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• Power Australia Pty Limited (Power) is considering acquiring Solar Store Pty Limited (SStore) for $45 million. Initially the acquisition was planned to be through purchasing shares in SStore.
• Power's Board is re-evaluating the acquisition structure potentially shifting to acquiring assets rather than shares.
• SStore's assets are held in subsidiaries: Asset Pty Ltd (Asset) for physical assets and Secret Pty Ltd (Secret) for intellectual property.

Late Breaking Facts:

• As of 15 May 2024 the acquisition has not been completed.
• Power's Board is now contemplating acquiring the assets of SStore including those held by Asset and Secret instead of acquiring shares.

Questions:

1. GST-Free Going Concern: Can Battery acquire the assets of SStore Asset and Secret as a GST-free going concern?
2. GST Treatment if Not GST-Free: What is the GST treatment if the acquisition cannot be treated as a GST-free going concern?
3. ITC and RITC Claims: How will the change in transaction structure affect the eligibility to claim ITCs and RITCs on incurred costs including Accumin’s Clover’s and CarneRock’s expenses?

Suggested Solutions:

1. GST-Free Going Concern:

   • Battery can acquire the assets of SStore Asset and Secret as a GST-free going concern if all necessary components for continued operation are transferred and each supply meets the GST-free criteria.

2. GST Treatment if Not GST-Free:

   • If the acquisition cannot be treated as a GST-free going concern it will be considered a taxable supply.

3. ITC and RITC Claims:

   • Battery: Can now claim ITCs on acquisitions related to the asset purchase since it will be a fully creditable purpose.
   • Power’s Expenses: Adjustments may be necessary if the use of previously acquired services changes due to the revised structure. Specific advice:
     • Accumin’s Structuring Advice: No change in ITC/RITC recovery.
     • Accumin’s Financial Modelling and Due Diligence: ITCs fully recoverable; advice applicable to the asset acquisition.
     • Clover’s Legal Due Diligence: ITCs fully recoverable; advice applicable to the asset acquisition.
     • Clover’s Share Purchase Agreement Drafting: ITCs not recoverable; specific to share acquisition.
     • CarneRock’s Success Fee: Partial reapportionment possible; impact depends on services provided.
   • FAT Model: Generally not recalculated for prior periods; adjustments affect future periods.

Power

Category Summary Suggested Solutions Referred Tax Regulations

Tax Issues

• GST treatment of acquisition services.- Impact of transaction structure change on ITC and RITC claims.
• Assess ITC/RITC claims based on the new structure.- Determine if adjustments are needed for prior expenses.
• GSTR 2002/5- Division 129- GSTD 2012/313

Implications

• Changes in transaction structure may affect the ability to claim ITCs or RITCs.- Adjustments may be required for previous claims.
• Reassess ITC/RITC claims based on the final transaction structure.- Consider adjustments if services were used differently.
• Section 38-325- Section 9-5

Suggested Solutions

• Adjust ITC/RITC Claims: Recalculate based on the actual use of services and the final transaction structure.- No Recalculation of FAT: Generally do not recalculate FAT for prior periods focus on adjustments for the current period.
• Assess Changes: Evaluate each service to determine if it was used differently.- Consult GSTR 2002/5: For guidance on GST-free going concerns.- Division 129: For adjustments based on change in use.
• Paragraphs 137-139 of GSTR 2002/5- Division 129- GSTD 2012/313 Battery

Category Summary Suggested Solutions Referred Tax Regulations

Tax Issues

• GST-free status of acquiring assets vs. shares.- Impact on ITC claims if acquisition is GST-free or taxable.
• Determine if acquisition can be treated as a GST-free going concern.- Assess eligibility for ITCs based on new structure.
• GSTR 2002/5- Section 38-325- Section 9-5

Implications

• If acquisition is GST-free ITCs can be claimed.- If not GST-free the acquisition will be taxable affecting ITC claims.
• Claim ITCs: If assets are acquired as GST-free ITCs can be claimed.- Review GST Treatment: Ensure GST-free status or taxable supply is correctly applied.
• GSTR 2002/5 (GST-free going concern)- Section 38-325 (GST-free going concern)- Section 9-5 (Taxable supplies)

Suggested Solutions

• Assess GST-Free Status: Confirm that all components of the enterprise meet the criteria for a GST-free going concern.- ITC Claims: If acquisition is GST-free ensure ITCs are claimed appropriately.- Review Impact: If the transaction is taxable adjust ITC claims accordingly.
• Confirm GST-Free Status: Ensure all necessary criteria are met for GST-free treatment.- Review Services: Adjust claims based on whether services relate to GST-free or taxable supplies.
• Paragraphs 137-139 of GSTR 2002/5- Section 38-325- Section 9-5

Guide to Implementation Steps

For Power Australia Pty Limited (Power)

1. Review and Reassess GST Claims

   • Action: Reassess ITC and RITC claims based on the final transaction structure.
   • Steps:
     1. Review Previous Claims: Analyze ITC and RITC claims made before the change in transaction structure.
     2. Determine Final Structure: Confirm whether the acquisition is structured as a GST-free going concern or a taxable supply.
     3. Adjust Claims: Adjust ITC/RITC claims as necessary reflecting the final transaction structure and any re-applied services.

2. Evaluate Impact of Transaction Structure Change

   • Action: Determine if any adjustments are needed due to the change in transaction structure.
   • Steps:
     1. Assess Each Service: Identify if services were originally intended for a share sale or an asset sale.
     2. Check for Adjustments: Determine if Division 129 adjustments apply based on any changes in the use of services.
     3. Consult Relevant Regulations: Review GSTD 2012/313 for guidance on changes in creditable purpose.

3. No Recalculation of FAT Required

   • Action: Avoid recalculating the FAT for prior periods unless specifically required.
   • Steps:
     1. Confirm Period: Validate that changes in transaction structure should not necessitate recalculations for previous tax periods.
     2. Focus on Current Period: Apply changes to FAT calculations moving forward.

4. Documentation and Reporting

   • Action: Document all changes and adjustments made for compliance and reporting purposes.
   • Steps:
     1. Prepare Documentation: Collect and prepare documentation of all adjustments and new claims.
     2. Update BAS: Ensure adjustments are reflected in Power’s April 2024 BAS due 21 May.

For Battery Holdings Pty Limited (Battery)

1. Confirm GST-Free Status

   • Action: Determine if the acquisition of assets can be treated as a GST-free going concern.
   • Steps:
     1. Review Supply Criteria: Verify that each component (assets intellectual property) meets the GST-free going concern criteria.
     2. Check Assignments: Ensure that Asset Pty Ltd and Secret Pty Ltd assign leases and licenses to Battery as required.

2. Assess ITC Claims Based on GST-Free Status

   • Action: Evaluate and claim ITCs if the acquisition qualifies as a GST-free going concern.
   • Steps:
     1. Identify Creditable Acquisitions: Confirm that services related to the GST-free going concern are creditable.
     2. Claim ITCs: Ensure that ITCs are claimed for eligible services acquired for the asset purchase.

3. Review GST Treatment for Non-GST-Free Scenarios

   • Action: If the acquisition is not GST-free ensure correct GST treatment and ITC claims.
   • Steps:
     1. Determine Taxable Status: If assets cannot be treated as a GST-free going concern apply the taxable supply rules.
     2. Adjust ITC Claims: Adjust ITC claims according to the taxable status of the acquisition.

4. Documentation and Reporting

   • Action: Ensure proper documentation and reporting of the GST treatment and ITC claims.
   • Steps:
     1. Prepare Documentation: Gather and maintain records of GST-free or taxable status determinations and related ITC claims.
     2. Update Records: Ensure all changes are reflected in Battery’s GST reporting.

General Steps for Both Entities:

1. Consult Tax Advisors: Engage with tax advisors to validate interpretations and ensure compliance with current regulations.
2. Update Financial Records: Make necessary adjustments to financial records and tax reports based on new GST treatments.
3. Maintain Communication: Keep open lines of communication between entities to ensure alignment and address any ongoing issues or updates related to the transaction structure.

This guide provides a structured approach for implementing necessary steps based on the final transaction structure and its impact on GST claims and reporting.