Edited version of private ruling

Authorisation Number: 1011495105713

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Ruling

Subject: GST government related entity and recipient created tax invoices

Question 1

Are you considered a government related entity for GST purposes as defined in the Dictionary to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer: Yes.

You are a government related entity for GST purposes.

Question 2

If yes to Question 1, can you use recipient created tax invoices (RCTI) for the grants that you make to the grants recipients?

Answer: Yes.

You can issue RCTIs for taxable supplies made for grants that you make to the grants recipients, provided you satisfy the other requirements for issuing RCTIs.

Relevant facts

You are an organisation registered for goods and services tax (GST).

You were incorporated under a particular legislation.

Under your Constitution, you are established to implement a particular program/plan as agreed between the Australian governments.

Before your incorporation, the functions (now performed by you) were performed by a unit within a government department.

The members to your board are appointed by a particular officer of this government department.

The Constitution can only be altered by this particular officer of this government department in consultation with you.

Membership to the board is based on skills and knowledge supporting best practice governance, business, legal and contractual issues as well as in the management of resources.

Remuneration of the board members is funded through operational funding received from the Australian government.

Your principal activities are aimed at achieving the outcomes of the program/plan.

You also currently play a central role in delivering another Australian government program.

Your office has been relocated external to the particular government department, but you are accommodated in a government building at no cost. Staffs are mostly government employees and use the government networks and HR and other government services. However, this situation may change in the future.

Historically, you have always used recipient created tax invoices (RCTI) to facilitate a reasonable turn around of grant payments to organisations, many of whom are remotely located. They include a mix of profit and non-profit organisations as well as government related entities.

Due to the logistics and remoteness of locations, it is not usually practical for grantees to issue invoices in a timely manner. Often the finances of these organisations are not completed within a conventional timeframe and with recurring turnover of staff, invoices become delayed or elapsed.

You have legal obligations to your investors and stakeholders (principally the Australian government), which include regular reports and accountability and as such, must ensure that funds are being distributed and managed in a timely manner. This process is not possible if you are forced to wait on delayed invoices.

The supplies of services provide by the grantees are determined by you and detailed in the form of a contract, which are based on successful grant applications.

The majority of grantees are registered for GST but not all. You do not issue RCTI to grantees that are not registered.

Reasons for decisions

Question 1

Section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines the term 'government related entity' as:

(a) a government entity; or

(b) an entity that would be a government entity but for subparagraph (e)(i) of the definition of government entity in the A New Tax System (Australian Business Number) Act 1999; or

(c) a local governing body established by or under a State law or Territory law.

Further, the term 'government entity' has the meaning given by section 41 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Section 41 of the ABN Act defines 'government entity' as:

(a) a Department of the State of the Commonwealth; or

(b) a Department of the Parliament; or

(c) an Executive Agency, or Statutory Agency, within the meaning of the Public Service Act 1999; or

(d) a Department of State of a State or Territory; or

(e) an organisation that:

(i) is not an entity; and

(ii) is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law; and

(iii) can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation;

(iv) whether or not the organisation is part of a Department or branch described in paragraph (a), (b), (c) or (d) or of another organisation of the kind described in the paragraph.

You are not a 'government related entity' as defined under paragraphs (a) or (c) of the definition of government related entity in section 195-1 of the GST Act for the following reasons:

· You do not fall within paragraphs (a) to (d) of the definition of government entity in section 41 the ABN Act.

· You do not fall within paragraph (e) of the definition of government entity in section 41 of the ABN Act because you are an entity incorporated under the particular legislation, and satisfy the definition of an 'entity' under section 184-1 of the GST Act. This view is supported in paragraphs 30 to 34 of Miscellaneous Taxation Ruling MT 2006/1 which discusses a body corporate as being an entity.

· You are not a local governing body established by or under a State law or Territory law.

We now need to consider whether you are a government related entity as defined under paragraph (b) of the definition of government related entity in section 195-1 of the GST Act.

An entity is a government related entity as defined under paragraph (b) in the dictionary of section 195-1 of the GST Act if it is:

an entity that would be a government entity but for subparagraph (e)(i) of the definition of government entity.

This, in effect, means that an entity will be a government related entity if it satisfies subparagraphs (e)(ii) and (e)(iii) of the definition of government entity in section 41 of the ABN Act. You will satisfy subparagraph (e)(ii) of the definition of government entity in section 41 of the ABN Act if one of the following conditions is satisfied:

(a) You are established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise, or

(b) You are established for a public purpose by an Australian law.

Established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise

Goods and Services Tax Ruling GSTR 2006/5 discusses the meaning of 'Commonwealth, a State or a Territory'. The Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1 of the GST Act (stated above). In this case, the Australian and NT governments are the 'Commonwealth, a State or a Territory'.

GSTR 2006/5 at paragraphs 10 and 11 provide that if the corporation (or other structures) is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State. Paragraph 12 of GSTR 2006/5 lists principles that are taken into consideration (please refer to GSTR 2006/5 which is available at the ATO website at www.ato.gov.au for further details).

From the facts given, you carry on an enterprise of managing the activities of the program/plan. You have been set up by the Australian governments. This is confirmed in your Constitution. You have legal obligations to your investors and shareholders (principally the Australian governments), which includes regular reporting and accountability. The Constitution can only be altered by the particular officer of a government department, in consultation with you. The members of your board are appointed by the particular government department (including the Chairman, and the Public Officer who is an employee of that government department), and are remunerated by funding received by the Australian governments.

You are discharging governmental functions for the Australian governments. Therefore, you are considered to be established by a Commonwealth, State or Territory to carry on an enterprise. Accordingly, subparagraph (e)(ii) of the definition of 'government related entity' in section 41 of the ABN Act is satisfied.

Established for a public purpose by an Australian law

As it has been determined that you have been established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise (as stated above), there is no need to consider whether you have been established for a public purpose by an Australian law. However, for completeness, it is noted that if you are incorporated under the particular legislation or another Australian law that do not state your public purpose, but your purpose is only stated in your own Constitution, this requirement would not be satisfied.

In relation to subparagraph (e)(iii) of the definition of government entity in section 41 of the ABN Act, you carry on an enterprise and can be separately identified by reference to the nature of the activities carried on through the organisation. Therefore, this subparagraph is also satisfied.

Accordingly, as you satisfy all the requirements of paragraph (b) of the definition of government related entity in section 195-1 of the GST Act, you are a government related entity for GST purposes.

Question 2

Paragraph 29-70(1)(a) of the GST Act provides that a tax invoice for a taxable supply must be issued by the supplier unless it is a recipient created tax invoices (RCTI).

Subsection 29-70(3) of the GST Act defines a RCTI as a tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the recipient of a taxable supply.

The Commissioner has determined that there are three classes of tax invoices that may be issued by the recipient of a taxable supply. These three classes are explained in Goods and Services Tax Ruling 2000/10.

A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoices Determination (No. 1) 2000 (Determination) specifies that one of these classes of tax invoices is those that are issued for taxable supplies made to registered government related entities. The requirements for issuing RCTIs are also listed in this Determination.

As discussed in Question 1 above, you are considered a government related entity and are registered for GST, you are entitled to issue recipient created tax invoices for all taxable supplies made to you by registered suppliers, where the following requirements are satisfied.

Requirements for issuing RCTIs

An RCTI must contain the same information that is required for a tax invoice. In addition, the words recipient created tax invoice and the ABN of the supplier and the recipient must also be

Recipients and suppliers must also satisfy all of the following conditions:

(a) The supplier and the recipient must be registered for GST when the invoice is issued;

(b) The recipient must issue the original or a copy of the RCTI to the supplier within 28 days of when the supply is made, or the value of the supply is determined. The recipient must also retain the original or a copy;

(c) The recipient must issue the original or a copy of any adjustment note that relates to the supply to the supplier within 28 days of the adjustment and must retain the original or a copy;

(d) The recipient must reasonably comply with its obligations under the taxation laws; and

(e) The recipient and the supplier must have a written agreement that specifies the supplies to which it relates. The agreement must be current and effective when the RCTI is issued. The agreement must state that:

i. the recipient can issue tax invoices for the supplies;

ii. the supplier will not issue tax invoices for the supplies;

iii. the supplier is registered for GST when they enter into the agreement and will notify the recipient if they cease to be registered; and

iv. the recipient is registered for GST when they enter into the agreement and will notify the supplier if they cease to be registered.

(a) the recipient must not issue a document that would otherwise be a recipient created tax invoice on or after the date when they or the supplier fail to comply with any of the requirements outlined above.

Therefore, when you issue RCTIs, you must ensure that all these above requirements for issuing RCTIs are satisfied.

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