notice or transfer notice under the Act and not by the Entity. There is no surrender of any right by the Entity, the rights over the transferred assets are revoked by the Act. Consequently, this means that for the purpose of paragraph 9-5(a) of the GST Act, the Entity will not make a supply of the assets, rights and liabilities and other things to the individual local councils' businesses.

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