Edited version of private ruling

Authorisation Number: 1011493241409

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Ruling

Subject: GST and tax invoice for legal services

Questions

Are you required to issue a tax invoice in respect of the supply of a legal service where the fee is prescribed by regulation under the relevant worker's compensation legislation in the state/territory (WRC Act)?

If so, are you required to issue a tax invoice to the self-insured employer that is liable to indemnify the worker for your supply of this legal service?

Advice

Yes, you are required to issue a tax invoice within 28 days of it being requested by the worker to whom you supply the legal service.

No, you are not required to issue a tax invoice to the self-insured employer in this circumstance.

Relevant facts

You are a lawyer.

You are registered for GST and carry on an enterprise in Australia.

Under the WRC Act, a worker (he) wishing to redeem their weekly compensation payments into a lump sum, requires a certificate signed by a solicitor confirming that he understands the legal consequences of the redemption. You sometimes provide such a legal service to Australian workers.

A fee is prescribed by regulation for the signing of the certificate by the lawyer.

The WRC Act does not refer to the fee being a GST-inclusive or GST-exclusive amount.

Under the WRC Act, a self-insured employer is liable to indemnify a worker for the costs of obtaining legal advice about the consequences of redeeming their compensation payments.

Typically, a worker seeking your legal services has a letter from their self-insured employer confirming that the employer will pay you for the legal service you provide.

You have supplied an example of a letter from a self-insured employer offering a redemption payment to a worker. It provides that:

The employer will make payment of the prescribed cost for provision of professional advice in relation to the redemption.

Offering the names of a few solicitors who would be able to provide professional advice, including your name.

Advising the worker that they may wish to seek advice from any other solicitor of their choice.

You do not have an agreement with the self-insured employer to make a supply. The employee must receive legal advice in relation to the redemption of compensation payments. The self-insured employer agrees to pay the cost of the legal service provided.

After providing the legal service to a worker you render an account to the self-insured employer. The account is titled 'tax invoice', but you advise that it does not include any statement to the effect that GST is included in the amount payable.

You believe this legal service you provide is subject to GST and accordingly you have rendered tax invoices to the self-insured employers, who generally pay the full amount without question.

For the purposes of preparing your GST returns you calculate your GST liability as 1/11^th of the fee prescribed in the regulations.

Reasons for decision

Question 1

Subsection 29-70(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a tax invoice must be issued for a taxable supply.

Section 9-5 of the GST Act states when you make a taxable supply:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that you *carry on; and

· the supply is *connected with Australia; and

· you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

In your case you receive consideration for making a supply of a legal service from the worker's self-insured employer. Further, as the fee prescribed by regulation is not listed in A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2010 (No. 1) (the 'Treasurer's Determination') in respect of taxes, fees and charges, this fee is regarded as consideration for a supply. Therefore, you meet paragraph 9-5(a) of the GST Act.

Your supply is also made in course of enterprise of you carry on, which is connected with Australia and you are registered for GST. Therefore, you meet paragraphs 9-5 (b), (c) and (d) of the GST Act.

As you are making a taxable supply you are required to issue a tax invoice, which is defined in section 195-1 of the GST Act as a document that complies with the requirements of subsection 29-70(1).

Subsection 29-70(1) states:

A tax invoice for a *taxable supply:

· must be issued by the supplier, unless it is a *recipient created tax invoice (in which case it must be issued by the *recipient); and

· must set out the *ABN of the entity that issues it; and

· must set out the *price for the supply; and

· must contain such other information as the regulations specify; and

· must be in the *approved form.

However, the Commissioner may treat as a tax invoice a particular document that is not a tax invoice.

Regulation 29-70(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 provides in paragraph 4 that a tax invoice must contain a statement to the effect that the total amount payable for the supply includes GST, or show the total amount of GST payable.

In your situation you are required to issue a tax invoice for the supply of a legal service to a worker. The tax invoice you issue should include:

· the price of the supply, and

· a statement that the total amount payable includes GST, or

· the total amount of GST payable.

· your ABN

Question 2

Subsection 29-70(2) provides that the supplier of a taxable supply must give the recipient a tax invoice within 28 days after the recipient of the supply requests it. The recipient is regarded as the entity to which the supply is made.

Recipient of your supply

To determine the entity to which a supply is made we can refer to the ATO's view outlined in Goods and Services Tax Ruling 2006/9: supplies (GSTR 2006/9), which includes a series of propositions for characterising tripartite arrangements.

Firstly, in discussing the meaning of supply paragraph 15 of GSTR 2006/9 states that:

15. You make an acquisition if you are the recipient of a supply. That is, the supply is made to you. In most transactions concerning GST the recipient of a supply is the entity that is also provided with that supply. In contrast, some supplies are made to the recipient, but provided to another entity. Arguably, such provisions are also supplies. However, these are not relevant because there is no contractual or reciprocal relationship between the supplier and the entity being provided with the supply. An entity must have made an acquisition of a thing to satisfy the requirements of section 11-10. It is not sufficient that an entity has merely been provided with the supply. Also, an entity does not make an acquisition merely by paying for a supply.

Paragraphs 115-116 of GSTR 2006/9 provides that analysis of tripartite arrangements may reveal that:

· a supply is made to one entity but is provided to another entity

· two or more supplies are made, or

· a supply is made and provided to one entity and consideration is paid by third entity.

Therefore, in order to determine the GST consequences in such arrangements it is necessary to identify:

· whether there are one or more supplies

· consideration (a payment, act or forbearance)

· a nexus between the supply and the consideration, and

· to whom the supply is made.

One of the propositions in GSTR 2006/9 is that a third party may pay for a supply but not be the recipient (Proposition 14). Paragraphs 177-216 of GSTR 2006/9 discuss the relevance of 'third party payers' for analysing tripartite arrangements.

Example 10 at paragraphs 205-211 of GSTR 2006/9 contrasts the difference between third party payer and recipient arrangements.

Example 10: legal services and third party payer arrangement contrasted with a recipient arrangement

A Government Department administers a funding arrangement under which it agrees to pay for legal services supplied to a successful grantee by a solicitor. The grantee chooses the solicitor from a list provided by the Department and instructs the solicitor.

The funding arrangement does not bind the grantee to expend the funds in a way particular and as the Department makes any payments direct to the solicitor the grantee does not receive the funds directly. The solicitor issues a written itemised account to the Department which makes the payment if the services delivered to the grantee are within the scope of the funding arrangement.

In this case the solicitor makes a supply of legal services to the grantee not to the Department as the contract for the legal services is between the solicitor and the grantee. The Department is not the recipient of the supply of legal services but is making a third party payment for that supply. It makes no difference to the GST treatment of the supply whether the grantee or the Department makes the payment for the supply, but it can affect the analysis of whether the Department or the grantee has made a creditable acquisition.

As a third party payer, the Department has not made a creditable acquisition because the solicitor made the supply to the grantee not to the Department. The Department is not entitled to an input tax credit.

The grantee has not made any supply to the Department because it does not have a contractual arrangement in relation to the grant, and nothing has passed from the grantee to the Department in return for the funds, nor has the grantee created any right in the Department. There is not a reciprocal legal relationship between the two parties. The grantee has done nothing more than complete an application for funding.

In another arrangement, the Department fulfils a legislative function that requires it to ensure the provision of legal services to an eligible group of individuals. In this arrangement, the Department chooses a solicitor from its list and sends a letter of offer to the solicitor. This letter explains the requirement that the solicitor provide legal services to an eligible individual, the extent of those services and the rates at which payment will be made if the offer is accepted. The legal liability for the payment of these services is with the Department.

When the offer is accepted the Department has entered into a contractual relationship with the solicitor under which the solicitor is required to perform the legal services. The Department is the recipient of the supply made by the solicitor. The supply is provided to the eligible individual. As the recipient of the supply and the payer of the consideration, the Department will make a creditable acquisition if all the other requirements of section 11-5 are met.

The above example illustrates that if a third party provides consideration for a supply, but is not the recipient of the supply, that taxable supply is not made to the third party

It can be concluded, on the basis of the examples in GSTR 2006/9, that the determination of whether the entity is a third party payer only, or a recipient of a supply, depends on the nature of the agreement between the parties.

From the information you supplied there is no formal agreement between yourself and a self-insured employer. You advise that a worker (he) approaching you for legal services in respect of redeeming their compensation payments typically has a letter confirming that their self-insured employer will pay you for the legal service you provide.

If we look at your situation, he can obtain legal services from any solicitor, but by approaching you he is in effect setting up a contractual arrangement with you. The supply of your legal service is made and provided to him, even though payment for your legal service is provided by the self-insured employer.

The arrangement by which a self-insured employer undertakes to pay you for your legal services may be regarded as an obligation for you to do certain things, but the payments do not have sufficient nexus with these supplies. Rather they are connected to the supply of legal services by you to the recipient.

As we regard the worker as the recipient of your supply of legal services, you should issue a tax invoice to the worker if he requests one. However, you have no obligation under the GST legislation to issue any form of invoice to a self-insured employer in respect of this supply of legal services to the worker.

Other information

Based on the above advice a self-insured employer is not making a creditable acquisition in respect of this supply of legal services. Therefore they are not entitled to claim any GST credit on the taxable supply of the legal services made or provided to the worker.

You are reminded that the amount of GST payable on a taxable supply is 10% of the value of a taxable supply, where the 'value of a taxable supply' is 10/11^th of the 'price'.

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