It is recognised that the financial position of individual members may change between the date on which the ITXSA is entered into and the date (if any) on which the contribution amount is pursued by the Commissioner, particularly where the contribution amount is pursued some years after the due date. Accordingly, it is possible that a contributing member may not be able to pay its full contribution amount by the time the Commissioner seeks to recover that amount.
However, the Commissioner will recognise the ITXSA as being valid provided that:
- the original allocation was in accordance with the methodology of the ITXSA and was reasonable at the due date for lodgment of the GST return, and
- there are no adverse circumstances relating to the validity of the ITXSA (for example, the ITXSA was part of an arrangement to prejudice recovery)..
The provisions relating to ITXSAs will not apply, and the members will therefore be exposed to joint and several liability for the full amount of the group's indirect tax law liability for the tax period, if:
- the ITXSA was entered into as part of an arrangement
- a purpose of the arrangement was to prejudice the recovery by the Commissioner of the indirect tax amount.
Such arrangements include (for example) where the allocation to a contributing member was based on:
- capacity to pay, seemed reasonable at the time the ITXSA was made, and remained so at the due date for lodgment of the group's GST return, but it was always known that, by the time the Commissioner may attempt to collect from that member, its circumstances would be such that it would not be in a position to meet its liability
- notional tax liability, but the individual amounts were artificially distorted by selective allocations of credits or other measures that appeared designed to shift the liabilities to entities that are less likely to be able to meet them.
Some of the factors to be taken into account in determining whether an arrangement had a purpose of prejudicing recovery include:
- the disposing of assets in solvent or asset-rich members of the group
- allocation of liability to a member where a foreseeable event would cause it to become unable to pay (for example, litigation in progress)
- the uncommercial sale of assets.
The existence of an ITXSA in itself would not be seen as an arrangement to prejudice recovery.
See also