Transactions involving nominations

2012 amendment clarifies transactions involving nominations and ensures the default 'economic substance' approach applies to transactions not involving land.

Sections 24(7B) and 60B(6) of the Goods and Services Tax Act 1985

The Taxation (GST and Remedial Matters) Act 2010 clarified the GST treatment of transactions that involve nominations. The nomination rules adopt an "economic substance" approach so that the GST consequences of a transaction involving a nomination (such as the entitlement to an input tax deduction) reflect the commercial reality of the transaction. The recipient of the supply could therefore be either the contractual purchaser or their nominee, depending on the circumstances. The new rules applied from 1 April 2011.

The same Act also introduced rules that require supplies of land to be zero-rated in certain circumstances. To ensure that the new zero-rating of land rules could not be bypassed by parties using nominations, the default "economic substance" rule was modified in relation to transactions that involve land to treat a supply as always occurring between the supplier and the nominee.

A supplementary rule also applied to transactions that do not involve land when the contractual purchaser and the nominee have a different registration status. However, the application of this rule may give rise to inappropriate GST outcomes, such as the denial of input tax deductions to the contractual purchaser. This supplementary rule has therefore been repealed to ensure that the default "economic substance" approach applies (without modification) to all transactions that do not involve land.

Application date

The clarification applies from 1 April 2011. However, a "savings" provision allows taxpayers who, in the period between 1 April 2011 and 14 September 2011, claimed an input tax deduction based on the previous wording.