• GST - States and Territories Industry Partnership minutes - 17 September 2013

    Meeting details

    Venue:

    CPA House

    Level 10

    420 King William Street

    Adelaide

    Date:

    17 September 2013

    Start:

    10.30 am

    Finish:

    3.00 pm

    Chair:

    Julie Sinclair

    Attendees

    Name

    State/organisation

    Robert Enright

    ACT

    Christine Havas

    CWLTH

    Joan Cram

    NSW

    Harold Glenwright

    NT

    Daniel Fielding

    QLD

    Julie Sinclair

    SA

    Kate Edwards

    VIC

    Jenni Skyner

    WA

    Martyn Lyons (Secretariat)

    ATO

    Kathy Quigley (Guest speaker)

    AVO

    Leassa Armstrong (Guest speaker)

    ATO

    Rowena Flynn (Guest speaker)

    ATO

    Daryl Behn (Client Relationship Manager)

    ATO

    Attending by phone

     

    Jack Wright

    NSW

    Rachel Johnston

    Margaret Lake (Minutes)

    TAS

    ATO

    Agenda items

    Disclaimer

    Please note: The Goods and Services Tax (GST) States and Territories Industry Partnership meeting agendas, minutes and related papers are not binding on the ATO or any of the states or territories referred to in these papers. While every effort is made to accurately record the views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    1. Notional tax

    This matter has been raised by the ATO to discuss issues relating to notional GST.

    Meeting discussion

    Members were advised of the recent significant level of activity identified by the ATO in respect of government related entities seeking to use concessional GST provisions regarding unimproved land. Review indicates that there is misunderstanding in this area and that entities are not always applying the ATO view. ATO has particular concerns with cases where advisors have obtained opinions from professional valuers determining that land is unimproved when the facts indicate that the land has been improved. For example, where the land has been cleared or there are existing structures on land capable of being used but which are 'obsolete' or which are no longer relevant to the ‘best use’ of the land.

    An organised Alternative Dispute Resolution process has been developed in respect of unimproved land disputes. Also, where there are serious disputes involving notional tax between government organisations and the ATO, State Treasuries need to be made aware as these positions can impact the GST revenue base. Members were advised a communication on these matters would issue to STIP members in the near future.

    Post meeting update

    Members were advised of the following ATO update on 11 October 2013:

    Concessional GST provisions relating to land on which there are no improvements

    The ATO has identified a significant increase in refund claims, refund notifications and private ruling requests from government related entities in relation to overpayments of GST payable on sales of ‘unimproved land’. The aim of this communication is to advise you how the ATO is responding to these claims and what is expected of government related entities.

    The ATO considers that some positions being adopted may not be consistent with application of the ATO view in Goods and Services Tax Ruling GSTR 2006/6 - Goods and Services Tax: improvements on the land for the purposes of Subdivision 38-N and Division 75.

    The ATO acknowledges that not all government related entities will agree with the ATO position. To manage the claims in a fair, consistent and co-ordinated way the ATO intends to undertake an organised alternative dispute resolution (ADR) process in respect of disputes related to GST overpaid on ‘unimproved land’. The ATO has agreed this process with state and territory treasuries.

    Legislative background

    Certain provisions in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) allow for concessional GST treatment for supplies by the Commonwealth, a State or a Territory in respect of land on which there are no improvements (referred to in this document as ‘unimproved land’) at a particular point in time:

    • Subsection 38-445(1) - A supply of a freehold interest in, or long-term lease of, ‘unimproved land’ is GST-free unless it has been previously supplied as a GST-free supply under section 38-445;
    • Subsection 38-450(1) - A supply of ‘unimproved land’ is GST-free if the supply is by way of a lease (other than a long-term lease) and the lease is subject to conditions that when satisfied entitle the recipient to the grant of a freehold interest in or long-term lease of the land. When the Commonwealth, a State or Territory subsequently supplies the freehold interest or long-term lease, it is GST-free under subsection 38-445(1A), unless it has previously been supplied as a GST-free supply under section 38-445;
    • Item 4 of the table in subsection 75-10(3) – The margin for a taxable supply of real property for which there were no improvements on the land as at 1 July 2000 is determined by reference to the consideration received for the supply and the valuation of the land as at the date of the supply (ignoring any improvements that may be on the land at that date).

    The organised ADR process

    • If a government related entity has sought a private binding ruling or has made a claim for refund of overpaid GST in relation to 'unimproved land', and disagrees with the ATO decision and is seeking that the decision be reviewed, the government related entity is required to provide notice to the ATO by email via ITXR&IGOVT/NFP@ATO.GOV.AU, with a copy to their treasury;
    • If a government intends to make a claim for a refund of overpaid GST in relation to 'unimproved land', the government related entity is required to provide notice to the ATO by email via ITXR&IGOVT/NFP@ATO.GOV.AU, with a copy to their treasury;
    • A small number of lead cases will be identified for participation in an ADR process;
    • The remainder will be parked pending resolution of the lead cases; and
    • The parties may enter into an interim settlement until such time as an outcome is achieved in respect of their dispute.

    Notional GST

    Notional GST refers to any amounts that are the notional equivalent of GST that would otherwise have been assessed under the GST law and imposed under the relevant imposition Act. For government related entities, notional GST arises because:

    1. section 114 of the Constitution prohibits the imposition of the tax in respect of the property of a State. However, the body has an obligation arising under a State law to pay to the Commissioner the notional equivalent of what would have been payable under the GST law if section 114 of the Constitution did not apply; or
    2. the liability is in relation to supplies by the Commonwealth (either directly or as agent for the Commonwealth).

    In terms of the application of GST to government related entities, the Intergovernmental Agreement on Federal Financial Relations states:

    The Parties intend that the Commonwealth, States, Territories and local governments and their statutory corporations and authorities will operate as if they were subject to the GST legislation. They will be entitled to register, pay GST or make voluntary or notional payments where necessary and will be entitled to claim input tax credits in the same way as non government organizations. All such payments will be included in GST revenue. (Clause 28 of Schedule A)

    With the support of the states and territories, and consistent with the Intergovernmental Agreement, the ATO treats government related entities in the same way as non-government organisations in respect of both the GST Act and the Taxation Administration Act 1953 (TAA) as if the notional liability is a GST liability. This means, inter alia, that the restriction on GST refunds in section 105-65 of Schedule 1 to the TAA will be applied to government related entities.

    However, the following will not apply in respect of notional GST:

    • Penalties or general interest charges for underpayments of notional GST (see Miscellaneous Taxation Ruling MT 2011/1);
    • Interest on overpayments of notional GST (there is no legal provision that allows the ATO to pay interest on notional GST); and
    • The ability to seek review of an ATO decision in the AAT or the Courts because judicial review can only apply to a GST liability and cannot apply to a notional liability.

    To the extent that a dispute relates to notional GST, it is the Commissioner's view that these matters are not judiciable and that an alternative dispute resolution process is an appropriate process to resolve the dispute. An ADR process has been previously developed with and agreed by the States.

    The ADR process which will be implemented in respect of ‘unimproved land’ disputes is an agreed variation of this process.

    2. Trading names and the Australian Business Register

    ATO update:

    • To allow businesses more time to register for a business name with ASIC, trading names will continue to be displayed in the ABR until 30 June 2014. From July 2014, ABN Lookup will cease displaying all trading names and only display registered business names.
    • We are continuing to work with ASIC to ensure registered business names are also displayed on the ABR.

    Members were advised of the following ATO update on 3 June 2013:

    Some government entities have previously raised issues in respect of trading names, especially in relation to tax invoices.

    On 17 May 2013, A New Tax System (Australian Business Number) Amendment Regulation 2013 (No. 1)External Link was registered.

    This regulation amends the A New Tax System (Australian Business Number) Regulations 1999 to extend the one-year transitional period, which was originally provided to give businesses the time to register business names that would appear on the new national Business Names Register, to 30 June 2014.

    3. Other ATO updates

    GST instalments

    Members were advised of the following update on 22 July 2013:

    Legislation relating to GST instalments received royal assent on 28 June 2013 allowing instalment payers in a net GST refund position to continue to use the GST instalments option.

    This legislation takes effect from the first quarterly tax period commencing 1 July 2013.

    The legislation allows GST instalment payers who move into a net GST refund position to have continued access to the GST instalment system. Taxpayers in a net refund position will receive an instalment amount of zero each quarter and they will remain in the GST instalment system until they elect a different GST reporting method. Any refunds or liability will be reconciled in their annual GST return.

    More information

    For more information refer to:

    Further related information is available at www.ato.gov.au.

    Payment of refunds of overpaid GST – Bill tabled

    Members were advised of the following update on 17 July 2013:

    Tax Laws Amendment (2013 Measures No. 4) Bill 2013External Link and the explanatory memorandum were introduced into the House of Representatives on 26 June 2013. The Bill relates to refund claims of overpaid goods and services tax (GST).

    On 17 August 2012, the government announced that these changes are intended to apply in relation to working out a taxpayer's net amount for tax periods commencing on or after the date of the announcement.

    The Bill, as introduced, modifies the application so that the amendments are now intended to apply to refund claims relating to tax periods starting on or after 17 August 2012, but only for claims lodged on or after the date of introduction of the Bill into the House of Representatives (26 June 2013).

    The administrative treatment which outlines the Australian Taxation Office (ATO) approach in dealing with the retrospective law change has been amended as a result of the change to the application provision.

    Administrative treatment

    The ATO will apply the existing law and follow current procedures until the proposed law is enacted where taxpayers:

    • are required to write to the Commissioner to claim a refund of overpaid GST as a result of a mischaracterisation of a supply (for example, a supply is treated as taxable but is actually GST-free), and
    • are not required to write to the Commissioner to claim a refund of overpaid GST as a result of a miscalculation of an amount of GST payable (for example, the amount of GST payable was incorrectly calculated on a taxable supply of real property using the margin scheme), and can instead self-assess their claim to a refund of overpaid GST.

    After the new law is enacted, taxpayers will need to review their circumstances regarding their claims for refunds of overpaid GST made during the period between the date the legislation was introduced into the House of Representatives and enactment.

    If a taxpayer is required to seek amendments and the amendments result in an increase in their liability there will be no shortfall penalties or interest imposed where the amendments are made within 28 days after enactment. Otherwise the full GIC will apply from the date of enactment.

    If amendments reduce a taxpayer’s liability, appropriate interest on any overpayment will be paid.

    More information

    Our new legislation page at Payment of refunds of overpaid GST will be updated with this amended administrative treatment in the coming weeks.

    We are unable to provide any further information at this stage, as the changes are not yet law.

    Members are encouraged to provide the following information to government related entities in their jurisdiction.

    National Disability Insurance Scheme (NDIS) – Income tax and GST

    Members were advised of the following Industry Alert on 19 June 2013 and 10 July 2013 (combined as follows):

    From 1 July 2013, the National Disability Insurance Scheme (NDIS) will progressively become available to eligible people with a disability (that is, NDIS participants) in different locations of Australia. For more information, go to DisabilityCare Australia website External Link

    GST changes

    Some supplies of disability supports are GST-free if government funding is provided directly to the supplier of the disability supports. Under the NDIS funding arrangements, the government funding will be provided to the NDIS participant (or managed by someone on their behalf) and not the supplier.

    Therefore, those supplies that were GST-free because of government funding being provided to the supplier may no longer be GST-free when the supplies are made to an NDIS participant.

    On 29 June 2013, amendments to the GST Act, which are reflected in the Tax Laws Amendment (2013 Measures No. 2) Act 2013, became law. These amendments apply from 1 July 2013.

    New section 38-38 of the GST Act makes certain supplies of disability supports to an NDIS participant GST-free, as long as certain requirements are met.

    These amendments change the GST law to make GST-free the supply of certain reasonable and necessary disability supports to a participant as part of an NDIS plan. These amendments are intended to mirror the existing GST-free treatment of services to people with a disability.

    For the supply of a reasonable and necessary support to be GST-free it must be:

    What a supplier should do

    A supplier of disability supports to an NDIS participant should check the GST status of their supplies of disability supports made from 1 July 2013.

    More information

    For more information on the GST treatment of supplies of disability supports to an NDIS participant, refer to the new factsheet GST and the National Disability Insurance Scheme.

    Income tax treatment

    On 28 May 2013, income tax amendments, which are reflected in the National Disability Insurance Scheme Legislation Amendment Act 2013External Link, became law and apply from 1 July 2013.

    The income tax treatment for an NDIS participant, the participant’s representative and a registered plan management provider (RPMP) is outlined below.

    NDIS participant

    Payments of NDIS amounts directly to an NDIS participant by DisabilityCare Australia, in respect of approved reasonable and necessary supports under the participant's plan are exempt from income tax.

    An NDIS participant will also be exempt from income tax for any NDIS amounts that are treated as being 'received' by the participant where NDIS amounts are provided to third parties on their behalf (including support providers RPMPs) in support of the participant's plan.

    In addition, deductions, depreciation of capital assets and certain other capital expenditure that might otherwise be allowable will not apply in respect of exempt NDIS amounts.

    Employer obligations - NDIS participants who engage care providers

    Where an NDIS participant engages an attendant carer or a support person directly under a self-management plan, they may have obligations as an employer. One may be to withhold amounts from payments under the Pay as you go (PAYG) withholding system.

    For further information regarding employer obligations including superannuation and record keeping requirements, refer to the Australian Taxation Office’s Employers - home.

    Representative of an NDIS participant

    A ‘Representative of an NDIS participant’ includes someone who is managing the participant’s plan or an RPMP.

    The income tax implications for an amount received by a representative of an NDIS participant will depend on the capacity in which the amount is received, as outlined below:

    Nominated representative

    If a representative (such as a nominee, parent or guardian) is nominated to manage the participant's plan and to the extent the NDIS amount is received by the representative on their behalf (as agent or trustee), it is not ordinary income of the representative.

    To the extent a representative receives an NDIS amount, for their own benefit in respect of services they will or have provided for the participant under an arrangement with the participant, then that amount may be assessable as ordinary income.

    Registered plan management provider

    If an RPMP receives an NDIS amount as agent/trustee to the extent it is not received by the RPMP as payment for any services it provides, the amount will not be ordinary income of the RPMP. To the extent it is received as payment for any services the RPMP itself provides it will be assessable as ordinary income.

    Employer obligations - representative of an NDIS participant who engages care providers

    For more information, see the ATO’s employer obligations home page.

    Meeting discussion

    A member suggested that section 38-40 of the GST Act seems to no longer be operative. Following discussion, it was determined that section 38-40 would continue to operate until NDIS was completely rolled out. Also, there may be some circumstances where State governments may wish to continue to provide funding under the relevant Acts to suppliers to deliver services.

    Government entities operating in the building and construction industry

    Members were advised of the following update on 3 July 2013:

    The Taxable payments reporting system commenced on 1 July 2012 and requires businesses in the building and construction industry to report the total payments they make to each contractor for building and construction services to the ATO each year.

    This annual reporting obligation may impact on some government related entities, especially where they have separately registered entities that operate in the building and construction industry.

    Entities will need to report if all of the following apply:

    • they are a business that is primarily in the building and construction industry
    • they make payments to contractors for building and construction services
    • they have an Australian business number (ABN).

    These entities would be required to lodge a Taxable payments annual report this year.

    The first annual report is due 21 July 2013 for payments made in the 2012-13 financial year.

    The information that needs to be reported includes the contractor’s ABN, name and address, the total amount paid for the year and the total GST included in that amount.

    Entities required to report should make sure they are ready to prepare and lodge the annual report on time. The quickest, easiest and most secure way to lodge the report is online. To lodge online they will need software that can generate the annual report according to ATO requirements and an AUSkey.

    With the due date for the first report fast approaching, members are encouraged to identify and provide this information to government related entities in their jurisdiction that may be impacted.

    More information:

    For more information, including who needs to report and how refer to:

    Division 81: Administrative approach for the GST treatment of Australian fees and charges

    Members were advised of the following update on 13 June 2013:

    Division 81 provides for the GST treatment of Australian taxes and Australian fees and charges imposed by various Australian government agencies.

    Prior to 1 July 2011, Australian taxes, fees or charges were exempt from GST if they were covered by a written determination of the Treasurer. The last determination made prior to 1 July 2011 was the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1) (Treasurer’s determination).

    From 1 July 2011, Division 81 was amended to enable government agencies to self assess the GST treatment of Australian taxes and Australian fees and charges.

    However, the changes to Division 81 caused some concerns for Australian government agencies, including local municipal and shire councils, about their capacity to self assess the GST treatment of the many taxes, fees and charges they impose. Immediate concerns were reduced by extending the operation of the last Treasurer’s determination until 30 June 2012 and then by further extension under the GST regulations until 30 June 2013.

    Law Administration Practice Statement (General Administration) for Division 81

    The Commissioner has approved the issue of a Law Administration Practice Statement (General Administration) (PSLA (GA)) to support Australian government agencies in respect of the GST treatment of Australian fees and charges.

    PS LA 2013/2 (GA) - GST treatment of Australian fees or charges under Division 81 of the A New Tax System (Goods and Services Tax) Act 1999External Linkissued on 13 June 2013. It adopts the view that on and from 1 July 2013, the ATO will take the administrative approach that:

    (a)if an Australian government agency classifies Australian fees or charges listed on the Treasurer’s determination as being ‘exempt’ in accordance with the Treasurer’s determination, the Commissioner will not disturb the treatment retrospectively; and
    (b)if an Australian fee or charge that is treated as ‘exempt’ is subsequently considered not to be ‘exempt’, the Commissioner will require the treatment to be changed prospectively.

    Australian fees or charges that will not be eligible to receive this treatment are those Australian fees or charges:

    (a)listed on the Treasurer’s determination that are regarded as being consideration for a supply under regulation 8110.01 of the GST regulations (Regulation 81-10.01 of the GST regulations prescribes fees or charges that are consideration for a supply and hence subject to GST, if the other requirements of section 9-5 are satisfied); or
    (b)in respect of which the Commissioner has issued a private ruling to an entity or issued a public ruling (including a Class Ruling).

    Australian government agencies should selfassess Australian taxes and Australian fees or charges not listed on the Treasurer’s determination by using Division 81 and the GST regulations.

    The issue of a PSLA (GA), which recognises the previous status of payments as expressed in the Treasurer’s determination, is an efficient and practical way to provide certainty to Australian government agencies. As the GST status of payments of the majority of Australian taxes, fees or charges will not change, this is considered to be a ‘practical compliance solution’ and an appropriate exercise of the Commissioner’s powers of administration.

    New determinations – correcting GST errors and fuel tax credit errors

    Members were advised of the following update on 16 May 2013:

    Two new determinations have been registered on the Federal Register of Legislative Instruments. These are:

    • GSTE 2013/1 Goods and Services Tax: Correcting GST Errors Determination 2013
    • FTE 2013/1 Fuel Tax: Correcting Fuel Tax Errors Determination 2013.

    The determinations have a commencement date of 10 May 2013.

    These determinations specify the circumstances in which a business will be able to correct, on a later activity statement, GST errors or fuel tax credit errors made on an earlier activity statement. They apply to the correction of errors on activity statements a business gives to the Commissioner on or after 10 May 2013.

    The guide Correcting GST mistakes has been replaced with a new guide, Correcting GST errors. The new guide is based on the GST determination and provides additional guidance.

    The guide Fuel tax credits: making adjustments and correcting mistakes is being replaced with a new guide, Fuel tax credits: making adjustments and correcting errors, which is now available on www.ato.gov.au.

    More information

    GSTE 2013/1 Goods and Services Tax: Correcting GST Errors Determination 2013External Link

    Explanatory StatementExternal Link

    FTE 2013/1 Fuel Tax: Correcting Fuel Tax Errors Determination 2013External Link

    Explanatory StatementExternal Link

    Final GST tax invoice ruling published

    Members were advised of the following update on 4 April 2013:

    Goods and Services Tax Ruling GSTR 2013/1External Link, was published on 27 March 2013 and applies retrospectively from 1 July 2010. The Commissioner has also made ten legislative instruments (LIs) that waive the requirement to hold a tax invoice before attributing an input tax credit in particular circumstances.

    GSTR 2013/1 replaces GSTR 2012/D3 and sets out the minimum information requirements for a tax invoice and also explains when a document is in the approved form for a tax invoice.

    The following LIs detail certain circumstances in which a recipient may be relieved from the obligation to hold a tax invoice in order to attribute an input tax credit:

    A full list of all related LIs can be found at appendix 2 of the rulingExternal Link.

    If businesses complied with the previous requirements for a tax invoice, they will continue to satisfy the new requirements. This means that businesses should not have to change their software or accounting systems to comply with the new ruling and instruments.

    Training presentation — our discretion to retain refunds for verification purposes

    Members were advised of the following update on 21 March 2013:

    The Taxation Administration Act 1953 (TAA) was amended in 2012 to provide the Commissioner with the discretion to retain a refund while verifying information relating to the claim.

    A training presentation has been released on www.ato.gov.au, to assist in understanding the legislation that gives the Commissioner this discretion.

    The guide focuses on section 8AAZLGA of the TAA and its related amendments.

    The main topics include:

    • the law and our practices before the Federal Court decision in Commissioner of Taxation v Multiflex Pty Ltd (2011)
    • the decision in Multiflex and the impact of that decision
    • the operation of the consequent legislation.

    The training presentation is accessible via the link provided above.

    Further reading:

    4. Australian Valuation Office

    Kathy Quigley, General Manager of the Australian Valuation Office (AVO) discussed its operations and ways in which the AVO can assist the States and Territories in meeting their financial reporting requirements. The AVO is a fee for service organisation that delivers a range of tailored solutions for property and assets valuations and related services for Government agencies.

    A paper was circulated to members at the meeting.

    5. Taxable government grants and payments

    In the 2013 Federal Budget, the Government announced a program of improving compliance through third party reporting and data matching. The program is to establish new and strengthened reporting systems including reporting of taxable government grants and other specified government payments.

    Leassa Armstrong and Rowena Flynn provided an overview of the proposal, ATO findings and sought input on the consultation process that is to take place.

    Meeting discussion

    ATO advised that the new measure proposes to introduce a formal reporting regime for taxable government grants and other specified payments, including payments to contractors, made by government entities. It will impact all levels of government - federal, state/territory and local and also government owned entities in Australia.

    The reporting of taxable grants and specified payments will assist the ATO in data matching activities to ensure greater equity in the tax system and ensure compliant taxpayers are not operating at a competitive disadvantage. It is intended for the reporting system to operate on a similar model to the taxable payments reporting system for businesses in the building and construction industry. The reporting system is intended to commence on 1 July 2014, with the first annual report being due for the year ending 30 June 2015.

    Treasury will publish a discussion paper for stakeholder consultation and the ATO will work with Treasury throughout the consultation process.

    Members expressed concern that the reporting regime will place a burden on the States and Territories to change their systems in order that they can provide the required information. Also issues may arise in relation to ‘who is a contractor’ and what constitutes ‘other specified payments’.

    6. GST and appropriations

    Issues in relation to paragraph 9-17(3)(c) and the phrase “does not exceed the supplier’s anticipated or actual costs of making those supplies” were discussed at the NTLG (GST) meeting of 14 March 2013. The draft NTLG (GST) minutes are available on the ATO web site:

    While it is necessary to consider the factual arrangements in each particular case, the supplementary response provides examples of payments that may satisfy the requirements of paragraph 9-17(3)(c).

    Issue 6.1

    The policy intent is that the non-commercial activities of government related entities are not subject to GST. However, subsection 9-17(3) of the GST Act limits non-commercial activities to those covered by an appropriation.  

    Under the State Government framework, this appears to indicate that GST applies to non-commercial activities that occur in the Trust Fund (rather than the Consolidated Fund, where most appropriation activities occur). This does not reflect the policy intent and may be founded on the false assumption that government departments conduct all non-commercial activities using appropriated funds.

    ATO response

    This issue was not discussed at the meeting and the following response was provided after the meeting to the member that raised the issue. It was agreed to include the response in the meeting minutes.

    It is understood that the policy intent of the legislative amendment was to overcome issues that arose as a result of the TT-Line decision (TT- Line Co Pty Ltd v. FCT [2009] FCAFC 178). The intent was not to cause all non-commercial supplies by government to be exempt from GST. The non-commercial test is one of the elements that is required to be satisfied and reflects that the supply should not be exempt from GST where it is supplied at commercial rates, in competition with the private sector or is otherwise supplied at a profit.

    The requirement that the payment be covered by an appropriation is still applicable for most arrangements. However, the need for the payment to be 'specifically covered' has been removed. The provision now also applies to payments made under an agreement entered into to implement the National Health Reform Agreement as it is understood that payments under some arrangements may not be covered by an appropriation.

    In respect of funds that are held in trust accounts, it is recommended that the member undertake further research to determine if the funds continue to form part of their Consolidated Fund despite being in a trust account. It is understood that taxes, rates, imposts and other revenue of the Crown generally form part of the Consolidated fund of the Commonwealth or a State or Territory Government. Under all jurisdictions an appropriation under an Australian Law is required for funds to be withdrawn from the Consolidated Fund. There may also be other funds set up by the Commonwealth or a State or Territory Government, that do not form part of their Consolidated fund, but which require, or have, an appropriation under an Australian Law for funds to be drawn from that fund for a particular purpose.

    Issue 6.2

    Can the ATO provide more guidance on the issue of interpretation of subsection 9-17(3) of the GST Act where the appropriation extends for payments made to a Health department which provides funds to a Local Health District which may then pay another government related entity?

    Background

    No background facts were provided.

    Within the question there are two payments described:

    1. Payment from the Health Department to a Local Health District.
    2. Payment from a Local Health District to another government related entity

    The following assumptions have been made:

    • all three entities are government related entities
    • both payments are calculated on the basis that the sum of the following does not exceed the anticipated or actual cost of making those supplies:
      • the payment or payments relating to the supply; and
      • anything else the supplier receives from other entities in connection with, or in response to, or for the inducement of the supply or related supplies.
       

    ATO response

    Each payment needs to be assessed against the three elements that need to be satisfied under subsection 9-17(3).

    Subsection 9-17(3) of the GST Act provides that a payment is not consideration for a supply if:

    (a) the payment is made by a GRE to another GRE for making a supply;
    (b) the payment is covered by an appropriation under an Australian law or is made under a specified intergovernmental health reform agreement; and
    (c) the payment satisfies the non-commercial test.

    To satisfy the non-commercial test, the amount of the payment must be calculated on the basis that the sum of the following does not exceed the anticipated or actual cost of making those supplies:

    • the payment or payments relating to the supply; and
    • anything else the supplier receives from other entities in connection with, or in response to, or for the inducement of the supply or related supplies.

    Given the assumed facts both (a) and (c) are satisfied for the purposes of this analysis.

    In order for element (b) to be satisfied for a particular payment either of the below must apply:

    • the payment is covered by an appropriation under an Australian law; or
    • the payment is made under an agreement to implement the National Health Reform Agreement

    Covered by an Appropriation

    Relevant guidance is contained in the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2012 Measures No.1) Bill 2012 (EM). In particular, clause 2.17 of the EM explains that a payment is covered by an appropriation under an Australian law if the payment is made pursuant to an appropriation.

    An appropriation is not in itself a payment. An Appropriation Act has the effect of legally segregating money from the general mass of the consolidated fund and dedicating that money to the execution of an identified purpose of the government. 1  

    No funds that form part of the Commonwealth, State and Territory consolidated funds can be drawn from those funds without an Act that appropriates the funds for a stipulated government purpose. 2

    Understanding what funds form part of the consolidated fund will assist in determining what funds are likely to be covered by an appropriation:

    • A payment that draws funds from the consolidated fund should be a payment that is covered by an appropriation given the constitutional requirements.
    • A payment of funds from one GRE to another GRE may not result in funds actually leaving the consolidated fund. This payment could still be a payment covered by an appropriation if the paying GRE was appropriated these funds for a particular Government purpose and the payment is from those appropriated funds and consistent with the terms of the appropriation. Amounts appropriated under departmental appropriations are normally for the GRE to meet certain outcomes. A payment by a department from its own departmental appropriation would be covered by an appropriation.
    • Once funds have left the consolidated fund, further payments using those funds are less likely to be covered by an appropriation. Further consideration of how far, if at all, a payment can cascade outside the consolidated fund can be given by the ATO on case by case basis. However, funds sourced from an appropriation that does not have to be accounted for separately to funds from other sources would indicate the entity receiving the funds is entitled to use the funds as they see fit and therefore any further payments would no longer be covered by an appropriation.

    National Health Reform Agreement

    If a payment is not covered by an appropriation element (b) could still be satisfied if the payment is made under the National Health Reform Agreement agreed to by the Council of Australian Governments on 2 August 2011, 3 as amended from time to time. Under the National Health Reform Agreement, Local Hospital Networks play an important role in cascading the relevant payments to hospitals.

    It will be a question of fact as to whether the payments are made pursuant to an agreement made under the National Health Reform Agreement.

    Issue 6.3

    Is a government agency making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the “GST Act”), when it receives payment for the secondment of its employee to another entity?

    Background

    The entity is a government agency (hereafter referred to as the Home Agency). It has entered into a Memorandum of Understanding (MOU) with another government agency (hereafter referred to as the Host Agency) for the secondment of one of its employees to the Host Agency.

    The secondment to the recipient Host Agency does not change the employment status of the Home Agency's employee. The Home Agency continues to pay the employee as if the employee was still working for them.

    The amount that is paid by the Host Agency for the secondment of the Home Agency’s employee is detailed in the MOU that is entered into between the parties. The amount paid includes:

    • 100 percent of the value of the seconded employee’s salary and superannuation entitlements,
    • 100 percent of the value of the seconded employee’s accumulated leave costs accrued during the period of secondment, and
    • An additional 25 percent to cover on-costs such as superannuation, payroll tax and workers compensation liabilities and the Home Agency’s fixed administrative costs.

    The Host Agency will also directly pay for any travel costs incurred by the seconded employee during the course of the secondment. The Host Agency has advised that the funds used by it are covered by an appropriation.

    The Home Agency remains responsible at all times, during the seconded employee’s period of secondment, for the payment of that employee’s salary and associated entitlements including, but not limited to superannuation and accumulated leave, and provision for other conditions.

    During the period of secondment, the seconded employee will be eligible to utilise any accrued leave entitlements from the Home Agency.  The Home Agency will also be responsible for administering any leave taken by the seconded employee.

    The Home Agency is registered for goods and services tax (GST). The transaction is connected with Australia.

    The current ATO view in relation to the GST treatment for these arrangements is expressly provided for in ATO Interpretative Decision (ATO ID 2001/474): GST and payments for seconded employees, which states that GST is applicable under section 9-5 of the GST Act.  However, the Host Agency considers that no GST is applicable pursuant to section 9-17(3) of the GST Act:

    This is GST neutral as the Host Agency is registered for GST and will therefore be entitled to fully claim any GST included by the Home Agency on the value of the supply as an input tax credit, where it is considered the supply is taxable. The Host Agency is refusing the pay the amounts provided for the in the MOU where GST included in any tax invoices issued to it by the Home Agency.

    This issue has been raised at a previous ATO GST State and Territories Industry Partnership (STIP) Meeting. Refer to the minutes of the ATO GST STIP Meeting Minutes published on the ATO’s website on 24 October 2011. However, these minutes were published prior to the insertion of section 9-17(3) of the GST Act by virtue of Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012 which applies to payments made on or after 1 July 2012 regardless of regardless of whether those payments are in connection with supplies made before 1 July 2012.  Consequently, it is unknown whether the ATO maintains that GST continues to apply to these arrangements or whether no GST will apply by virtue of section 9-17(3).  It is worth noting that ATO ID 2001/474 is still currently active.

    ATO response

    Subsection 9-17(3) of the GST Act provides that a payment is not consideration for a supply if:

    (a) the payment is made by a GRE to another GRE for making a supply;
    (b) the payment is covered by an appropriation under an Australian law or is made under a specified intergovernmental health reform agreement; and
    (c) the payment satisfies the non-commercial test.

    To satisfy the non-commercial test, the amount of the payment must be calculated on the basis that the sum of the following does not exceed the anticipated or actual cost of making those supplies:

    • the payment or payments relating to the supply
    • anything else the supplier receives from other entities in connection with, or in response to, or for the inducement of the supply or related supplies.

    Where a payment is made by one government-related entity to another, it is a question of fact whether requirement (b) and requirement (c) of subsection 9-17(3) are satisfied. Where the requirements of subsection 9-17(3) are satisfied, the payment is not the provision of consideration and the supply will not be a taxable supply.

    Requirement (b) – by way of background facts you have stated that this payment is covered by an appropriation. As such we have not considered this issue.

    Requirement (c) – From the information supplied this requirement would be satisfied as the amount of the payment is calculated on the basis that the amount will not exceed the anticipated costs of supplying the services of the employee.

    In relation to ATO ID 2001/474, this has not been updated to reflect the potential application of subsection 9-17(3). This ATO ID has been escalated for review.

    Meeting discussion

    ATO emphasised that not every secondment of an employee is covered by an appropriation and that the factual circumstances of each case must be considered in accordance with the legislation.

    7. Administering change in law and the ATO view

    Does the ATO propose to advertise/publicise/educate the 'not for profit' and 'government sector' on the changes over the last twelve months to changes in GST treatment of appropriations and grants?

    Meeting discussion

    The new ruling for grants issued in May 2012 and the effects of that final ruling, including the transitional arrangements, was communicated to the Government and Not for Profit sectors through the GST STIP, former Charities Consultative Committee, alerts/newsletters and ato.gov.au.

    Similarly, the legislative change for appropriations in June 2012 was communicated to the Government sector through the GST STIP, former GST National Tax Liaison Group and an overview on ato.gov.au, including the new legislation page.

    Under our treatment of the risk for GST and Government Grants, our main focus had been to clarify the ATO view, however potential revenue leakage arises in Recipient Created Tax Invoice (RCTI) situations where the payer claims an input tax credit but there is no guarantee that the grant recipient will remit GST despite receiving an RCTI. Our treatment will now focus on those situations where the parties have treated the payment differently. In particular where the government payer has claimed GST credits (typically through a RCTI arrangement) but the recipient has not accounted for GST.

    Part of this future strategy will involve our communication with selected government entities to acquire data on their grants paid in relation to a RCTI arrangement to ensure correct and consistent GST treatment of the grant payment by both the payer and the recipient.

    8. Commissioners' Statement 2013-14

    The Commissioners' statement 2013-14 prefaces the ATO Annual Plan 2013-14. This statement was discussed at the meeting, including how the ATO can support the government sector and improve sector participation in the tax system, relationships and ATO service delivery.

    9. Governance in the government sector

    The ATO raised this issue to discuss supporting the government sector and:

    • early notification and discussion of circumstances that impact on governance;
    • early notification of adverse media or reports which identify governance issues; and
    • governance workshops between the ATO and Tax Managers from various Government departments in each jurisdiction.

    Meeting discussion

    The ATO discussed the need for Government organisations to continuously monitor their legislative and business environments to ensure ongoing GST compliance. The State and Territory Treasuries play an important role in the assurance of GST administration and internal governance for the government organisations within their jurisdictions. Government organisations were encouraged to engage the ATO, if necessary, on matters where governance issues arise that impact GST.

    The ATO advised they are planning more governance workshops with each jurisdiction during this financial year. The workshops are being progressively rolled out to all jurisdictions as they are part of the ATO’s continued focus on integrity of business systems for the Government sector. The purpose of the workshops are to give a level of assurance to the ATO that government organisations have governance systems in place to minimise risk to GST compliance.

    10. General business

    10.1 Future GST impacts for States and Territories

    The following questions are a standing agenda item which is considered by the States and Territories for discussion at each meeting.

    • What issues from a GST perspective do the States and Territories anticipate in the future?
    • How will the States and Territories be equipped to respond to these impacts?
    • What challenges to sustainability of compliance do the States and Territories face over the next few years?
    • How effective (easier, cheaper, more personalised) is the design of existing Tax Office systems for the administration of GST?
    • How can any deficiencies be shaped to become more effective?

    Meeting Discussion

    No significant issues were raised by the States and Territories at the meeting.

    10.2 GST STIP minutes

    A copy of the minutes of the last STIP meeting was circulated to members with the agenda. These minutes have now been published on the ATO website and can be accessed via this link – GST States and Territories Industry Partnership minutes – 5 March 2013.

    10.3 Next Meeting

    The next meeting will be held in Tasmania on 17 March 2014.

    Footnotes

    1 New South Wales v Commonwealth (Surplus Revenue Case) (1908) 7 CLR 179; 14 ALR 625; [1908] HCA 68; BC0800026

    2 Refer to the following to determine what funds form part of the Consolidated fund and that those funds are subject to an appropriation by an Act: Commonwealth Constitution s 81, 83; (CTH) Australian Capital Territory (Self-Government) Act 1988 ss 57, 58; (CTH) Northern Territory (Self-Government) Act 1978 ss 44, 45; (NSW) Constitution Act 1902 ss 39, 45; (QLD) Constitution of Queensland 2001 s 64; (SA) Public Finance and Audit Act 1987 ss 5, 6; (TAS) Public Account Act 1986 ss 7, 8(2), 8(5); (VIC) Constitution Act 1975 ss 89, 92; (WA) Constitution Act 1889 ss 64, 72.

    3 The National Health Reform Agreement can be found on the following website: http://www.federalfinancialrelations.gov.au/content/national_agreements.aspx

      Last modified: 23 Jan 2014QC 38358