BALDWINS • FoodLegal

Australian Lawyers and Consultants

GST Hits Dispute Settlement

April 2001 (revised January 2003)

The ATO’s ruling, GSTR 2001/4 “GST consequences of court orders and out-of-court settlements”, that creates substantial GST implications for some dispute payouts and has effect from 1 July 2000.

The Ruling states that in instances involving a discontinuance of legal action there may not always be GST if there is no payment generated by the settlement. However, there will be cases in which the payout will be regarded as consideration for a taxable supply, especially if the underlying transaction giving rise to the litigation is a taxable supply (i.e. not GST free or input taxed) and where the party receiving the payment is or should be registered for GST purposes and the payment relates to a supply made in the course of carrying on an enterprise. Thankfully, the Ruling is not as bad as might have been anticipated.

There is a separate ruling which deals with insurance claims (GSTR 2000/36) especially where insurers are entitled to an input credit when making supplies in settlement of insurance claims. In our experience, some insurers have inappropriately deducted GST on amounts of settlement claims paid to third parties who are not the insured.

For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.

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