In April 2012, the Commissioner published over 60 private rulings on the private rulings register dealing with GST issues.
The private rulings I found interesting deal with GST refunds and going concerns. The refund ruling appears to take the view that the Commissioner can rely on s 105-65 in the context of the operation of the adjustment provisions in Division 19 of the GST Act.
The list of the private rulings can be accessed here and through the menu on the site.
This application involves the perennial question of whether the Commissioner will exercise his discretion in s 105-65 and refund overpaid GST. Where this ruling is interesting is that it appears to involve the question of whether that discretion will (or indeed can) be exercised where the refund is otherwise payable by way of an adjustment pursuant to Division 19 of the GST Act.
The facts of the ruling involve the sale of land by way of a terms contract where the parties entered into an agreement to terminate the sale contract, whereby the instalment payments were to be repaid to the purchaser. GST had been paid on the instalments by the vendor and the purchaser had claimed input tax credits.
While it is not clear from the ruling, it appears that the basis for the refund arose from the operation of the adjustment provisions in Division 19. Further, the Commissioner considers that s 105-65 applies because the taxpayer treated an arrangement as giving rise to a taxable supply but it did not give rise to a taxable supply. This may be considered to be a controversial view, given that the apparent intent of s 105-65 is to address the implications of parties mistakenly treating supplies as taxable where they are not – e.g., because they are GST-free. In the present circumstances, the parties at all times correctly treated the transaction as taxable until the transaction was cancelled, triggering Division 19 which operates to unwind the GST consequences of the transaction. One may question whether s 105-65 should interfere with that process.
The issue in this ruling was whether the sale of a motor vehicle repair business was GST-free as the supply of a going concern. What I found interesting was the discussion of the implications of the statutory licence which was necessary to operate the business, but could not be transferred by the vendor. The agreement provided that if the licence could not be transferred to the purchaser, that the vendor would make all reasonable efforts to have a new operating licence issued to the purchaser. The ruling took the view that provided a new licence was issued to the purchaser, the vendor would be “considered to have have supplied the purchaser with an operating licence in respect of the relevant premises, for the purposes of the going concern provisions”.
I personally struggle with the conclusion in the ruling, essentially because the requirement of s 38-325(2) of the GST Act is that “the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise”. In circumstances where the supplier has no ability to transfer a statutory licence and a new licence must be issued to the purchaser, I cannot see how the words of s 38-325(2) can be satisfied.
The private ruling refers to paragraph 53 of GSTR 2002/5 and seeks to address the issue in the following way:
In accordance with paragraph 53 of GSTR 2002/5, the supply of a thing which is incapable of assignment or supply because of a statutory or legal impediment, but which is necessary for the continued operation of an enterprise by a party other than the supplier is taken to be a supply to the purchaser of that thing for the purposes of section 38-325 of the GST Act, where the following criteria are met:
– the vendor of the enterprise makes all reasonable efforts to have the thing supplied to the recipient, for example, by way of surrender;
– the supply to the purchaser is by a statutory authority or other party to the relevant contract with the vendor; and
– the thing is actually supplied to the purchaser by a party other than the vendor.
While I can appreciate the commercial practicality of this approach, I struggle with how it can fit within the clear words of the section. In recent times, the Federal Court appears to have moved away from the purposive, “practical business tax”, approach to the interpretation of the GST Act, towards a more literal construction. I do wonder what the Federal Court would make of the question.