Private ruling: goods and services tax (GST) and court settlement
Published: March 2012
Date scheme commenced: You are registered for GST.

Ruling: Q1: Is GST payable by you where you received the court ordered settlement payments? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. On a certain date, you purchased a representative's licence from the licensor. Your representative's agreement with the licensor provides that: § The licensor has developed a concept and associated equipment, signage and recipes for marketing and selling a range of products from existing or proposed outlets which enter into licences with the licensor. § The licensor proposes to market licensor licences to outlets using representatives for specified territories. § In consideration for its service to the licensor, the representative shall be entitled to payments set out in a schedule to the representative's agreement. The stated term of your representative's agreement was a certain number of years with an additional term of a certain number of years. On a certain date, you had a court hearing regarding multiple issues you had with the running of the licensor and the licence you purchased from the licensor. You sought an order from the court to have the money you paid for the licence refunded (a certain amount of money was to be the refund for the licence fee you paid to the licensor) and for the licensor to pay you a certain amount of money for work you had done for the licensor. You procured a licensor outlet licensee sale with a client who later pulled out of the contract. The client thereby lost their deposit according to stipulation in the licensor's contract with them. You were requesting payment for the work carried out by you in effecting a sale in the first instance. You carried out this work before the dispute arose. On the day of the hearing, the presiding judge said that the matter was of a contractual nature and therefore could not be heard under a court but rather needed to be filed in the court. However, mediation was then offered, and took place straight away between both parties. Through mediation, an agreement was reached whereby the licensor would endeavour to resell your representative's licence and refund the money you had paid for the licence. The licensor later sold your representative's licence. A settlement amount of a certain amount of money was agreed (a certain amount of money was to be the refund for the licence fee you paid to the licensor and a certain amount of money was a compromise on the original certain amount of money you claimed for work you had done). In a certain month of a certain year, you were told that an interested party would be relocating from a certain State or Territory to another certain State or Territory and was keen to start working your area/business from a certain month of a certain year. You were told that as soon as this happens you would be paid. On a certain date, you received an e-mail that it was moving ahead but that you now had to wait until a certain month to finalise settlement and payment of the money. This was again reiterated to you on a certain date via email. You no longer operated as the licensor territory managers as the licensor had already put out a letter to all your clients stating that you have resigned and sold your licence on to the new representatives. As the certain month date came and went, and the new representative was actively working your area, you filed new orders under the court for the agreed amount of a certain amount of money. You were told by a new judge that this kind of case could be heard under a certain court, and should have been heard in the previous year (a certain year). A decision was handed down on a certain date by a certain court ordering the licensor to pay you a certain amount of money. You understand that the new representative had already paid a certain amount of money to date to the licensor for the purchase of your representative's licence. This was ordered by the judge to be paid to you within a certain number of days of the hearing. As you understand it, the remaining certain amount of money was awarded to you as the judge said that you were entitled to some monies back for having operated the business.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-15 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(2A) | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 9-70 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-75(1)

Reasons for decision: Summary: GST is payable by you where you received the court ordered settlement payments, as the payments were consideration for taxable supplies you made to the payer. These supplies were taxable supplies as they satisfied the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The GST is 1/11 th of the total of settlement payment amounts. | Detailed Reasoning - Detailed reasoning: GST is payable by you where you make a taxable supply. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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) In order for a recipient of a payment to have a GST liability, the payment must be consideration for a supply. In accordance with paragraph 108 of Goods and Services Tax Ruling GSTR 2006/9, for a supply to be a taxable supply there must be consideration and a sufficient nexus between the supply and the consideration. Goods and Services Tax Ruling GSTR 2001/4 deals with the GST implications of court and out-of-court settlements of disputes. You had a dispute with the licensor which was settled by a court settlement. Paragraph 97 of GSTR 2001/4 states: 97. Subsection 9-15(2A) makes it clear that the fact that a payment is made in compliance either with a court order, or with a settlement relating to proceedings before a court will not, without more, prevent it from being consideration for a supply. On a certain date, you had a court hearing regarding multiple issues you had with the running of the licensor and the licence you purchased from the licensor. You sought an order from the court to have the money you paid for the licence refunded (a certain amount of money was to be the refund for the licence fee you paid to the licensor) and for the licensor to pay you a certain amount of money for work you had done for the licensor. You procured a licensor outlet licensee sale with a client who later pulled out of the contract. The client thereby lost their deposit according to stipulation in the licensor's contract with them. You were requesting payment for the work carried out by you in effecting a sale in the first instance. You carried out this work before the dispute arose. On the day of the hearing, the presiding judge said that the matter was of a contractual nature and therefore could not be heard under a court but rather needed to be filed in the court. However, mediation was then offered, and took place straight away between both parties. Through mediation, an agreement was reached whereby the licensor would endeavour to resell your representative's licence and refund the money you had paid for the licence. The licensor later sold your representative's licence. A settlement amount of a certain amount of money was agreed (a certain amount of money was to be the refund for the licence fee you paid to the licensor and a certain amount of money was a compromise on the original certain amount of money you claimed for work you had done). In a certain month of a certain year, you were told that an interested party would be relocating from a certain State or Territory to another certain State or Territory and was keen to start working your area/business from a certain month of a certain year. You were told that as soon as this happens you would be paid. On a certain date, you received an e-mail that it was moving ahead but that you now had to wait until a certain month to finalise settlement and payment of the money. This was again reiterated to you on a certain date via email. You no longer operated as the licensor territory managers as the licensor had already put out a letter to all your clients stating that you have resigned and sold your licence on to the new representatives. As the certain month date came and went, and the new representative was actively working your area, you filed new orders under the court for the agreed amount of a certain amount of money. You were told by a new judge that this kind of case could be heard under a certain court, and should have been heard in the previous year (a certain year). A decision was handed down on a certain date by a certain court ordering the licensor to pay you a certain amount of money. You understand that the new representative had already paid a certain amount of money to date to the licensor for the purchase of your representative's licence. This was ordered by the judge to be paid to you within a certain number of days of the hearing. As you understand it, the remaining certain amount of money was awarded to you as the judge said that you were entitled to some monies back for having operated the business. We consider that you surrendered your representative's licence as you agreed to the licensor re-selling it (this is implied by the gentlemen's agreement); the licensor sold it to a new representative and the originally agreed initial certain number year period of your representative's agreement had not come to an end when or before the licensor sold your representative's licence to a new representative. Your surrender of your representative's licence is a surrender of rights to the licensor. A surrender of a right is a supply under paragraph 9-10(2)(e) of the GST Act. Therefore, your surrender of your representative's licence is a supply. There is a sufficient nexus between a certain amount of money of the total payment you received as settlement and your surrender of your representative's licence. There is a sufficient nexus between a certain amount of money of the total payment you received as settlement and your supply of services. Therefore, the total of settlement payment amounts is consideration for your supplies. Hence, the requirement of paragraph 9-5(a) of the GST Act is satisfied in relation to the total a certain amount of money settlement amount. You made these supplies in the course or furtherance of an enterprise that you carry on. Hence, the requirement of paragraph 9-5(b) of the GST Act is satisfied. These supplies were connected with Australia. Hence, the requirement of paragraph 9-5(c) of the GST Act is satisfied. You are registered for GST. Hence, the requirement of paragraph 9-5(d) of the GST Act is satisfied. There are no provisions in the GST Act under which the supplies are GST-free or input taxed. Therefore, you made taxable supplies in return for the settlement payments, as all of the requirements of section 9-5 of the GST Act are satisfied. Hence, GST is payable where you received the settlement payments. The GST liability is 1/11 th of the total of settlement payment amounts.

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