Private ruling: GST and representatives if incapacitated entities
Published: July 2012

Ruling: Q1: Are you liable for the GST on the supply of an asset in the course of carrying out your duties as Liquidator of Entity A? | A1: Yes, you are liable for the GST on the supply of an asset in the course of carrying out your duties as Liquidator of Entity A.


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 58 | Section 195-1 | Section 58-5 | Section 58-10 | Subsection 58-10(2) | Section 9-5 | Section 9-20 | Income Tax Assessment Act 1997 Section 26-47 | Corporations Act 2001 Section 461(1)(k) | Section 477 | Paragraph 477(2)(c)

Reasons for decision: Summary: For the purposes of GST, the activities of a representative of an incapacitated entity, where those activities are within the scope of the representative's responsibility or authority, are covered within Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The term 'representative' is defined in section 195-1 of the GST Act to include a liquidator or a receiver. An incapacitated entity is also defined in section 195-1 of the GST Act and includes an entity that is in liquidation or receivership or, an entity that has a representative. In this case, you are considered to be the representative of an incapacitated entity, Entity A. Section 58-5 of the GST Act provides that a supply made by an entity in their capacity as a representative of another entity (an incapacitated entity) is taken to be a supply made by the incapacitated entity (IE). Section 58-10 of the GST Act provides in part that the GST liability for such a taxable supply will fall on the representative to the extent that the supply was made within the scope of the representative's responsibility or authority for managing the affairs of the IE. As such, in this case we must determine whether the sale of the X would constitute a taxable supply by the IE (Entity A). The term 'taxable supply' is defined in section 9-5 of the GST Act as a supply made: · for consideration; and · in the course of furtherance of an enterprise that you carry on; and · that is connected with Australia; and · where you are registered or required to be registered for GST. However, the supply will not be a taxable supply to the extent that the supply is GST-free or input taxed. The only issue in this case of whether the supply was a taxable supply is whether the supply was made in the course of furtherance of an enterprise that Entity A carried on. You contend that the X usage operation (including the sale of X does not constitute the carrying on of a business in accordance with Taxation Ruling TR 2003/4. TR 2003/4 provides guidance specifically on the application of section 26-47 of the Income Tax Assessment Act 1997 (ITAA 1997) and whether a taxpayer's activity amounts to the carrying on of a business in relation to a boat for the purposes of section 26-47 of the ITAA 1997. The test carried out in accordance with TR 2003/4 is not a test to determine whether the entity is carrying on a business but a test to determine whether the entity is carrying on a business in relation to the X so as not to be limited in the amount of allowable deductions they would otherwise be entitled to under the general provisions of the ITAA 1997. However, for the purposes of GST, the test is whether the supply is made 'in the course of furtherance of an enterprise' that the supplier carries on. The term 'enterprise' is defined in section 9-20 of the GST Act and includes, amongst other things, an activity or series of activities done; · in the form of a business; or · in the form of an adventure or concern in the nature of trade; or · on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Miscellaneous Tax Ruling MT 2006/1 A New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides the Commissioner's views on carrying on an enterprise in relation to determining entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 states that the discussion in MT 2006/1 is considered to apply equally to the term enterprise as used in the GST Act, and can be relied upon for GST purposes. Paragraph 170 of MT 2006/1 states that the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own. The phrase contemplates a broader set of activities than simply a 'business', including activities that have the appearance or characteristics of activities that would constitute a business. Goods and Services Tax Ruling GSTR 2004/8 Goods and services tax: when does an entity have a decreasing adjustment under Division 132? provides further guidance on the meaning of the phrase 'in the course of furtherance of'. Paragraphs 28 through 30 of GSTR 2004/8 state: 28. For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states: 'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361. 29. Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent. 30. Each of the following characteristics of a thing indicates strongly that the sale of the thing has a connection with your enterprise: · at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes); · at the time of sale it was applied in carrying on your enterprise to at least some extent; and · it is sold as a transaction of your enterprise. Paragraph 31 of GSTR 2004/8 continues by stating: 31. Factors that tend to indicate that a sale is a transaction of the enterprise include the following: the sale is made from enterprise premises; · payment is accepted using enterprise facilities such as a cash register or a credit card facility; · the proceeds of sale are deposited into an enterprise bank account; and · enterprise book accounts are used to record the transaction. The list in this paragraph is not exhaustive or conclusive. All the facts and circumstances must be considered and balanced. Given the above and taking into account the following facts of this case it is considered that the sale of the X was made in the course of carrying on your enterprise: · the X was financed using surplus cash of Entity A; · income and expenses relating to the X were reported in the Profit and Loss Statement of Entity A; · the X was accounted for as a non-current asset in the Balance Sheet of Entity A; · income and expenses relating to the X were accounted for when determining the income tax liability of Entity A: · sales and acquisitions were reported on the Business activity statement of Entity A. Entity A issued an invoice to a related company in regard to the charter of the X; Entity A employed a driver and provided their services together with the charter of the X. Therefore, as all of the positive limbs of a 'taxable supply' contained in section 9-5 of the GST Act are satisfied, and the sale of the X is neither GST-free nor input taxed, the sale of the X will constitute a taxable supply. As discussed above, section 58-5 of the GST Act provides that a supply made by an entity in their capacity as a representative of another entity (an incapacitated entity) is taken to be a supply made by the IE. Section 58-10 of the GST Act provides in part that the GST liability for such a taxable supply will fall on the representative to the extent that the supply was made within the scope of the representative's responsibility or authority. Please note that none of the exceptions contained in subsection 58-10(2) of the GST Act apply in this case. As such, it now needs to be determined whether the sale of the X was within the scope of your (as the representative of the IE) responsibility or authority. The Supreme Court ordered the winding up of Entity A on a specified date pursuant to section 461(1)(k) of the Corporations Act 2001 (Corporations Act). You were appointed Liquidator on the same date. The powers of a Liquidator are contained in section 477 of the Corporations Act which provides (at paragraph 477(2)(c)) that a liquidator of a company may sell or otherwise dispose of, in any manner, all or any part of the property of the company. The X was sold by you during your appointment as Liquidator. As such, we consider sale of the X was made within the scope of your (as the representative of the IE) responsibility or authority. In conclusion, you are liable for the GST on the supply of the X in the course of carrying out your duties as liquidator of Entity A pursuant to section 58-10 of the GST Act. | Detailed Reasoning - Further issues: In regard to your contention that you would be entitled to an input tax credit (ITC) in regard to the purchase of the X, the following points should be noted. The fact that GST is payable on a supply of a thing an entity makes (in this case the X) does not necessarily entitle that entity to an ITC in regard to the purchase of that thing. GST is a transaction based tax and as such, each transaction needs to be examined in isolation to determine the GST consequences of each transaction. In regard to the purchase of the X, Division 11 of the GST Act contains provisions in regards to the entitlement of ITCs. Once entitlement to an ITC is established, Division 29 of the GST stipulates when you may claim the ITC. In this case, assuming there is an entitlement to an ITC (and it is noted that our records indicate the incapacitated entity accounted for GST on a non-cash or accrual basis), subsection 29-10(1) of the GST Act states that you would attribute the ITC to the tax period you provide any consideration for the acquisition or the supplier issues an invoice relating to the acquisition, whichever is earlier. However, Division 93 of the GST Act was enacted in 2010 to provide that input tax credits (and fuel tax credits) must be claimed within a four-year period from the due date of the GST return in which the ITC was attributable in accordance with subsection 29-10(1), subject certain exceptions. As such, you would need to determine whether you are still entitled to the ITC in regard to the purchase of the X given the provisions contained Division 93 of the GST Act. Please also note that entitlement to an ITC in regard to the purchase of the X may have been affected by Division 69 of the GST Act prior to amendments made in 2007. Please also note that the principals contained in TR 2003/4 are specific to the application of section 26-47 of the ITAA 1997. As such, the limitation of allowable deductions for income tax purposes does not apply for the purposes of determining ITC entitlements for GST. Therefore, it may be the case that you have underclaimed ITCs in regard to expenses relating to the X. However again, any entitlement will need to be determined taking into account the provisions contained in Division 93 of the GST Act and Division 69 (both pre and post amendments).

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. | Relevant facts: Entity A was registered for GST for a specified period. | Entity A carried on an enterprise primarily of leasing real property. | Entity A purchased a X during the specified period. | Entity A did not claim an input tax credit (ITC) in regard to the purchase of the X. | Entity A determined that they were not entitled to an ITC as the X was not acquired as part of their enterprise and also expenses relating to the X would not be deductible. | The X was purchased for the following purposes: | · for marketing activities of a related company; and | · personal use by the Directors and shareholders of Entity A | Entity A used the X during the period from the purchase date to the end of the specified period. | Entity A issued an invoice to the related company in relation to the use of the X with a price inclusive of GST. | In regard to the use of the X by the Directors and shareholders, a log of the usage was maintained. Each financial year the Company accountant calculated the value of the private use of the X (including GST). The Directors/shareholders subsequently reimbursed Entity A by direct payment. | The payments made to Entity A for the charter of the boat were compulsory and not made on a voluntary basis. | Entity A provided a driver when the X was used. The driver was employed by Entity A | The X was not made available to unrelated parties. | The amount charged for the use of the X was equal to the market value of a similar X usage service (calculated at $1,100 per hour for the 2011 financial year). | The X was shown in the Balance Sheet of Entity A as a non-current asset representing approximately 20% of the company's total non-current assets for the four financial years prior to the end of the specified period. | In regard to the X usage operation, expenses incurred exceeded income generated (i.e. the operation generated a loss). | For income tax purposes, expenses claimed as a deduction were limited to the amount declared as income (i.e. the amount that expenses exceeded income was not claimed). | Depreciation was never claimed in relation to the X as a deduction. | For GST purposes, ITCs claimed for acquisitions were limited to the GST payable on sales (i.e. the amount that ITCs exceeded GST payable was never claimed). | You were appointed as Liquidator of Entity A on the last day of the specified period. | You sold the X in exercising your duties as Liquidator of Entity A for a specified amount. | The sale of the X was effected by execution an Agreement between the seller and buyer. | The Agreement states that the purchase price inclusive of GST. | The Agreement states in part that unless expressly stated otherwise, all consideration to be provided under the agreement is expressed as GST inclusive. | Your contentions: The X usage operation does not constitute the carrying on of a business in accordance with Taxation Ruling TR 2003/4 Income tax: X hire arrangements . | If found that you are liable for GST on the supply of the X, Entity A should be entitled to an ITC in regard to the purchase of the X and entitled to amend the relevant BAS to reflect the ITC claim.