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Authorisation Number: 1051251935291
Date of advice: 8 August 2017
Subject: GST and contributions to a training fund
Is Entity A making a supply for consideration when participating entities make contributions to its training fund?
The scheme commences on:
Relevant facts and circumstances
● Entity A is registered for goods and services tax (GST).
● Entity A is funded by participating entities in the industry.
● Entity A administers a training fund to facilitate the provision of training by registered training organisations to persons in the industry.
● Entity A is not a registered training organisation (RTO).
● Entity A does not get remunerated for administering and managing the training fund.
● Participating entities make regular contributions to the training fund pursuant to a separate agreement. Entity A is not party to that agreement.
● All contributions, including income earned on them, must be maintained in the training fund for the benefit of the objects of the fund.
● There is an annual audit requirement, and information ascertaining the contributions collected and how they have been disbursed is available to the relevant parties.
● If Entity A’s performance is deemed inadequate, it can be replaced by another 'like’ organisation and the contributions redirected to that organisation.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5;
A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(1);
A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(2);
A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-10(2)(e);
A New Tax System (Goods and Services Tax) Act 1999 section 9-15;
A New Tax System (Goods and Services Tax) Act 1999 section 9-17; and
A New Tax System (Goods and Services Tax) Act 1999 section 195-1.
Reasons for decision
GST is payable on taxable supplies. The requirements of a taxable supply are set out in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). One of the requirements is for an entity to make the supply for consideration.
For an entity to make a 'supply for consideration’, three fundamental criteria must be met:
1) there must be a supply;
2) there must be consideration; and
3) there must be a sufficient nexus between the consideration and the particular supply.
Supply is defined under section 9-10 of the GST Act as 'any form of supply whatsoever’. The definition is very broad and includes an entry into, or release from, an obligation to do anything; or to refrain from an act; or to tolerate an act or situation but excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money.
Subsection 9-10(2) of the GST Act refers to two aspects of a supply: the thing which passes, such as goods, services, a right or obligation; and the means by which it passes, such as its provision, creation, grant, assignment surrender or release.
Essentially, a supply is something that passes from one entity to another. The supply may be one of particular goods, services or something else that is reflected in an agreement by one party to do something for another.
The fact that 'supply’ requires something to be passed from one entity to another is largely self-evident in a transaction based tax. However, not all forms of supply have this characteristic. For instance, paragraph 9-10(2)(e) of the GST Act includes a creation of a right as a supply. The 'creation' of a right does not involve a passing of the right from one entity to another. The action of the supplier causes the recipient to make an acquisition but without anything passing between them.
Proposition 12 in GSTR 2006/9 states that transactions that are neither based in an agreement that binds the parties in some way nor involve a supply of goods, services, or some other thing, do not establish a supply.
An agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other unless there is something else, such as goods, services, or some other thing, passing between the parties.
Consideration is defined in section 195-1 of the GST Act to mean 'any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply'.
The definition of consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearances. It may include payments made voluntarily, and payments made by persons other than the recipient of a supply.
Section 9-15 of the GST Act further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply of anything. Thus, there must be a sufficient nexus between a particular supply and a particular payment, which is provided for that supply, for there to be a supply for consideration.
The Commissioner considers that, in the context of the GST Act, the expression 'you make the supply for consideration' has a similar meaning to 'there is consideration for the supply that you make'.
The references in the GST Act to 'supply for consideration' and to 'consideration for a supply' underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply.
For a payment to be consideration for a supply there must be a sufficient nexus between the payment made by the payer and a supply made by the payee. Therefore, the existence of a particular supply and a given payment will not necessarily mean that a sufficient nexus exists between that supply and the payment made.
The payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The test is an objective one.
In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.
Further, in identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.
Based on the facts provided, we consider that the payment of the contributions by the participating entity is not consideration for a supply made by Entity A.
Therefore, Entity A is not making a supply for consideration when participating entities make contributions to the training fund.