1 Have you made a creditable acquisition pursuant to section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the payment made as an out-of-court settlement?
No. Question 2 Are you entitled to an input tax credit pursuant to section 11-20 of the GST Act in relation to the payment made as an out-of-court settlement? Answer No. This ruling applies for the following period : 25 January 20XX to 24 January 20XX
You are registered for GST. You entered into an out-of-court settlement with another entity. No formal written settlement agreement as such was entered into. However, you provided a copy of a letter (signed by the representatives of both parties) confirming the settlement which had been negotiated by the parties. The settlement related to a dispute between the parties in relation to a lease previously entered into by them in respect of commercial premises. The dispute arose upon you vacating the property on expiry of the lease. More specifically, the dispute was about whether you had complied with the make good obligations under the lease. The lessor contended that you had not complied and that as a result you were liable to pay the lessor a specified sum plus 10 per cent GST in make good expenses and other costs and charges. The lessor provided you with a spreadsheet with details of their initial claims for end of lease costs, including rent and outgoings since the expiry of the lease and make good works.
You advised the lessor that you agreed that there was some damage and make good works required to the property which you were willing to pay for and the settlement sum agreed included consideration of those matters. You further advised that you had paid all rent up until the lease expiry date and had vacated the premises on expiry of the lease. However, the lessor claimed that since there were outstanding make good works, the rental amounts were to continue. You subsequently received legal advice confirming that rent was not payable after the lease expiry date. The lessor did not charge or attempt to charge you any interest. You initially made a lower settlement offer to the lessor. However, this was rejected. After much negotiation between the parties, you offered the lessor a higher amount plus GST, to which the lessor provided a final counter offer of a specified amount (including GST) as full and final settlement of their claim.
You advised that it was only once you tabled the legal advice that you had received confirming that the lessor was not entitled to charge rent and outgoings after the lease expiry date that the lessor reduced its claim to the final settlement amount including GST. You further advised that you agreed to the final settlement amount (including GST) on the basis that it was equivalent to a final figure that you had in mind plus GST. However, when you requested a tax invoice for the final settlement amount, the lessor advised that GST was not applicable to the transaction. You have paid the lessor the final settlement amount less 1/11th of that amount. You are willing to pay the residual amount (equivalent to the GST) once the ATO has ruled on the two issues in your ruling request, which relate to whether or not GST applies to the transaction. You advised that you carried out substantial repairs to the property both prior to and after the lease expiry date. You are unaware of whether the lessor has completed any residual make good works using the money you have paid to them to date.
You provided a copy of the lease for the property (which is located in Australia), together with a copy of the deed of renewal of the lease. You advised that the lessor was at all relevant times carrying on an enterprise in Australia and was registered for GST. You also provided copies of relevant correspondence between the parties and other relevant and related documents. Apart from the signed settlement letter, there are no other agreements in existence settling out the terms of the settlement.
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 Section 9-10 Section 9-15 Section 11-5 Section 11-15 Section 11-20 Detailed reasoning Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make. You make a creditable acquisition under section 11-5 of the GST Act if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered or required to be registered (for GST). According to subsection 11-15(1) of the GST Act, you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, und