Issue
Is entity A, the holder of an 'individual transferable quota' in a fishery, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it temporarily exchanges its quota with the quota of entity B?
Decision
Yes, entity A is making a taxable supply under section 9-5 of the GST Act when it temporarily exchanges 'individual transferable quotas' with entity B.
Facts
Certain species of fish are protected by a quota system. In order to fish for these protected species, it is a requirement to hold an 'individual transferable quota' (ITQ).
Entity A holds an ITQ. It agrees to exchange ITQs with entity B for one year. The ITQs revert back to the original holders at the end of the year.
Entity A is registered for goods and services tax (GST). The temporary exchange of ITQs is in the course of entity A's enterprise and is connected with Australia.
Reasons For Decision
An entity makes a taxable supply where the requirements of section 9-5 of the GST Act are satisfied. One of the requirements of a taxable supply is that an entity must make a supply for consideration (see paragraph 9-5(a) of the GST Act).
The term 'supply' is broadly defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. Paragraph 9-10(2)(e) of the GST Act further states that a 'supply' includes a creation, grant, transfer, assignment or surrender of any right.
An ITQ consists of a bundle of rights which are transferable. The exchange of these rights is therefore a supply within the specific meaning of the term under paragraph 9-10(2)(e) of the GST Act.
Consideration is defined in section 195-1 of the GST Act to mean 'any consideration within the meaning given by sections 9-15 and 9-17, in connection with the supply.'
Subsection 9-15(1) of the GST Act provides that a payment, or any act or forbearance is consideration for a supply if it is 'in connection with', 'in response to or for the inducement of' a supply. Paragraph 12 of Goods and Services Tax Ruling GSTR 2001/6 also provides that consideration includes a payment in a non-monetary or in an 'in kind' form. This includes acts, forbearances, and goods or property.
The consideration, in this instance, is non-monetary in that the consideration for the supply made by entity A of its quota to entity B is the supply of entity's B quota to entity A.
Accordingly, entity A makes a supply for consideration when it exchanges its quota with the quota of entity B. The supply of the ITQ by entity A is a taxable supply in this case as the supply satisfies the other requirements of a taxable supply under section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. [Note: Where the requirements of section 9-5 of the GST Act have been satisfied, entity B will also be making a taxable supply to entity A.
In the case of non-monetary consideration, the price of the supply will be its GST inclusive market value (paragraph 9-75(1)(b) of the GST Act).]
Amendment History
Date of amendment Part Comment 22 April 2013 Issue Space inserted after the word 'quota' Reason for Decision Amended by inserting section 9-17. As of 1 July 2012, section 9-17 is included within the definition of consideration as defined by section 195-1. Legislative References Section 9-15 and section 9-17 added
Date of amendment | Part | Comment
22 April 2013 | Issue | Space inserted after the word 'quota'
Reason for Decision | Amended by inserting section 9-17. As of 1 July 2012, section 9-17 is included within the definition of consideration as defined by section 195-1.
Legislative References | Section 9-15 and section 9-17 added