Transactions involving nominations

2010 changes to the GST rules provide greater certainty for transactions involving nominees by adopting an 'economic substance' approach.

Nominee transactions ordinarily involve a purchaser nominating another person (a nominee) to receive goods and services and/or settle the transaction.

The new rules are intended to provide greater certainty for transactions involving nominees by adopting an "economic substance" approach. These rules are not intended to apply to transactions that involve other structures, such as assignments, novations, or agency arrangements.

Key features

New section 60B clarifies the GST treatment of transactions involving nominations - when a contractual purchaser nominates another person (a nominee) to receive the goods or services from the contractual vendor.

In these circumstances, the GST treatment will depend on which party provides payment for the supply of goods or services. In respect of transactions involving land, however, the supply will always be treated as being made by the supplier to the nominee.

Application date

The new rules will apply to supplies made on or after 1 April 2011.

Detailed analysis

Effect of nomination on a supply

New section 60B applies when a person (person A) enters into a contract to supply goods and services to another person (person B) and person B directs person A to provide the goods and services to a nominated person (person C) who is not party to the contract.

The section does not apply to situations involving supplies made to or by agents, as these situations are governed by section 60 of the GST Act. Also, the new rule does not apply to assignments or novations.

The GST treatment of a supply will depend on the exact circumstances of the transaction.

Contractual purchaser and nominated person have the same registration status

If a contractual purchaser (person B) and the nominated person (person C) are both registered or both not registered for GST, the treatment of the supply will depend on which party provides consideration for the supply:

  • If person B pays the full consideration for the supply, the supply is treated as a supply from the supplier (person A) to person B and the existence of person C is ignored (section 60B(2)).
  • If person C pays the full consideration for the supply, the supply is treated as a supply from person A to person C and the existence of person B is ignored (section 60B(3)).
  • If person B and person C each pay part of the consideration for the supply, the supply is treated as a supply from person A to person B. However, person B and person C may agree in writing that the supply is to be treated as a supply made to person C. No such agreement can be made if person B has claimed an input tax deduction in relation to the supply (section 60B(4)).

Contractual purchaser and nominated person have different registration status

If the registration status of a contractual purchaser differs from the registration status of the nominated person (that is, one party is registered for GST and another party is not registered for GST), the supply is always treated as a supply from the supplier to the nominated person.

Nominee transactions that involve land

If a supply wholly or partly consists of land, the supply is always treated as made by the supplier to the nominated person. This is intended to provide consistency with the fact that the zero-rating rules apply at the time of settlement.

Record-keeping requirements

The nomination rules in section 60B affect the tax invoice requirements. In normal circumstances, a taxpayer must have a tax invoice to claim an input tax deduction. In transactions involving nominations, a nominee may not have the requisite tax invoice as it may have been issued to the purchaser. In these circumstances, new section 24(7B) requires a nominee to maintain records that would allow the name and address of the supplier, the date of payment for the supply, a description of the goods and services supplied, and the consideration for the supply to be ascertained.

New section 20(2)(e) further specifies that a nominee may use the records kept in accordance with section 24(7B) as documentation to claim a deduction of input tax.