GST and transfer of losses within a GST group

Is the entity, a company that is a member of a GST group, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it transfers its losses to a company that is a member of its wholly owned company group, and that company is also a member of the same GST group?

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it transfers its losses to a company that is a member of its wholly owned company group, and that company is also a member of the same GST group. However, there is no GST payable on the supply because, under section 48-40 of the GST Act, the supply is not treated as a taxable supply.

The entity is a company that is a member of a GST group. The entity is also a member of a wholly owned group of companies for the purposes of the Income Tax Assessment Act 1997 (ITAA 1997).

The entity has losses for the purposes of the ITAA 1997. Under Subdivision 170-A of the ITAA 1997, the entity may transfer the right to obtain a deduction for the losses to another member of the wholly owned group of companies. In this case, the entity transfers its losses to a company that is also a member of its GST group.

The entity is registered for goods and services tax (GST). The entity receives consideration for the transfer. The transfer is made in the course of an enterprise carried on by the entity and is connected with Australia.

Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply.

The first requirement is that there must be a supply for consideration (paragraph 9-5(a) of the GST Act). 'Supply' is defined in section 9-10 of the GST Act to include a transfer of any right (paragraph 9-10(2)(e) of the GST Act). In this case, the entity is transferring the right to obtain a deduction for income tax losses to another member of the wholly owned group of companies. The transfer of this right constitutes a supply for the purposes of section 9-10 of the GST Act. The entity receives consideration for this supply. Therefore, the requirements in paragraph 9-5(a) of the GST Act are satisfied.

The entity is registered for GST. The supply is connected with Australia and is made in the course of an enterprise that the entity carries on. Therefore, the other positive requirements of section 9-5 of the GST Act are also satisfied. In addition, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it transfers its losses to a company that is a member of its wholly owned company group, and that company is also a member of the same GST group.

Under section 9-40 of the GST Act, the entity is liable to pay the GST payable on any taxable supply that it makes.

However, under paragraph 48-40(2)(a) of the GST Act, a supply that an entity makes to another member of the same GST group is treated as if it were not a taxable supply, unless: (i) it is a taxable supply because of Division 84 (which is about offshore supplies other than goods or real property); or (ii) the entity is a participant in a GST joint venture and acquired the thing supplied from the joint venture operator for the joint venture.

When the entity transfers its losses to a company that is also a member of the same GST group, it is not making a taxable supply because of Division 84 of the GST Act. In addition, the entity is not a participant in a GST joint venture. Accordingly, when the entity transfers its losses to a company that is also a member of the same GST group, under paragraph 48-40(2)(a) of the GST Act, the supply is treated as if it were not a taxable supply.

As the supply is treated as if it were not a taxable supply, there is no GST payable on the supply. History note: This ATO ID was amended on 25 June 2002 to add a note indicating that proposed amendments to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) contained in the Taxation Laws Amendment Bill (No. 3) 2002 may, if passed, affect this decision. TLAB (No. 3) of 2002 proposes to insert Division 110 into the GST Act to ensure that section 9-5 of the GST Act does not apply to transfers of certain tax losses.