Consideration after MBI Properties

Presented at the TIA National GST Intensive on 19 September 2015

1    Introduction

The concept of “supply” has been the subject of most of the decisions of the higher Courts in Australia, including the decisions of the High Court in Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342 (Reliance Carpet) and Commissioner of Taxation v Qantas Airways Limited (2012) 247 CLR 286 (Qantas).

The decision of the High Court in Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 (MBI Properties) also involved a dispute about “supply”, indeed that was the main focus of the case. However, the decision is also relevant to the concept of “consideration”, which is an important, yet often overlooked, component of the GST regime.

The concept of “consideration” plays a critical role in each of the steps involved in determining an entity’s liability for GST. The steps are as follows:

  • Identifying a liability for GST – by determining when an entity makes a “taxable supply” as defined in s 9-5, being “a supply for consideration” within the meaning of paragraph (a) of that section;
  • Calculating the amount of the GST – by determining the “price” and “value” of the taxable supply pursuant to s 9-75; and
  • Identifying the time that the GST becomes payable – by determining when the GST liability on the taxable supply is “attributable” pursuant to s 29.

The observations of the High Court in MBI Properties are relevant to the first and third steps.

The High Court handed down its decision in Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51 (Lend Lease) at about the same time (indeed, the cases were heard on the same day). This case dealt with “consideration” in the context of the Victorian stamp duty regime. While one must always be cautious before relying on decisions involving a different statutory regime,[1] the observations of the High Court in Lend Lease and other stamp duty cases dealing with “consideration” will likely be of assistance in approaching the second step and possibly also the first step.

The paper discusses the following matters:

  • The role played by “consideration” in each of the steps outlined above;
  • The decision in MBI Properties; and
  • The potential broader impact of the decision in MBI Properties and some of the unanswered questions, particularly with respect to how steps 1 and 3 interact, the issue of double taxation, and the role of characterisation.

2    The role of “consideration”

The concept of “consideration” plays a critical role in each of the steps prescribed in the GST Act that lead to an entity becoming liable to pay an amount on account of GST. The steps are as follows:

  • Step 1 – identification of a “taxable supply” for the purposes of s 9-5, being when an entity makes “a supply for consideration” within the meaning in paragraph 9-5(a);[2]
  • Step 2 – quantifying the amount of GST payable on the taxable supply, by reference to the “price” and “value” of the taxable supply as set out in s 9-75; and
  • Step 3 – determining the time that the amount of GST is required to be paid, being within the prescribed period after the tax period in which the GST is “attributable” for the purposes of s 29.

Only after completing each of these steps can an entity calculate its net amount for a particular tax period and complete its activity statement.[3]

Set out below is a detailed discussion of each of these steps. In undertaking this task, I have sought to set the scene prior to the decision in MBI Properties.

2.1     Step 1 – identification of a “taxable supply”

2.1.1     The legislative scheme

Section 7-1(1) provides that “GST is payable on *taxable supplies and *taxable importations”.

Section 9-5 relevantly defines a “taxable supply” as follows:

You make a taxable supply if:

(a) you make the supply for *consideration;

(b)…

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

The element of “taxable supply” in paragraph (a) of s 9-5 involves a composite expression, including both “supply” and “consideration”. However, it is not enough that a supply and consideration can be identified. The paragraph will only be satisfied where a sufficient connection between the two can be identified – the supply must be “for” the consideration.

The role taken by the composite expression in paragraph 9-5(a) was acknowledged by the High Court in Reliance Carpet, where the Court observed (at [5]) that the composite expression “a taxable supply” was of critical importance for the creation of liability to GST and that “[i]n the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of “supply”, but upon examination it may appear that there is no more than one “taxable supply”.

What the High Court appeared to be saying was that each transaction must be examined to determine whether one or more “taxable supply” can be identified – ie, whether one or more “supply for consideration” could be identified. In other words, each transaction must be characterised for the purposes of GST.

2.1.2     The meaning of “supply”

“Supply” is defined in s 9-10. A discussion of the definition is beyond the scope of this paper, save to say that the definition is very broad. A discussion of the impact of the decision in MBI Properties on the concept of “supply” is to be found in the paper presented by Geoff Mann and Jadie Teoh at this conference.[4]

2.1.3     The meaning of “consideration”

“Consideration” is defined in s 195-1 to mean “for a supply or acquisition, means any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition”.

Section 9-15 relevantly provides as follows:

Consideration includes:

(a) any payment or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.

It can be seen that the definition of “consideration” is very broad and it includes monetary and non-monetary consideration.

Further, what constitutes “consideration” is not defined by reference to contract law. In Food Supplier and the Commissioner of Taxation (2007) 66 ATR 938 (Food Supplier) the President of the Tribunal observed that the word “consideration” in taxing statutes is generally “not to be read as requiring identification of the consideration sufficient to support a contract”, referring to Chief Commissioner of State Revenue v Dick Smith Electronics Holding Pty Limited (2005) 221 CLR 496 (Dick Smith) at 518. In Dick Smith, the majority of the High Court observed (at 518) that in the context of the New South Wales stamp duty regime, the statutory criterion of consideration “for” a transaction “looks to what was received by the Vendors so as to move the transfers to the Purchaser as stipulated in the Agreement”. This analysis was adopted by the High Court recently in Lend Lease (at [49]) in the context of the Victorian stamp duty regime.

The concept of “consideration” in the GST Act may be even broader than in the stamp duty context. The definition of “consideration” is extended by s 9-15 to mean any payment, act or forbearance “for or in connection with”, “in response to” or “for the inducement of” a supply of anything. In Food Supplier the President of the Tribunal (at [9]) adopted the observation of Hill J in HP Mercantile Pty Limited v Commissioner of Taxation (2005) 143 FCR 55 (HP Mercantile) at 563 that words such as “in connection with” have a wide meaning.

2.1.4     The “nexus” between supply and consideration

In Qantas the majority of the High Court (at [14]) held that the word “for” was not used to adopt contractual principles but required a “connection or relationship between the supply and consideration”. In that case, the High Court found that here was a sufficient connection or relationship between the payment of the fare (consideration) and the making of a promise to use best endeavours to carry the passenger and baggage (supply) to found a taxable supply.

In considering the nature of this connection or relationship, the definition of consideration must also be considered. In AP Group Limited v Commissioner of Taxation (2013) 214 FCR 301 (AP Group) Edmonds and Jagot JJ (at [32]) observed that if the definitions were inserted in substitution for the defined terms where they appear in s 9-5, the result was as follows:

you make [any form of supply whatsoever] for [any consideration, within the meaning given by sections 9-15 and 9-17 in connection with the supply or acquisition].

This is a difficult phrase. Their Honours (at [33]) helpfully explained that these words meant the following:

  • The consideration must be “in connection with” the supply but the supply must also be “for” the consideration.
  • “For” in this context means, “in order to obtain”.
  • The word “for” identifies the character of the connection which is required and ensures that not every connection of any character between the making of a supply and the payment of consideration would suffice.

It would appear that their Honours took the view that the words “for” provide the context in which to construe the words “in connection with”. However, one question that does is arise is that under this approach it is difficult to see what the extended definition of “consideration” and the words “in connection with” add, particularly in the context of identifying a taxable supply. If a supply is made “for” the consideration, it is difficult to see how that supply could not also be “connected with” the consideration.

It is interesting to compare the approach of Edmonds and Jagot JJ in AP Group with that of the High Court in Reliance Carpet, where the High Court (at [33]) made the following observation about the connection between the deposit paid by the purchaser of real estate and a supply by the vendor:

The payment of the deposit by the purchaser to the taxpayer was “in connection with” a supply by the taxpayer, within the meaning of the definition of “consideration” in s 9-15(1)(a) of the Act. That connection is readily seen from the circumstance that…the payment of the deposit obliged the parties to enter into the mutual legal relations with the executory obligations and rights laid out in the Contract. Those legal relations were directed to the completion of the Contract by conveyance of the property to the purchaser by the taxpayer upon payment by the purchaser.

Edmonds and Jagot JJ (at [34]) acknowledged that the question of whether there was a taxable supply had been expressed in terms of “connection” in numerous decisions, including in Reliance Carpet. Their Honours stated that in no case did the analysis begin and end with that question and in each case the nature and extent of the connection was also analysed to ascertain whether the supply was made for the consideration.

At the end of the day, it may not matter whether the construction proposed by Edmonds and Jagot JJ is different to that adopted by the High Court in Reliance Carpet. What does appear clear from the authorities that “any” connection between an identified supply and an identified consideration will not be sufficient. In this regard, guidance on the meaning of the “in connection with” and the nature of the requisite nexus between supply and consideration may be found in the observations of Hill J in HP Mercantile where his Honour considered the meaning of the words “in relation to” in s 11-15(2)(a) (which denies a creditable purpose to the extent that acquisitions “relate to” the making of supplies that would be input taxed).

Hill J (at [35]) made the following observations:

…the words “relates to” are wide words signifying some connection between two subject matters. The connection or association signified by the words may be direct or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case. Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found.

In the context of s 11-15(2)(a), the following principles can be derived from the judgment of Hill J in HP Mercantile:

  • the words “relates to” require a real and substantive relationship between the acquisition and the making of supplies that would be input taxed;
  • the relationship may be direct or indirect;
  • a “real and substantial” relationship is one which is not “trivial” or “remote”; and
  • it is a question of objective fact whether a sufficient relationship exists in a particular case.

In my view, the same principles can be applied to the words “in connection with” in the context of determining whether there is a supply “for” consideration. Accordingly, “any” connection between a supply and consideration would not be sufficient. A trivial, remote, or insignificant connection would not suffice. The relationship must be a real and substantial one.

Determining the nexus

In many (if not most) cases the existence of a sufficient nexus between consideration and a supply will be readily apparent because the consideration equates to consideration at contract law – being consideration paid or payable to bind the parties to the contract. An example is Reliance Carpet where the High Court (at [33]) made the following observation about the connection between the deposit paid by the purchaser of real estate and a supply by the vendor:

That connection is readily seen from the circumstance that…the payment of the deposit obliged the parties to enter into the mutual legal relations with the executory obligations and rights laid out in the Contract. Those legal relations were directed to the completion of the Contract by conveyance of the property to the purchaser by the taxpayer upon payment by the purchaser.

However, there will be transactions where the nexus is more difficult to identify.

An example is AP Group Limited and Commissioner of Taxation [2012] AATA 409[5]. The issue was whether certain “incentive payments” paid by car manufacturers to car dealers were consideration for supplies made by the dealers. The argument of the Commissioner focused on the breadth of the definitions of “supply” and “consideration” and was essentially that the dealers made supplies by performing their obligations under the various Dealer Agreements and that the incentive payments were “in connection with”, “in response to” or “for the inducement of” those supplies. The taxpayer submitted that there was no supply under the Dealer Agreements, but if there was, there was “no substantial relation, in a practical business sense” between the incentive payments and that supply or any other supply.

The Tribunal agreed with the taxpayer. With respect to the taxpayer’s alternative argument, the Tribunal concluded as follows (at [86]):

The incentive payments are not made “for”, or even “in connection with”, any such supplies. There is no nexus between the payment of the incentives and the making of the promises, the performance of the obligations, or the compliance with the manufacturers’ various rules and policies.

Another example is Lighthouse Financial Advisers (Townsville) Pty Ltd and Commissioner of Taxation [2014] AATA 301. The issue was whether a payment made under a Deed of Settlement of legal proceedings for breach of contract was consideration for a supply, being consideration for the surrender of or release from various rights and obligations, including the right to sue. The Tribunal approached the statutory enquiry in the following way:

26. In respect of out-of-court settlements, such supplies are described in GSTR 2001/4 as “discontinuance” supplies. The Commissioner accepts that the settlement agreement between the parties does contain a discontinuance supply.

27. Whether a discontinuance supply is a taxable supply depends on the requirements of s 9-5 of the GST Act being met in relation to that supply. Under s 9-5(a) a supply is a taxable supply if, among other things, the supply is made “for consideration”.

28. Section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is “in connection with” a supply and “in response to” or “for the inducement” of a supply. There must be sufficient nexus between the supply and the payment.

The Tribunal concluded that the payment was not made in consideration of the surrender of the right to sue, noting that such terms are not unusual where litigation is settled. Further, those terms did not give rise to an additional payment and they should not be ascribed a separate value.

In my view, the decision of the Tribunal was correct. However, the reason would appear to be that the payment was not “for” the surrender of the right to sue – the payment was “for” damages. Given that the settlement agreement included the surrender of the right to sue as an express term, it is difficult to see how the payment was not “in connection with” the surrender. Coming back to the approach of Edmonds and Jagot JJ in AP Group, the payment satisfied the first limb of the statutory enquiry (ie, the payment was “in connection with” the surrender), but the payment did not satisfy the second limb, namely that the payment was also “for” the surrender.

The stamp duty cases

At a practical level, it appears that the critical question is whether consideration is “for” a supply, regardless of whether the consideration may also be seen to be “in connection with” the supply. If so, the stamp duty decisions, including decisions of the High Court in Dick Smith and Lend Lease adopt a particular relevance. In those cases, the High Court found that the question is whether a particular matter satisfying the definition of consideration “moved” the making of an identified supply. This has a distinct similarity with the approach of Edmonds and Jagot JJ in AP Group that the consideration be provided “in order to obtain” the supply.

The stamp duty cases are discussed further below in respect of Step 2.

2.1.5     Can there be more than one “taxable supply”?

Given the broad definition of “supply” in s 9-10, most transactions will give rise to a number of matters that fall within that definition. Further, each of those supplies will be “for” and “in connection with” the same consideration and will therefore satisfy the statutory definition of “taxable supply”. This raises the question of whether a single transaction can give rise to multiple taxable supplies and multiple taxing points.

The High Court has told us that the answer is no. However, the basis for this view may have shifted over time.

Reliance Carpet

In Reliance Carpet the High Court made the following observation (at [5]):

In the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of “supply”, but upon examination it may appear that there is no more than one “taxable supply”.

As discussed above, the High Court appeared to be telling us that the process of identifying a taxable supply (and thereby a liability for GST) is one of characterisation.

In Reliance Carpet there were at least two consecutive acts which could answer the statutory description of supply: the entry into the various obligations upon the entry into the contract of sale; and the transfer of title on settlement. The deposit satisfied the definition of “consideration” as it was a monetary payment which was made “in connection with”, “in response to” or “for the inducement of” both supplies. However, the effect of Division 99 was to defer the treatment of the deposit as “consideration” until such time that the contract completed or the deposit was forfeited.

Given the operation of Division 99, the task of characterisation of the transaction, and identifying what supply the deposit was “for”, was arguably undertaken by the operation of the Act. If the contract completed and the deposit was applied as part of the purchase monies, the deposit was paid “for” the supply made on completion – the supply of the land. If the contract was terminated and the deposit was forfeited, the deposit was paid “for” the supply made on entry into the contract.

Because of the operation of Division 99, the High Court in Reliance Carpet was not required to address the question of characterisation in an ordinary sense. For example, a terms contract with multiple instalment payments to which Division 99 does not apply. Each instalment payment is “in connection with”, and also “for”, the supply made by the vendor on entry into the contract and also the supply to be made on completion. Nevertheless, the High Court in Reliance Carpet appeared to tell us that such a contract would be properly characterised as giving rise to only one “taxable supply”. The generally accepted view is that the “taxable supply” is that which takes place at settlement.

An illustration of this approach is the decision of the Federal Court in Central Equity Limited v Commissioner of Taxation (2011) 214 FCR 255. The question in that case was whether GST was payable in respect of Contracts of the Sale of land which were entered into prior to 1 July 2000 but completed after 1 July 2000. While the case involved the transitional provisions and whether the real property was “made available” as at 1 July 2000, Gordon J made the following observations on the general treatment of the contracts, noting that Division 99 did not apply because the deposit was paid before 1 July 2000:

First, in respect of a sale of real property, there may be more than one event which gives rise to a “supply” within the meaning of s 9-10 of the GST Act. However, both parties agree that there can only be one “taxable” supply for the purposes of s 9-5 of the GST Act. As the High Court stated in Federal Commissioner of Taxation of the Commonwealth of Australia v Reliance Carpet Co Pty Limited [2008] HCA 22; (2008) 236 CLR 342 at [5]:

The composite expression “a taxable supply” is of critical importance for the creation of liability to GST. In the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of “supply”, but upon examination it may appear that there is no more than one “taxable supply”.

Thus, the ultimate issue is whether the taxable supply was made before or after 1 July 2000. The applicants submitted the supply took place upon entry into the Metro or Capri Contracts, and that settlement was merely or a step in “perfecting” the rights and obligations that arise upon entry into the contracts of sale. According to the applicants it was the supply (the entry into the contracts) which would underpin the finding of a taxable supply for the purposes of s 9-5(a) of the GST Act and because it was made by Southpark before 1 July 2000, s 9-5(a) of the GST Act is not satisfied. The respondent submitted that a supply took place upon settlement of those contracts, and that any earlier acquisition of rights that might otherwise constitute a supply in its own right was merely ancillary to the real and substantive provision of that which was contracted for at settlement. It is apparent that both events would satisfy the s 9-10 definition of “supply”: see [30] above, in particular subs (2)(d) and (2)(e).

Her Honour decided that the taxable supply was made on completion of the contracts and the supplies made on settlement were “for consideration” (comprised of the deposits and the balanced paid at settlement) – accordingly GST was payable. In coming to this view, her Honour made the following observations:

  • Each case must be determined on its own facts and it is difficult, and her Honour suggested, dangerous, to espouse some general rule;
  • The task is to analyse the sale contracts; and
  • While Reliance Carpet and Qantas (referring to the decision of the Tribunal, at the time the appeal to the Full Federal Court had been heard but judgment was reserved) recognised that entry into a contract may result in the acquisition of rights so as to give rise to a “supply”, those cases concerned incomplete transactions – in such cases, the early supply stood by itself and could be a supply giving rise to an obligation to remit GST.

Qantas

In Qantas the High Court had the opportunity to consider the position where a transaction did not proceed to completion and Division 99 did not apply.

The argument of the taxpayer in Qantas was effectively that, once the transaction had been properly characterised, the relationship between the supply made on the booking and the consideration (the fare) was not the right or relevant one for the purposes of s 9-5(a). The Full Federal Court[6] appeared to accept this argument and referred to concepts such as “the relevant supply”. It is instructive to reproduce the following part of the judgment of the Full Court (at [40]-[41]):

The Identification of the Relevant Supply as the Taxable Supply

As the High Court said in Reliance Carpet at [5]:

‘The composite expression “a taxable supply” is of critical importance for the creation of liability to GST. In the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of “supply”, but upon examination it may appear that there is no more than one “taxable supply”.

Consistent with this statement, and as noted above, the Commissioner eschewed reliance on multiple taxable supplies and contended that while there may have been other supplies, there was only one ‘taxable supply’ and that was the entering into the contract (the making of the reservation). Qantas likewise put its case on the basis that there was only one taxable supply in contemplation, namely, the flight, and that failed. It did, however, embrace a fall-back position that if the entering into the contract was a relevant supply, it was not the only ‘taxable supply’; there were other ‘taxable supplies’, including the flight, and the matter would have to go back to the Tribunal for a fact-finding determination of what they were and the allocation of the consideration (the fare) among them. This was, however, very much a fall-back position.

The Full Court found that the “relevant supply” was the contemplated flight, not the reservation or booking. Accordingly, the consideration (the fare) was only “for” the contemplated flight, the fare was not “for” the booking. The Court concluded as follows (at [56]):

The actual travel was the relevant supply, and if it did not occur there was no taxable supply. Instead, what the Tribunal did was to look for other ‘acts’ satisfying the definition of supply. It erred in doing so, for even if the identified ‘acts’ were capable of meeting the definition of supply, they were not ‘acts’ for which the consideration was provided.

The High Court did not agree, and effectively found that once a supply, consideration and sufficient nexus between the two could be identified, the statutory conditions for a “taxable supply” were established. Also, it did not matter if this was not the supply bargained for by the purchaser. This approach is consistent with the language of s 9-5(a) and the definition of “consideration”, which draw no distinction between “connections” that are relevant and those which are not. The words of the statute simply look to whether a connection existed between a supply and consideration.

In taking this approach, the High Court arguably moved away from its earlier comments in Reliance Carpet and appeared to acknowledge that a single transaction could give rise to multiple taxable supplies, when it observed (at [19]) that “one consideration may be received for more than one supply”. The High Court addressed the difficulty of multiple taxable supplies (and multiple taxing points) by relying on the attribution rules in Division 29. In doing so, the Court adopted the following submission of the Commissioner:

The appellant (“the Commissioner”) stresses that the effect of the GST Act is that with respect to any particular transaction the GST is payable only once, at the end of the attributable taxation period. In particular, GST is not payable more than once by reason that the consideration is received in connection with an executory contract which involves more than one supply. Thus, GST on the consideration received is not payable in each of the tax periods in which a series of events occur in performance of an executory contract; the GST is payable once, in the tax period of the first payment or invoice.

The attribution of GST is dealt with by s 29 and is discussed further below under Step 3.

2.2     Step 2 – The “value” of a taxable supply

Section 9-40 states that you (the supplier) “must pay the GST payable on any *taxable supply that you make”. The concept of “consideration” is fundamental to calculating the amount of GST payable.

The amount of GST on a taxable supply is 10% of the “value” of the taxable supply: s 9-70. The “value” of a taxable supply is 10/11th of the “price”: s9-75. The “price” is the sum of the following:

(a) so far as the *consideration for the supply is consideration expressed as an amount of *money – the amount (without any discount for the amount of GST (if any) payable on the supply); and

(b) so far as the consideration is not consideration expressed as the amount of money – the *GST inclusive market value of the consideration.

Paragraph (a) suffers from the same difficulties as s 9-5(a) because of the extended definition of consideration in s 9-15. Adopting the approach of Edmonds and Jagot JJ in AP Group, if the definitions are inserted in substitution for the defined terms where they appear in s 9-75(a) the definition of “price” relevantly reads as follows:

so far as [any consideration, within the meaning given by sections 9-15 and 9-17 in connection with the supply] for the supply is expressed as an amount of money… .

Adopting the approach of Edmonds and Jagot JJ in AP Group, to be included in the “price” of a taxable supply, it is a pre-requisite that the consideration be “in connection with”, “in response to” or “for the inducement of” the supply. However, that is not sufficient – the consideration must also be “for” the supply.

As discussed above in the context of Step 1, in many transactions the total consideration (or “price”) for a taxable supply will be readily apparent. However, this may not always be the case and there may be disagreement on whether a particular payment, act or forbearance should be included in the “price” of a taxable supply.

An example is Rod Mathiesen Truck Hire Pty Ltd as trustee for the Mathiesen Family Trust and Commissioner of Taxation [2013] AATA 496. The applicant entered into a contract of sale to sell vacant land for the price of $3,177,650 plus GST. Prior to settlement the purchaser notified the applicant that it was unable to pay the whole of the purchase price at settlement. To complete settlement, the purchaser paid the amount of $2,017,885 and the parties entered into a “Settlement Balance Facility Agreement”, whereby the applicant agreed to lend the balance of the settlement sum to the purchaser with the loaned amount to be secured by a mortgage over the property. The Tribunal upheld the decision of the Commissioner that the applicant had received full consideration for the supply of the property, constituted by the cash payment and the amount of the loan. The Tribunal found that the obligation on the vendor to advance the loan monies was set-off at settlement against the purchaser’s obligation to pay for the property.

2.2.1     The stamp duty cases

In determining whether a particular consideration is paid “for” a taxable supply, and therefore forms part of the “price” for the taxable supply, the stamp duty decisions of the High Court in Dick Smith and Lend Lease are instructive as to how the question may be approached.

Dick Smith

In Dick Smith the taxpayer entered into an agreement for the purchase of shares in the vendor company. The purchase price for the shares was defined in the Share Sale Agreement to be “$114,139 minus the Dividend Amount”. The Dividend Amount was defined to mean “all retained earnings (up to a maximum of $27m) which the Company is able to pay on the Shares at Completion, or such other amount as the parties agree”. A further clause in the agreement obliged the purchaser on completion, and immediately after payment of the purchase price, to fund the Company to enable it to pay the Dividend Amount. The High Court (at [57]) observed that the effect of the agreement was that the Vendors were only obliged to complete the sale if the purchaser had performed, or was ready, willing and able to perform the funding obligation. On completion, the taxpayer paid a total of $114,139,649, comprising payments of $88,555,552 to the vendor and $25,584,097 in performance of the funding obligation. The Supreme Court of New South Wales (at first instance and on appeal) found that the consideration that “moved” the transaction was limited to the cash payment to the vendor. A majority of the High Court did not agree.

Noting that the criterion in the Act of consideration “for” the transaction looks to what was received so as to move the transfers, the majority concluded (at [75]) that the consideration which moved the transfer of the shares by the Vendor to the purchaser was the performance by the purchaser of the several promises recorded in the agreement – it was only in return for that total sum that the Vendor was willing to transfer the shares.

Lend Lease

The case involved the transfer of several parcels of land in the Docklands Area of Melbourne from the Victorian Urban Development Authority (“VicUrban”) to Lend Lease pursuant to a Development Agreement (“DA”) entered into in 2001 and amended in 2006 and 2008. The DA required Lend Lease to spend set amounts of money on specific works and infrastructure, some of which were on the land and some were not. The Commissioner included the amounts as “consideration” for the purposes of calculating duty on the transfers. The Court of Appeal found that the payments were separate and distinct from the transfer of the land and that the payments were for something other than the transfer of the land. The High Court allowed the Commissioner’s appeal and found that each of the payments was “for” the transfers. As observed by the High Court (at [50]):

…the consideration which moved the transfer by VicUrban to Lend Lease of each Stage was the performance, by Lend Lease, of the several promises recorded in the 2001 DA (or that agreement as later varied and supplemented), in consequence of which VicUrban would receive the total of the several amounts set out in the applicable agreement. It was only in return for the promised payment of that total sum, by the various steps recorded in the applicable agreement, that VicUrban was willing to transfer to Lend Lease the Land comprising the relevant Stage.

The High Court (at [51]) observed that this conclusion was reached after an enquiry that begins in the agreements the parties made. The enquiry was not limited to the sale contracts for the land, but extended to the DA. Nothing in the DA denied the conclusion that VicUrban was willing to transfer the land only in consideration of Lend Lease making all of the payments provided for in the DA.

The approach of the High Court in the stamp duty cases involves an element of characterisation. Further the enquiry extended to the entirety of the commercial arrangements between the parties. A similar approach likely applies to GST. If anything, the scope of the enquiry may be broader. An insight into the broad nature the enquiry may be found in the following observations of Edmonds J in ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33 at [29]:

We are not here concerned with whether a supply occurred on entry into a contract (cf., Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22; (2008) 236 CLR 342; Federal Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41; (2012) 247 CLR 286) or even with the characterisation of that supply it if did occur. We are concerned here with the character of a supply made as a result of performance of the terms and conditions of a contract. The terms and conditions are the instrumentality through which the supply is made, but the text of these terms and conditions is not conclusive of the character of the supply that is made; that will depend as much on the manner of performance of those terms and conditions as the text of the terms and conditions themselves; it will also depend on the commercial or business purposes, discerned objectively, of those who have entered into the relevant contract.

His Honour’s observations were made in the context of characterising a transaction from the perspective of “supply”. One can adopt the same approach in the context of characterising at transaction from the perspective of “consideration”. On this basis, the enquiry may extend beyond the terms of the agreement(s) between the parties and include the manner in which those terms were performed and the objective commercial or business purpose of the parties to the agreement(s).

Applying this approach to the decision of the Tribunal in Mathieson discussed above, one can readily see that the objective purpose of entering into the loan at settlement was to facilitate the payment of the total purchase price. The vendor would not have agreed to settle unless the purchaser paid the cash amount and also entered into the loan agreement.

2.3     Step 3 – The attribution of GST payable on a taxable supply

Section 29-5 deals with the attribution of GST on taxable supplies. The section provides as follows:

(1) The GST payable by you on a *taxable supply is attributable to:

(a) the tax period in which any of the *consideration is received for the supply; or

(b) if, before any of the consideration is received, an *invoice is issued relating to the supply – the tax period in which the invoice is issued.

(2) However, if you *account on a cash basis, then:

(a) if, in the tax period, all of the *consideration is received for a *taxable supply – GST on the supply is attributable to that tax period; or

(b) if, in a tax period, part of the consideration is received – GST on the supply is attributable to that tax period, but only to the extent that the consideration is received in that tax period; or

(c) if, in a tax period, none of the consideration is received – none of the GST on the supply is attributable to that tax period.

The effect of the attribution provisions is that the liability to pay GST on a taxable supply is not dependent upon when the supply is made. The trigger for liability is the receipt of consideration (for accruals taxpayers liability may also be triggered by the issue of an invoice).

In Qantas the majority of the High Court (at 4]) described s 29-5(1) as “an important provision in the legislative regime”. The High Court appeared to give s 29-5 a dual role, being to operate as a trigger for liability and also to ensure that liability will only trigger once in respect of a particular transaction. This dual role is reflected in Court’s acceptance of the following submission made by the Commissioner at the hearing of the appeal (at [5]):

The appellant (“the Commissioner”) stresses that the effect of the GST Act is that with respect to any particular transaction the GST is payable only once, at the end of the attributable taxation period. In particular, GST is not payable more than once by reason that the consideration is received in respect of an executory contract which involves more than one supply. Thus, the GST on the consideration received is not payable in each of the tax periods in which a series of events occurs in performance of an executory contract; the GST is payable once, in the tax period of the first payment or invoice.

The High Court stated as follows (at [19]):

…one consideration may be received for more than one supply, although, as noted above, the GST will be payable once and will be attributable to the first tax period in which any of the consideration is received or invoiced.

The Commissioner’s submission was effectively that the taxable supply that triggers a liability to GST is to be identified by reference to the attribution rules in s 29-5. Under this approach, while there may be multiple supplies made under an executory contract, and the consideration may be “for” and “in connection with” each of those supplies, there is only one taxable supply that triggers a liability to GST.

Applying that approach to the facts in Qantas, the taxable supply which triggered a liability for GST was the supply made on the booking, with attribution taking place in the tax period in which the fare (or any part thereof) was received.

This is reflected in the written submissions of the Commissioner to the High Court (available on the High Court website) which provided as follows (at paragraph 20): (footnotes omitted)

In the present appeal the unused fares were first received or invoiced in the tax periods assessed. Each was received on or pursuant to the making of a contract between Qantas and a customer, by which Qantas supplied rights, obligations and services additional to the flight which was to have been provided. Each comprised “payment…in connection with a supply” of those rights, obligations and services, which was thereby a taxable supply attributable to that period. The assessments correctly included, in the net amount for each tax period, GST on a “price” comprising the fares.

And at paragraph 30:

GST is not payable twice by reason that the consideration is paid in connection with more than one supply. It will ordinarily be the case, even where there is no executory contract, that more than one event falling within the s 9-10 definition of “supply” will occur in connection with payment of consideration – for example, a simple sale of goods will ordinarily involve a supply of goods, of obligations arising under sale of goods and fair trading legislation, of rights under warranty, of packaging and (often) delivery, but only one payment of price. GST on the price is not payable in each of the tax periods in which the several events occur, but only once in the tax period of invoice or first payment.

Given these observations, it would appear that the High Court moved away from its approach in Reliance Carpet that involved examining, or characterising, the transaction to see whether there was one or more taxable supplies. Under that approach, if a transaction was characterised as giving rise to one taxable supply, the consideration “for” that supply could not also be consideration “for” another supply. In Qantas the High Court appeared to accept that you could have multiple taxable supplies, but any difficulties were resolved by having recourse to the attribution rules in s 29-5.

3    The decision in MBI Properties

3.1     An outline of the case

The facts can be shortly stated:

  • South Steyne Hotel Pty Ltd (“South Steyne”) purchased a hotel complex in 2000 and in 2006 a plan of strata subdivision was registered whereby the hotel complex was divided into 84 strata lots, each comprising an apartment in the hotel complex.
  • Later in 2006, South Steyne entered into a lease with MML in respect to each of the 83 lots. Under each lease MML (as lessee) was obliged to use the apartment as part of a serviced apartment business.
  • In 2007 South Steyne sold three apartments to MBI. Each apartment was sold subject to the lease and was stated to be the sale of a going concern. Each contract permitted MBI to participate in the serviced apartment business. MBI elected to participate.

The issue was whether MBI had an increasing adjustment pursuant to s 135, which provides as follows:

(1) You have an increasing adjustment if:

(a) you are the *recipient of a *supply of a going concern, or a supply that is *GST-free under section 38-480; and

(b) you intend that some or all of the supplies made through the *enterprise to which the supply relates will be supplies that are neither *taxable supplies nor *GST-free supplies.

At first instance and on appeal to the Full Federal Court, the parties proceeded on the basis that MBI (as the purchaser of the reversionary interest in the apartments), made a supply under the existing leases. On appeal to the High Court, the Commissioner sought to challenge this finding. The High Court allowed the appeal and found that MBI did made a supply to the lessees.

3.2     The notice of contention

Before the High Court, the respondent taxpayer filed a Notice of Contention which was described by the High Court as follows (at [31]):

The argument is that no increasing adjustment can be calculated using the formula set out in s 135-5. That is because the formula requires the existence of a price for the intended supply. MBI argues that the rent to be paid to MBI by MML remains exclusively the price for the earlier supply constituted by the grant of the apartment lease by South Steyne to MML and cannot also be the price for any supply by MBI to MML. That must be so, according to MBI, because the general operation of the GST Act is to avoid double taxation by implicitly requiring that any one amount of consideration only ever by the price of one supply. A single payment in connection with two or more sequential supplies can only ever be treated as the price of the earliest of those supplies and cannot also be treated as the price of the later supplies.

The essential argument of MBI appears to have been that once GST is paid in respect of a taxable supply, the consideration for that taxable supply can no longer be treated as consideration “for” any other supply.

In considering this question, it is instructive to consider the arguments put by MBI at the hearing of the appeal before the High Court, as disclosed in the transcript. Counsel for MBI made the following points:

  • In Reliance Carpet and Qantas there was no second supply in connection with which the consideration had been received – they were both cases in which the consideration that was sought to be brought into the tax net was in connection with two supplies, but only one had been made. In both cases it was sufficient to dispose of the appeal by showing that consideration was received in connection with the supply that was made.
  • In this case the question arises as to how the Act works if two supplies were made – and the answer is that s 9-5 and s 9-75 together ensure that the consideration in connection with many supplies is only made consideration for one of them, being the first one that occurs – and within the meaning of the Act only one of those supplies has a “price”.
  • Referring to the observation of the High Court in Qantas that “one consideration may be received for more than one supply”, it does not follow that:
    • consideration received in connection with multiple supplies will be treated as consideration for multiple supplies within the meaning of section 9-5; and
    • the problem of double taxation is avoided by way of the attribution rules.
  • The Act works in the following way where consideration is received in connection with several supplies:

…in order for a GST liability to arise there are relevantly two criteria, two things, that must be shown. The first is that the consideration must be in connection with one of them, and that is essentially a factual inquiry. A contractual connection will ordinarily be sufficient, and that is in order to satisfy the requirement in section 9-15 that the consideration be in connection with the supply. But, secondly, your Honours, and critically, that consideration must be treated by the Act as consideration for a supply, picking up the words of section 9-5, and it is in that way that the Act brings consideration into the GST net – tax can be paid on it – but the Act only does that once.

So in the Qantas example, the language in section 9-5, consideration for a supply, accommodates the possibility that where a fare is paid and a flight is taken that the Act, although it will see the consideration as being in connection with both of those supplies will treat it as consideration for a taxable supply only once. So coming back to our notice of contention and how we say all of that applies here, it is, as I have submitted, common ground that rent when it is paid is in connection with two things.

It is in connection with the grant of a lease and it is on this view also in connection with the use of premises. Where rent, like any consideration, is received in connection with more than one supply, the Act will only see one taxable supply and as soon as that has occurred it will have no occasion to treat that consideration as being for any other supply.

  • And in response to the Commissioner’s case:

The only question is how the Act treats consideration that is in connection with more than one supply, and the point we make is that the Act treats consideration as being for a supply once only, and wherever a supply is made and consideration is received in connection with it there will be a taxable supply and the price of that taxable supply will be the amount of consideration for it.

The Commissioner’s case here in relation to the increasing adjustment is that the rent that came in from time to time after the acquisition of the reversion was the price of the use of the premises within the meaning of the GST Act and at the same time was the price of the grant. The submission we make is that that is not how the GST Act works. It applies once and once only to bring consideration in, tax is paid on it, and that is the end of the hunt of the relationship between consideration and supplies.

The High Court rejected MBI’s submissions for the reasons set out below (at [42]-[45]): (footnotes omitted)

42. The definition of price in s 9-75 (referring to the consideration for a taxable supply) and the definition of consideration in s 9-15(1)(a) (extending to any payment in connection with a supply of anything) contain nothing to suggest a need to establish an exclusive connection between a particular payment and a particular supply for the amount of that payment to be the price for that supply within the general operation of the GST Act.

43. Establishment of such an exclusive connection is not required in order to avoid double taxation. The general operation of the GST Act avoids double taxation not by establishing an exclusive connection between a particular amount of consideration and a particular supply by rather by establishing an exclusive connection between a particular amount of consideration and a particular tax period. The scheme of the GST Act is that, subject to the operation of any applicable special rule, it is s 29-5 which makes GST payable only once, in the tax period of the first payment or invoice.

44. That explanation of the role of s 29-5 was adopted in Qantas Airways. Earlier observations in Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd were directed to the operation of special rules applicable to a deposit held as security for the performance of an obligation, not to the general operation of the GST Act.

45. MBI’s intended supply of residential premises by way of lease to MML was for a price: the rent to be paid to MBI by MML in observance of MML’s continuing obligation under the apartment lease. That is so whether or not that rent can be said also have been payable in connection with South Steyne’s grant of the apartment lease to MML.

The High Court rejected the argument that there was a need to establish an exclusive connection between a particular payment and a particular supply for the payment to be the “price” for that supply. Implicit in this view is that there is no need to establish an exclusive connection between particular payment and a particular supply for there to be a taxable supply. Further, the High Court adopted its stated position in Qantas that the issue of double taxation was addressed by the attribution rules in s 29-5.

3.3     The s 9-5 path vs the s 29-5 path: does it matter?

The transcript of the hearing before the High Court discloses that Gageler J observed that the approaches of the Commissioner (using s 29-5) and of MBI Properties (using s 9-5 and s 9-75) gave the same answer, that GST is paid only once.

His Honour may well be correct. While the paths may be different, the end result does appear to be the same. Under both approaches an identified amount of consideration can only be used once to trigger a liability for GST – the consideration is effectively “used up” and cannot be used to trigger a further GST liability.

However, one matter which is not addressed by s 29-5 is the identification of the taxable supply, namely the supply which the consideration is “for”. Regard must be had to s 9-5(a) to answer that question.

The matter can be considered using the following example based on Qantas:

Qantas sells airline tickets for domestic air travel. The booking is a supply made “for” and “in connection with” the fare. The flight itself is also a supply made “for” and “in connection with” the fare. Determining the GST outcome requires the characterisation of the entire transaction, including the manner of its performance.

Scenario 1: Qantas makes a booking and receives the fare in the same tax period as the flight is taken. Pursuant to s 29-5 GST is attributed in that tax period, being the tax period in which the consideration is received. Further, while there are a number of separately identifiable acts that satisfy the definition of “supply”, there will only be a single taxable supply, for which the consideration is the fare. The appropriate characterisation of the taxable supply would likely be the supply of the air travel.

Scenario 2: Qantas makes a booking and receives the fare in one tax period and the flight is taken in a later tax period. Pursuant to s 29-5 GST is attributable in the tax period in which the fare is received. After characterising the transaction, the consideration is “for” a single taxable supply, being the supply of the air travel.

Scenario 3: Qantas makes the bookings and receives the fares in one tax period and the flights are not taken and no refund is given. Pursuant to s 29-5 GST is attributable in the tax period in which the fares are received; After characterising the transaction which actually took place (ie, having regard to the manner of its performance), the consideration is “for” the supply of the booking.

The aim of this example is to demonstrate that it is not enough to simply state that s 29-5 ensures that GST is paid only once. A necessary statutory enquiry of s 9-5(a) is to identify the supply that the consideration is “for” – that involves a characterisation of the transaction.

In most cases, particularly where the transaction completes, unless one or more of the supplies that can be identified in a particular transaction are GST-free or input taxed supplies, the question of characterisation will not cause any difficulty – indeed, at a practical level, it will not be required. The effect of s 29-5 will simply be that GST is attributed to the tax period in which the consideration is received. It will not be necessary to specifically identify the particular supply that the consideration is paid “for”.

However, that may not always be the case.

3.4     The time of taxable supply – Division 58

The identification of the taxable supply may be important where there is an issue as to when the taxable supply is made. In this regard, it is to be noted that there are no “time of supply” rules in the GST Act. In most cases that does not matter, because the question of liability for GST is dealt with by the attribution rules in Division 29.

However, there are situations where the timing of a supply is relevant. For example, the operation of Division 58 dealing with representatives of incapacitated entities such as liquidators.[7] The provisions can be relevantly stated as follows:

58-5 General principles for the relationship between incapacitated entities and their representatives

(1) Subject to this Division, any supply, acquisition or importation by an entity of a *representative of another entity that is an *incapacitated entity is taken to be a supply, acquisition or importation by the other entity.

58-10 Circumstances in which representatives have GST related liabilities and entitlements

(1) A *representative of an *incapacitated entity;

(a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation;…

to the extent that the making of the supply…to which the GST…relates is within the scope of the representative’s responsibility or authority for managing the incapacitated entity’s affairs.

(2) This section does not apply to the GST payable on a *taxable supply to the extent that one or more of the following apply:

(a) the *incapacitated entity received the *consideration for the supply before the *representative became a representative of the incapacitated entity.

The effect of these provisions that taxable supplies made by a liquidator (or other representative) in the course of his or her appointment will be deemed to be taxable supplies made by the incapacitated entity but the liquidator will be personally liable for the GST payable on those taxable supplies (for example, the sale of a company asset during the course of the liquidation). However, personal liability will not attach to the extent that the incapacitated entity received consideration for the supply before the appointment of the liquidator.

While not expressly excluded, personal liability will also not attach to a taxable supply that is made by the incapacitated entity prior to the appointment of the liquidator – even if all or part of the consideration for that taxable supply is received after the appointment. The ATO confirmed this position in ATO Interpretative Decision 2012/7 GST and liability for a supply made by an incapacitated entity prior to the appointment of a representative. The ATOID confirmed that the mere receipt of the consideration for the supply did not have the effect of deeming the supply to be made by the representative.

Accordingly, where a liquidator (or other representative) is appointed and payment is received after the appointment, to determine whether the liability for the GST falls on the liquidator personally or on the company (in which case the Commissioner must prove for the debt in the liquidation), it will be necessary to determine the taxable supply that the payment was “for” and whether that taxable supply was made before or after the appointment.

In answering this question, no assistance is gained by the attribution rules in Division 29, save that GST is will only be payable once, regardless of who is liable to pay.

The difficulties in this area were noted in a paper presented at this conference in 2013.[8] The paper refer to two helpful examples which are set out below.

The first example involves a contract for the sale of trucks:

For example, an incapacitated entity enters into a contract for the sale of trucks prior to appointment of a representative. The trucks are hired to the purchaser from the date of the agreement until completion. The sale completes and the purchase price is paid after appointment. Is the sale of the trucks a supply within the scope of the representative’s responsibility or authority?

In a private ruling issued on similar facts, the ATO determined that the sale of the trucks was not a supply within the scope of the representative’s authority or responsibility. This was because the representative was not a party to the contract and had not altered the terms of the contract or entered into a new contract with the purchaser. The representative simply carried out the terms of the existing contract and took no action in receiving the amount due at settlement. On this basis, it was considered that the sale of the trucks was a not a supply within the scope of the representative’s responsibility or authority.

The basis for the conclusion that the sale of the trucks was not a supply made within the scope of the representative’s responsibility or authority must be that the taxable supply was made prior to the appointment of the representative. This is because the supply for which the consideration was relevantly paid “for” was the supply made on entry into the contract of sale.

The second example involves a contract for the sale of land: (my emphasis added)

Take another example where an incapacitated entity enters into a sale of land contract prior to the appointment of a representative and the sale completes after the appointment. Is the supply of the land within the scope of the representative’s responsibility or authority?

In a private ruling issued on similar facts, the ATO determined that the supply was within the scope of the representative’s authority or responsibility as the supply occurred after the representative was appointed.

In this example, the supply for which the consideration was relevantly paid “for” was the supply made on completion of the contract – ie, the supply of the land.

At first glance, there appears to be little difference between the two examples. In both examples supplies were made on entry into the contract and on completion, and consideration was paid “in connection with” both supplies. It can also be argued that in both cases the liquidator simply carried out the terms of the existing contract and took no action in receiving the amount due at settlement. It could be said that the liquidator in the second example took action by executing a transfer of land and handing over title. However, the same could be said for the first example as one would have expected the liquidator to have executed a signed transfer of registration for the truck and handed it over at settlement.

Maybe the difference lies in the fact that in the first example the purchaser took possession of the truck (albeit under a hire agreement). In this context I note the decision of the Full Federal Court in Brady King Pty Ltd v Commissioner of Taxation (2008) 168 FCR 558. In that case, the parties entered into a contract of sale of land on 22 May 2000 with vacant possession to be given by the purchaser on completion (which took place after 1 July 2000). The purchaser was given an exclusive licence to assess the property to carry out building works. The Full Court held that, for the purposes of the margin scheme provisions in Division 75, the purchaser “held” or “acquired” the land prior to 1 July 2000.

Consider the following third example:

An incapacitated entity (which reports on a cash basis) enters into a terms contract for the sale of land on 1 January 2010 for the price of $1.1m inclusive of GST. The price is to be paid by way of a deposit of $110,000, four annual instalments of $110,000 with the balance of $550,000 to be paid on completion at the end of year 5. The purchaser is given possession to the land upon entry into contract and the payment of the deposit, which is common for terms contracts.

The purchaser pays a deposit of $110,000, plus the first four instalments of $110,000. Before completing the contract, the entity goes into liquidation. The liquidator completes the contract and receives the balance of $550,000. The secured creditor requests the liquidator to pay it the entire $550,000 and that the ATO prove in the liquidation for the $50,000 GST. The ATO requests the liquidator to pay $50,000 to it, on account of the liquidator’s personal liability for GST.

The liquidator is in a difficult position. The decisions of the High Court in Reliance Carpet, Qantas and MBI Properties make it clear that the transaction involves (at least) a supply on entry into the contract (pre-appointment) and a supply on completion of the contract (post-appointment) and that the consideration (ie, the price) can be connected to both supplies. Also, s 29-5 does not assist, save that GST will only be payable once. Section 29-5 provides no assistance in determining who has to pay the GST.

That question can only be answered by determining what supply the consideration is “for”. The answer to that question remains at large.

4    Conclusion

Notwithstanding the importance of “consideration” to the operation of the GST Act, the cases before the higher Courts have generally concerned the concept of “supply”. The recent decision of the High Court in MBI Properties is no different and the main subject of the case was supply. However, the issue raised by the taxpayer in its Notice of Contention squarely raised the issue of “consideration” before the High Court. The issue was whether the GST Act required that, as part of the process of identifying a taxable supply for the purposes of s 9-5 and a “price” for that taxable supply for the purposes of s 9-75, the consideration must be exclusively connected or tied to that particular taxable supply, to the exclusion of other supplies. The High Court said no, and found that consideration could be connected with more than one supply. This finding appears to allow the identification of two or more taxable supplies within the one transaction. To address the difficulty of double taxation, the High Court adopted its stated position in Qantas, to the effect that the attribution rules in Division 29 ensured that GST was only charged once.

It may well be that Division 29 prevents GST from being charged twice in respect of the same consideration, although, with the greatest respect to the High Court, it is difficult to see how the words of s 29-5 direct that outcome. Further, the words of s 29-5 provide no guidance as to the identity of the taxable supply upon which GST is imposed. That role appears to lie with s 9-5(a).

In most cases, this will not matter. This is because there is no need to identify the particular taxable supply at issue and will be sufficient to simply rely on the attribution rules in s 29-5 which ensures that GST becomes payable upon receipt of the consideration. However, that will not always be the case, even where transaction is wholly taxable. This is because in some cases it will be necessary to identify the particular taxable supply (ie, the supply which the consideration is “for”) and the time that the taxable supply is made. The liability for representatives (such as liquidators) of incapacitated entities pursuant to Division 58 is an example.

The decision of the High Court in MBI Properties provides no guidance on this difficult issue, and recourse to s 29-5 does not assist, save that in every case GST will only be payable once.

In determining whether consideration is “for” a supply, the propositions that appear to flow from the earlier authorities include the following:

  • Each case must be determined on its own facts;
  • It is difficult, and possibly dangerous, to espouse some general rule; and
  • The entire transaction must be examined, including the manner of its performance and the objective commercial and business purpose of the parties.

Chris Sievers

Lonsdale Chambers

 

31 August 2015

[1] Avon Products Pty Ltd v Commissioner of Taxation (2006) 230 CLR 356 at [27]-[28].

[2] Assuming the requirements of paragraphs (b)-(d) of s 9-5 are satisfied and the supply is not input taxed or GST-free.

[3] “Consideration” also plays a critical role in determining the “creditable acquisitions” made by an entity and the amount of input tax credits to which the entity is entitled.

[4] YOU CAN’T STOP THE MUSIC (or the general law): Supply post MBI Properties.

[5] The appeal and cross-appeal was dismissed by the Full Federal Court.

[6] [2011] FCAFC 113.

[7] Another example is the going concern exemption in s 38-325. The exemption only applies where the supplier carries on the enterprise until the day of the supply.

[8]GST & insolvency: From the cradle to the grave: Division 58 – A New Hope?”, Raj Srikanta and Jenny Lin of the Australian Taxation Office, Peter Konidaris, Pricewaterhouse Coopers, 2013 National GST Intensive, 5-6 September 2013.

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