On 28 September 2011, the ATO released a draft GST Determination (GSTD 2011/D3) dealing with whether GST on services acquired in relation to a proposed merger and acquisition can be adjusted if the merger or acquisition does not go ahead as planned. The relevant law is in s 129-40 of the GST Act.
The determination states that an adjustment is allowed if certain differences arise between acquiring and applying the service.Jane Tu, Thomson Reuters
The ATO's determination states that if a service is acquired and applied in carrying on an enterprise, then an adjustment can only arise under s 129-40 if there is a difference between:
The ATO takes the view that the connection to input taxed supplies for the purpose of Division 129 is determined in the same way as for Division 11. It says the difference between the two is that:
Therefore, the ATO says "where an acquisition is used in preparing for an intended supply or in the process of making a decision whether to proceed with the supply, that acquisition is applied in contemplation of the supply under consideration. If the intended supply is an input taxed supply, the application of the acquisition is not for a creditable purpose. The fact that the transaction does not eventuate will not affect his conclusion".
The ATO provides the following 2 examples of proposed M&A transactions and whether a Division 129 adjustment arises.
When the final Determination is issued, it is proposed to apply both before and after the date of issue.
Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please
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