ATO Interpretative Decision

ATO ID 2001/599

Goods and Services Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a community care provider, entitled to claim a full input tax credit, under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it acquires services from an independent contractor and pays for those services in part by directing the care recipient to pay an amount legally owing to the entity, to the independent contractor?

Decision

Yes, the entity is entitled to claim a full input tax credit under section 11-20 of the GST Act when it acquires services from an independent contractor and pays for those services in part by directing the care recipient to pay an amount legally owing to the entity, to the independent contractor.

Facts

The entity is a community care provider.

The entity receives Health and Community Care (HACC) funding to provide home and maintenance services to people living at home, who are frail and have a moderate or severe disability.

The care recipient is a client of the entity.

The entity sets the fees for its services according to the care recipient's ability to pay.

The entity has a care recipient who it has assessed as being entitled to receive lawn-mowing services every fortnight at the subsidised rate of $10.00.

The entity engages an independent contractor to provide the lawn mowing services to the care recipient.

The entity agrees to pay the independent contractor $44.00 (inclusive of goods and services tax (GST)) for its services.

The independent contractor performs the service to the care recipient and issues the entity a tax invoice for $44.00 (inclusive of GST).

The care recipient is required to pay $10.00 for the service to the entity, but the entity directs the care recipient to pay the $10.00 to the independent contractor on its behalf.

The entity then pays the independent contractor the remaining balance of $34.00. The entity records the $44.00 as an expense and accounts for the $10.00 as income for a GST-free supply.

There is no contractual arrangement between the care recipient and the independent contractor.

The independent contractor is making a supply to the entity. This supply is a taxable supply under section 9-5 of the GST Act. The independent contractor is not making a supply to the care recipient. The entity is liable for the full amount payable to the independent contractor of $44.00. The entity acquires the contractor's services in carrying on its enterprise and not for a private or domestic purpose or in relation to making input taxed supplies.

Both the entity and independent contractor are registered for GST.

Reasons for Decision

An entity is entitled to an input tax credit under section 11-20 of the GST Act when it makes a creditable acquisition.

Section 11-5 of the GST Act sets out the requirements that must be satisfied for an acquisition to be a creditable acquisition. An entity makes a creditable acquisition if:

(a)

it acquires anything solely or partly for a creditable purpose; and

(b)

the supply to it is a taxable supply; and

(c)

it provides, or is liable to provide, consideration for the supply, and

(d)

it is registered or required to be registered.

Under section 11-15 of the GST Act, an entity acquires a thing for a creditable purpose to the extent that it acquires the thing in carrying on its enterprise and the thing is not of a private and domestic nature or relates to making an input taxed supply.

Further, paragraph 11-30(1)(b) of the GST Act provides that an acquisition that an entity makes is partly creditable if it provides, or is liable to provide, only part of the consideration for the acquisition.

The entity acquires the contractor's services in carrying on its enterprise and not for a private or domestic purpose or in relation to the making on of input taxed supply. The supply of the contractor's services to the entity is a taxable supply under section 9-5 of the GST Act.

Also, the entity is liable to pay the full amount payable to the contractor of $44.00. The entity has fulfilled its obligation to the independent contractor by directing and having the care recipient pay the $10.00 legally owing to the entity, to the independent contractor. The entity pays the remaining balance of $34.00.

In other words, to facilitate the payment process, the entity has directed the care recipient to provide the $10.00 owing to it, to the independent contractor. In doing this, the care recipient fulfils its obligation to the entity and has provided on behalf of the entity, part payment of the entity's liability to the independent contractor for the lawn mowing services.

Furthermore, the entity is registered for GST. Accordingly, the entity is entitled to claim a full input tax credit under section 11-20 of the GST Act when it acquires services from an independent contractor and pays for those services in part by directing the care recipient to pay an amount legally owing to the entity, to the independent contractor.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-5
   section 11-15
   section 11-20
   paragraph 11-30(1)(b)
   subsection 38-30(2)

Keywords
Goods and services tax
GST financial assistance
Co-payments & third party payments
GST health
Section 38-30 - community care
GST supplies & acquisition
Creditable acquisition
Creditable purpose

Business Line:  GST

Date of publication:  20 November 2001

ISSN: 1445-2782