Private ruling: GST and incapacitated entities
Published: December 2013

Ruling: Q1: 1. Are you entitled to claim GST credits when you pay the consideration for a taxable supply that is made to an incapacitated entity? 2. Are you liable for GST in relation to recovered funds? 3. Are there any other GST implications? 4. Can you and another entity satisfy the membership requirements of a GST group? 5. Does any of the above change where example B applies? | A1: 1. Yes. 2. No. 3. No. 4. No. 5. No.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You perform functions and services on behalf of incapacitated entities. While most services are provided as per example A, you sometimes perform functions and services as per example B.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 s ection 9-10 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(2) | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 Division 48 | A New Tax System (Goods and Services Tax) Act 1999 subsection 58-10(1) | A New Tax System (Goods and Services Tax) Act 1999 section 58-20 | A New Tax System (Goods and Services Tax) Act 1999 section 58-45

Reasons for decision: Summary: When an entity that is registered or required to be registered for GST becomes incapacitated then the representative of that incapacitated entity is required to be registered for GST (section 58-20). Specific to this question, paragraph 58-10(1)(b) provides that a representative of an incapacitated entity is entitled to a GST credit that the incapacitated entity would be entitled to, for a creditable acquisition, to the extent that it is within the representative's responsibility for managing the affairs of the incapacitated entity. Under section 11-20, an entity is entitled to a GST credit for any creditable acquisition that it makes. Section 11-5 provides that an entity makes a creditable acquisition if: · it acquires anything solely or partly for a creditable purpose · the supply of the thing to it is a taxable supply · it provides, or is liable to provide, consideration for the supply, and · it is registered or required to be registered for GST. Therefore, to satisfy section 11-5, an entity doesn't necessarily have to actually provide the consideration for the supply. It can just be liable to provide consideration for the supply. Additionally, subsection 9-15(2) provides that it does not matter whether the consideration is provided by the recipient of a supply. In the matter at hand, you will be entitled to GST credits where it is liable to provide consideration and the other elements of section 11-5 are satisfied. Under section 9-40 you will be liable for GST if it makes a taxable supply under section 9-5. The first thing to consider is whether or not it is making a supply at all. Section 9-10 provides, amongst other things, that a supply is any form of supply whatsoever and includes: · 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, or · an entry into, or release from, an obligation: o to do anything; o to refrain from an act; or o to tolerate an act or situation. Goods and Services Tax Ruling GSTR 2006/9 provides guidance on GST and supplies. Paragraphs 72 and 73 of GSTR 2006/9 discuss the word 'make' in relation to 'making a taxable supply' and state: 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') 29 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. 30 There are no other GST implications. Division 48 provides the legislative requirements for GST groups. Generally, the representative member of a GST group is responsible for the GST for all of the members of the GST group. However, section 58-10 overrides the relevant sections in Division 48. Under section 58-10(1) the representative of the incapacitated entity, and not the incapacitated entity itself, is now responsible for the GST that the incapacitated entity would have been, to the extent that it is within the representatives responsibility for managing the affairs of the incapacitated entity. Section 58-45 provides that where an individual is appointed as a representative of two or more incapacitated entities, the individual may give to the Commissioner one GST return for the tax period in respect of the entities if the entities are members of the same GST group. Therefore, you will not satisfy the membership requirements to form a GST group with another entity. The reasoning for this question is similar to that provided above for questions 1 and 2. That is, an entity is entitled to a GST credit for any creditable acquisition that it makes. It will be entitled to GST credits where it is liable to provide consideration and the other elements of section 11-5 are satisfied. It will not matter that the consideration is paid by another entity.

Reasons for decision: All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise stated.