Today the Commissioner issued two ATO IDs on the implications of intra-GST group supplies where an entity subsequently leaves the GST group.  The IDs illustrates the problems that may arise due to the GST Act failing to include rules dealing with the time of supply.  In particular, in the second ID, the Commissioner appears to address the issue by inserting words into the legislation which are simply not there – in recent times the Federal Court has been reluctant to adopt such an approach.

ATO ID 2012/33 Goods and Services Tax: intra-group supply when an invoice is issued after recipient leaves a GST Group

The issue is whether s 48-40(2) of the GST Act applies to a supply made by entity A to entity B if it is made when the entities are in the same GST group, but the related invoice is issued when entity B is no longer a member of the GST group.  The Commissioner considers that the answer is yes – so that the supply is not a taxable supply as it was made at a time when both entities were members of the GST group.

The Commissioner acknowledges that the GST Act is silent on the issue of when a supply is made, also noting that Division 29 deals with attribution only and does not address the time of supply.

ATO ID 2012/34 Goods and Services Tax: intra-group supply of services that is partly performed after the recipient leaves the GST group

The issue is whether s 48-40(2) of the GST Act applies to a supply of services made from entity A to entity B, to the extent that the services are performed at a time when they are in the same GST group, despite the fact that some of the services are performed when B is no longer a member of the GST group.  The Commissioner considers that the answer is yes, but only to the extent that the supply was performed when both entities were members of the GST group.  To the extent that the services were performed after B left the GST group, the supply will be taxable.

The Commissioner saw the issue as whether s 48-40(2) applied “to the extent” that the supply was made when both entities were members of the GST group. Notwithstanding that the section does not contain those words, the Commissioner is of the view that the section should be interpreted in such a way as to allow apportionment of the supply – this is an interesting view, particularly considering the recent focus of the Courts on the words of the legislation, rather than taking a purposive view.  The basis for the Commissioner’s view is stated as follows:

At the time immediately following Entity B leaving the GST group, Entity A is still making a supply by continuing to perform the service, however from this point in time there is no longer a ‘supply that entity makes to another member’, because Entity B is not ‘another member’ for the purposes of paragraph 48-40(2)(a).  As such, a reasonable interpretation is that to the extent that the supply of services is performed after the recipient ceases to be a member, paragraph 48-40(2) no longer has application to that part of the supply.  Paragraph 48-40(2)(a) can be interpreted in this way, despite the absence of the words ‘to the extent’ in the provision.

One may question whether a Court would adopt such an approach, as it involves inserting words into the section which are not there.  What this ID does illustrates is the problems that can arise by reason of the GST Act not having any rules dealing with time of supply.