If the only delivery (other than an interruption of delivery) is a previous delivery under the comparative conditions or a court order and there is a sufficient connection between the payment made and that delivery, the payment is consideration for the delivery. The judgment focuses on the GST treatment of payments made in accordance with court orders. 157 An essential condition for the existence of an obligation to pay GST for a supply of goods or services (relevant for the purposes of these purposes) is the existence of a ”taxable supply”. Under section 9-5 of the GST Act, an essential condition for the existence of a ”taxable supply” is that ”you are providing the service for consideration.” The Australian Revenue Board issued a public decision, GSTR 2001/4, on the GST consequences of court orders and out-of-court settlements. Subsection [60] states that ”a court, in rendering a judgment, shall not make a return for GST purposes.” Nor is any relevant `taxable supply` involved in the events giving rise to a dispute such as that in the present case. Twelve years have passed since the publication of GSTR 2001/4, and a review of cases shows that the principles of court decisions stand up quite well. However, there is now real uncertainty in the application to out-of-court settlements, where such settlements resolve claims for damages and no ”prior delivery” or ”continuous delivery” can be established. This uncertainty stems from the Supreme Court`s decision in the Qantas case in October last year. As we mentioned recently,[29] tax experts are divided on the likely consequences of the decision, with some arguing that it fundamentally changes the GST landscape in Australia. The Commissioner`s view in GSTR 2001/4 on ”non-stop deliveries” may be an area affected by the decision. In this case, it has a significant impact on all settlement agreements with claims for damages. The fact that there may also be a ”discontinuous delivery” under the settlement agreement has no bearing on the outcome (provided that the ”previous delivery” or ”current delivery” is taxable), since the interrupted delivery receives the same GST treatment. The judgment indicates that it is not enough for there to be a delivery and a payment.
In this context, the Decision notes that the effect of subsection 9-15(2A)[12] is that the fact that a payment is made pursuant to a court order or settlement in a court proceeding will not easily preclude it from being considered consideration for a supply. [13] In the context of out-of-court settlements and court orders, the Decision considers whether there is a link between the payment and one or more of the above categories of ”supplies”. On the other hand, in light of the High Court`s recent observations in Commissioner of Taxation v. Qantas Airways Ltd [2012], HCA; (2012) 291 ALR 653, some of the principles relating to alternative settlement, can now be questioned, in particular the principle that the existence of an ”interruption of delivery” will generally not affect the GST. More information on this difficult issue can be provided by the Federal Court of Justice in the next appeal in A.P. Group Limited and Commissioner of Taxation [2012] AATA 617[4], which addresses whether incentive payments from automakers to dealers were considered for delivery by dealers. I have received many inquiries from practitioners about the impact of court orders and settlement agreements on the GST. Often there is no simple answer, but in any case I am referring to Commissioner GSTR`s public decision in 2001/4.
Twelve years have passed since the publication of the judgment and it is time to assess the continued relevance of the principles set out in the judgment. A review of the cases shows that the principles related to court decisions resist quite well. Having regard to the recent High Court decision in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA; (2012) 291 ALR 653, target positions may have changed significantly in the context of out-of-court settlements. This document summarizes the judgment and describes its main principles. These principles are then examined in the context of court decisions and out-of-court settlements, taking into account the authorities. Overall, I think the principles of the judgment have held up quite well in the context of court decisions, including damages, judgments and court costs. Campbell J. (p. [149]) referred to a number of jurisdictions where the award of tortious damages included the GST on the individual elements that made up the Quantum (including Bennett v. Goodwin, Nemeth v. Pryunew Pty Ltd and Vrkic v. Otta International, which were discussed above).
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