• Service: Tax, Indirect Tax
  • Type: Regulatory update
  • Date: 13/05/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Justin Ward

Justin Ward
Director, Indirect Tax

+61 3 9288 5339

GST and black holes 

by Justin Ward, Indirect Tax Specialist

Goods and services tax (GST) should be symmetrical - the supplier having a GST liability and a recipient being entitled to a GST credit. As value added tax was invented by the French in the 1950s, it was once pointed out that the symmetry reflects the French enthusiasm for symmetrical gardens (jardin à la française).

In AP Group, certain wholesale incentives paid by an automotive distributor to a retailer were characterised as third party consideration for the retail supply of the car which triggered the payment; these were wholesale price adjustments for accounting/commercial purposes.


Accordingly, the distributor is not entitled to GST credits under the general rules. In draft ruling GSTR 2014/D1, the Commissioner confirms Division 134 allows the distributor to claim a GST adjustment. This operates to prevent a black hole and allow a GST credit for the distributor.


This provision is not perfect. It isn’t effective for distributors that are GST grouped with retailers.


The case also raises the possibility that bilateral wholesale payments triggered by the retail sale may be treated as 'part payment' for the retail sale, rather than an adjustment/separate transaction between the distributor and retailer. It appears the ATO does not currently intend to apply this outcome more broadly.


Separately, the MBI case (granted special leave to appeal) illustrates another potential black hole in the context of the sale of a property with an existing lease intact. The purchaser of a leased property may not be liable for GST on lease rentals - and the vendor may have ongoing liability. This appeal will address core concepts - who is the supplier, what is the supply - to whom a supply is made.


Hopefully the extent of black holes and achieving symmetries are manageable through proper characterisation of transactions and attention to legislative deficiencies.


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