Edited version of private ruling

Authorisation Number: 1011600853153

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: receipt of funding

Relevant facts and circumstances

The Institution:

The Institution is established under Commonwealth legislation as a body corporate.

Touring program:

The aim of the Touring program is to improve the access of all Australians to works, to promote Australia by supporting overseas tours of works, and to encourage smaller international exhibitions to tour regional Australia.

The Touring program provides funding to institutions (including the Institution) which can be used for:

· costs associated with development and touring of exhibitions, including non-ongoing staff and insurance costs;

· costs associated with bringing works from international collections for an exhibition or tour within Australia; and

· costs associated with touring or exhibition of Australian cultural material overseas

Touring Funding Agreement:

The ruling request included a copy of a draft Funding Agreement between a Department and the Institution which appears to relate to the 2010-11 year.

The Funding Agreement obliges the Institution to carry out the 'Activity' (defined in the Schedule by reference to the guidelines in the Touring program and requiring the Institution to tour two exhibitions to three venues and to develop another exhibition for touring in the future.

The Funding Agreement provides that, subject to sufficient funds being available for the Touring program and the Institution complying with the Funding Agreement, the Department agrees to provide the Institution with the Funding.

The Funding Agreement provides that unless otherwise indicated any consideration for a supply made under the Funding Agreement is exclusive of any GST imposed on the supply and that if one party makes a taxable supply the recipient will pay an additional amount to the supplier equal to the GST imposed on the supply.

The Funding Agreement also provides:

On the basis that the Funding paid under this Agreement is of a funding nature, is paid to a 'government related entity' for GST purposes, is sourced from an appropriation, and is to be used for the purposes stated in this Agreement, the parties rely on GSTR 2006/11 for the Funding not being consideration for any supply and for no GST being imposed by reference to it.

Submissions in respect of the Touring program:

The ruling request referred to GSTR 2006/11 which provides (Para 18) that for a payment to be excluded from consideration by paragraph 9-15(3)(c) there must be an appropriation under an Australian law, the payment must be made by one government related entity to another government related entity and the payment must be specifically covered by an appropriation. It was submitted that there is an appropriation in respect of the payment made to the Institution under the Touring program, being an allocation of monies under the Appropriation Act (No. 1) 2009-10 (Cth) and provided for in 2009-10 Federal Budget Paper No. 2; the payment is made by one government related entity to another as the Department is a government related entity and the Institution satisfies paragraph (e) of the 'government entity' definition in section 41 of the A New Tax System (Australian Business Number) Act 1999 ('ABN Act') as the Institution is established under Commonwealth legislation for a public purpose; and the payment is specifically covered by an appropriation as the purpose and amount of the payment is clearly identified in the 2009-10 Federal Budget Paper No. 2.

Repatriation program:

The Repatriation program was first announced in the 1999 Federal Budget and has four objectives:

· Identify the origins of all ancestral remains and secret/sacred objects held in the [institutions] where possible;

· Notify all communities who have ancestral remains and secret/sacred objects held in the [institutions];

· Appropriately store ancestral remains and secret/sacred objects at the requests of the relevant communities; and

· Arrange for repatriation where and when it is required.

The Repatriation program was extended until June 2007 and has been funded since then as a special appropriation account and is currently provided for in the 2010-11 Federal Budget papers as a special appropriation account.

Draft Repatriation Funding Agreement:

Attached to the ruling request was a draft Funding Agreement between the Department and the Institution which was in the same format as the Touring Funding Agreement. The Funding Agreement obliges the Institution to carry out the Activity of identifying, storing and repatriating ancestral remains and secret/sacred objects in accordance with a Forward Work Plan) and obliges the Department to provide the Institution with the Funding specified in Item B of Schedule 1.

The GST clauses in the draft Repatriation Funding Agreement are identical to the clauses in the draft Touring Funding Agreement.

Submissions in respect of Repatriation program:

In relation to the requirement that there be an appropriation under an Australian law it was submitted that the funding provided to the Institution is an allocation of monies under a special appropriation provided for in 2010-11 Federal Budget Paper No. 4. In relation to the requirement that the payment is specifically covered by an appropriation, it was submitted that the payment was clearly identified in 1999-2000 Federal Budget Paper No. 2 and in 2010-11 Federal Budget Paper No. 4 and under Program 5.1: Arts and Cultural Development in the Department's Portfolio Budget Statement.

Further information in respect of Repatriation program:

We received a copy of the National Coordination Framework for the Repatriation program which states:

The Program aims to expedite the return of Indigenous ancestral remains and secret sacred objects held in Australian government funded [institutions] to their community of origin, where possible and when requested by communities.

The [institutions] eligible to participate in the RICP Program are….

We were also referred to a 2007 Media Release by the then Minister for the Arts and Sport which refers to funding over four years for the RICP program and states:

The Return of Indigenous Cultural Property program funds the repatriation of Australian Indigenous ancestral remains and secret sacred objects held in the collections of the eight major Australian [institutions] in partnership with State and Territory governments.

The 'Supporting Information' attached to the Press Release states that eight Australian institutions participate in the Repatriation program and lists the eight institutions referred to above in the extract from the National Coordination Framework.

Question 1:

Is the funding paid to the Institution by the Department in relation to the Touring program specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act?

Answer:

Yes, the funding paid to the Institution by the Department in relation to the Touring program is specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act.

Question 2:

If the funding paid to the Institution by the Department in relation to the Touring program is not specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act, is it consideration for a taxable supply made by the Institution?

Answer:

As the funding paid to the Institution by the Department in relation to the Touring program is specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act, it is not consideration for a taxable supply made by the Institution.

Question 3:

Is the funding paid to the Institution by the Department in relation to the Repatriation program specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act and thus not subject to GST?

Answer:

Yes, the funding paid to the Institution by the Department in relation to the Repatriation program is specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act.

Question 4:

If the funding paid to the Institution by the Department in relation to the Repatriation program is not specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act, is it consideration for a taxable supply made by the Institution?

Answer:

As the funding paid to the Institution by the Department in relation to the Repatriation program is specifically covered by an appropriation under an Australian law in terms of paragraph 9-15(3)(c) of the GST Act, it is not consideration for a taxable supply made by the Institution.

Reasons for decision:

Question 1:

Summary:

We consider that the payment made by the Department to the Institution is a payment of a funding nature and that payment of the funding is made by one government related entity to another government related entity. The payment is 'specifically covered' by an appropriation as the 2009-10 Federal Budget Paper No. 2 refers to [ ] million over four years from 2009-10 to support the Touring program and refers specifically to the Institution as a recipient of funding under the Touring program.

Detailed reasoning:

Supply for consideration:

Section 9-5 of the GST Act provides:

You make a taxable supply if:

(a) You make the supply for consideration; and

(b) The supply is made in the course or furtherance of an enterprise that you carry on; and

(c) The supply is connected with Australia; and

(d) You are registered or required to be registered.

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

Subsection 9-15(1) of the GST Act provides that consideration includes any payment, act, or forbearance in connection with, in response to, or for the inducement of a supply of anything. Paragraph 9-15(3)(c) of the GST Act, however, provides that a payment made by a government related entity to another government related entity is not the provision of consideration if the payment is specifically covered by an appropriation under an Australian law.

The effect of paragraph 9-15(3)(c) is that if a payment made by the Department to the Institution under the Funding Agreement is a payment made by one government related entity to another government related entity which is specifically covered by an appropriation under an Australian law then that payment cannot be consideration for any supply made by the Institution and the Institution cannot make a taxable supply in relation to that payment.

Policy intent behind paragraph 9-15(3)(c):

Goods and Services Tax Ruling GSTR 2006/11 states (Paras 15-16):

15. The policy intent behind [paragraph 9-15(3)(c)] can be found in the following statement in Tax Reform, Not a New Tax, A New Tax System:

The Government's intention would be to apply the GST to the commercial activities of all levels of government in the normal manner. However, there are constitutional limitations on subjecting some activities of government to the GST.The non-commercial activities of government will be outside the scope of the GST. For example, appropriations for general government activities will not be taxable, nor will grants from one level of government to another, as neither constitutes consideration for a supply.

16. [Paragraph 9-15(3)(c)] is intended to exclude funding payments, which are non-commercial in nature, from the operation of GST, while not excluding payments which represent fees for goods, services and similar things. This is reflected in paragraph 1.16 of the Senate Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999:

For example, if a State government makes an appropriation to a State Crown department, there would be no GST on this payment as it would be covered by new paragraph 9-15(3)(c). If the department makes a further payment to a State authority under the appropriation, there would be no GST on this payment. If the authority distributes the money to various registered community bodies and the community bodies have to use the money for particular purposes (that is, the payments are not unconditional gifts), the payments to the community bodies will be consideration for a supply, and hence will be taxable.

GSTR 2006/11 provides (Para 18) that one of the requirements of paragraph 9-15(3)(c) of the GST Act is that there must be an appropriation under an Australian law, that (Para 25) the dictionary definitions of 'appropriation' indicate that that term has both a general meaning and a 'government specific' meaning, and that (Para 25) the 'government specific' meaning is relevant for the purposes of paragraph 9-15(3)(c), i.e. that the payment must be specifically covered by 'an authorisation for the expenditure of money'.

GSTR 2006/11 also provides (Para 29) that for an appropriation to be 'under an Australian law' there must be an authorisation for the expenditure of money by a statue of the Commonwealth, a State or a Territory, or by delegated legislation, in furtherance of a particular purpose.

Meaning of 'payment' in paragraph 9-15(3)(c):

GSTR 2006/11 states (Para 30) that paragraph 9-15(3)(c) is intended to apply to 'payments of a funding nature', i.e.

…the Commissioner is of the view that for a payment to come within paragraph 9-15(3)(c) the payment has to be of a funding nature and not commercial in character.

Goods and Services Tax Ruling GSTR 2006/11 then explains the test for determining whether a payment is of a funding nature (Paras 32 -26):

32. When considering if paragraph 9-15(3)(c) applies to the payment, the purpose of the payment will be integral in characterising the payment as being of a funding nature or otherwise.

33. Not all payments between government related entities will be of a funding nature.

34. Accordingly, an agency may be funded by the allocation of government money under the authority of an appropriation Act, but when the funds are expended on goods and services to further the agency's operations, that expenditure will not be of a funding nature whether paid to a government related entity or a non-government related entity. At this point paragraph 9-15(3)(c) no longer has application and the basic GST rules apply.

35. Therefore, once the funds are allocated to the particular government related entity to be used in the course of its operations, any payments using those funds by that particular government related entity may not be made as an allocation of government money under the law appropriating the funds. The use of those funds, that is, payments made with the funds, to meet the particular government related entity's expenditure in the course of its operations, will not be payments of a funding nature. Therefore, paragraph 9-15(3)(c) will not be met and the basic GST rules will apply.

36. This accords with the intention as given in the Senate Supplementary Explanatory Memorandum, as noted in paragraph 16 of this Ruling. That is, where the funding transfer from the department to the State authority is otherwise covered by paragraph 9-15(3)(c), but the use of those funds by the State authority is in its operations, such as payments to the community bodies for services, those payments are meant to be subject to the basic GST rules.

Applying this test, we consider that the payment made by the Department to the Institution is a payment of a funding nature as the funding is an allocation of government money to a government related entity (the Institution) to be used in the course of the Institution's operations and is not an expenditure of funds on goods and services.

Payment made by a government related entity to another government related entity:

Paragraph 9-15(3)(c) requires that the payment must be made by a government related entity to another government related entity. 'Government related entity' is defined in section 195 of the GST Act as:

(a) a 'government entity' (as defined in section 41 of the ABN Act); or

(b) an entity that would be a government entity but for subparagraph (e)(i) of the 'government entity' definition in the ABN Act.

The 'government entity' definition in the ABN Act includes:

(a) a Department of State of the Commonwealth

…

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

(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

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 this paragraph.

In our view the payment is made by a government related entity as the Department is a Department of State of the Commonwealth within the meaning of paragraph (a) of the 'government entity' definition.

We consider that the Institution falls within paragraph (b) of the 'government related entity' definition, i.e. the Institution would satisfy the 'government entity' definition but for subparagraph (e)(i) of that definition. The Commonwealth legislation establishes the Institution as a body corporate. Consequently the Institution is an 'entity' and cannot satisfy subparagraph (e)(i) of the 'government entity' definition in the ABN Act but does satisfy the remaining requirements of paragraph (e) of that definition (i.e. the Institution is established by an Australian law for a public purpose and can be separately identified by reference to the nature of the activities carried on through the Institution). Consequently the Institution falls within paragraph (b) of the 'government related entity' definition in the GST Act.z

For the reasons set out above we consider that payment of the funding is made by one government related entity to another government related entity.

Payment 'specifically covered' by an appropriation:

GSTR 2006/11 discusses the meaning of the requirement in paragraph 9-15(3)(c) of the GST Act that the payment is 'specifically covered' by an appropriation under an Australian law (Para 48):

A payment authorised by an appropriation is an expenditure of money authorised by a statute or by delegated legislation. For Parliament to authorise expenditure it needs to specify the amount allocated. The payment is made so that particular outcomes or other purposes desired by Parliament are achieved. Hence, to be specifically covered the following must be specified:

· the purpose of the payment; and

· the amount of the payment.

Goods and Services Tax Ruling GSTR 2006/11 acknowledges (Para 52) that the purpose and amount of a payment is generally not specified in an Appropriation Act (which generally refers to high level 'outcomes' which provide only a brief outline of funding arrangements) and that the amount and purpose of a payment must be specified in the appropriation Act and supporting documents (e.g. Budget Papers, Portfolio Budget Statements and Agency Budget Statements plus Ministerial media releases, statements or speeches related to the Budget, Budget documents prepared at agency level, and written agreements such as Funding Deeds, Service Level Agreements or Memoranda of Understanding between government related entities).

Section 6 and Schedule 1 to the Appropriation Act (No. 1) 2009-10 (Cth) appropriated funds out of the Consolidated Revenue Fund for the Department's portfolio. The 2009-10 Federal Budget Paper No. 2 states:

National collecting institutions touring and outreach program - establishment:

The Government will provide $4.0 million over four years from 2009-10 to support the touring of cultural collections by the ….[Institution]…..

The measure will enable the national collecting institutions to develop and tour cultural collections across Australia, providing greater access throughout Australia to national collections; tour Australian cultural material overseas; and bring international cultural material and touring exhibitions to Australia.

Payment 'specifically covered' by an appropriation - GSTR 2006/11 as modified following the TT-Line decision:

GSTR 2006/11 is under review as a result of the decision issued on 18 December 2009 by the Full Federal Court in TT Line Company v Commissioner of Taxation 2009 ATC 20-157 and refers to the ATO's Decision Impact Statement issued on 19 May 2010 in respect of that decision.

TT Line involved a payment made by the Commonwealth under the Bass Strait Passenger Vehicle Equalisation Scheme ('Bass Strait Scheme') which was aimed at reducing the cost of sea travel to Tasmania for eligible passengers.

At first instance (i.e. in the Federal Court - TT Line Co Pty Ltd v FCT 72 ATR 982), Stone J found (Para 17) that the Appropriation Act (No. 1) 2007-08 (Cth) appropriated $842 million to 'Transport and Regional Services', that the Schedule to that Act included 'Outcome 1: Fostering an efficient, sustainable, competitive, safe and secure transport system', and that the Portfolio Budget Statement listed the Bass Strait Scheme as an administrative program for Outcome 1. However Stone J noted that paragraph 9-15(3)(c) of the GST Act required the 'payment', not the Bass Strait Scheme, to be covered by an appropriation and required the payment to be 'specifically' covered by an appropriation (Paras 23-24):

I note, however, that the subsection, in referring to the payment that must be specifically covered, uses the definite article. It is the payment that is made to the government related entity that must be specifically covered. It is not sufficient for the payment to be consistent with a specified purpose. As the Commissioner submitted:

There is nothing in the [Bass Strait] Scheme that limits the recipient of a payment of a rebate to TT Line or any wider class of government related entities…

It is clear from the words of subsection (c) that it is not sufficient for payment merely to be made by one government related entity to another. In order for such a payment to be specifically covered by an appropriation it would, at the very least, be necessary for payments to be limited to government related entities. The fact that the Scheme allows for payment to a non-government related entity indicates that the appropriation is limited to a purpose not to a payee or class of payees. This is sufficient to dispose of the issue under s 9-15(3)(c) even if, as a matter of fact, no payments were made to non-government related entities.

TT Line unsuccessfully appealed to the Full Federal Court. There Edmonds J referred to Stone J's reasoning and to the ATO's submission that Stone J's decision was correct (Paras 55-56):

In the Commissioner's submission s. 9-15(3)(c) only applies where the purpose of the appropriation pursuant to which the payment is made is to appropriate money for payments specifically to government related entities. The circumstance that the recipient of the payment is a government related entity is not, on the Commissioner's argument, sufficient to attract the benefit of the provision if the appropriation, pursuant to which the payment is made, would permit payment to a non-government related entity, albeit for the same purpose. It is common ground that the appropriation in the present case would permit payment to a non-government related entity for the purposes of the Scheme.

The Commissioner submitted that such a construction is consistent with the overall intention of the GST legislation in its application to government and that the primary judge recognised this. According to the Commissioner, that intention was that the Commonwealth, State and local government and their instrumentalities should be subject to the GST Act is the same way as non-government organisations, but that appropriations for general government activities or grants from one level of government to another should be exempt from GST. The Commissioner submitted that s 9-15(3)(c) gives effect to this intention by creating a limited exception to the general subjection of government to GST which applies in the case of payments appropriated for the specific purpose of being made to government related entities. For this the Commissioner relied on Para 17 of the Intergovernmental Agreement which appears as Schedule 2 to the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (Cth) and the Explanatory Memorandum to the Bill which introduced s 9-15(3)(c) into the GST Act.

Edmonds J concluded that the policy intent behind paragraph 9-15(3)(c) of the GST Act supported construction of that provision set out by Stone J and contended for by the ATO (Paras 62-63):

Not without some hesitation, I think that the answer to this question lies in the policy underlying the application and scope of the GST, namely that, generally, it is to apply to government related entities , organisations and instrumentalities - Commonwealth, State, and local - in the same way as it does to non-government entities and the like. So understood, there is created as between government related entities and non-government related entities supplying the same services a 'level playing field'. A payment, pursuant to an appropriation, for the supply of services which can, under the terms of the appropriation, be supplied by a government related entity or a non-government related entity should be subject to the same tax treatment; in other words, as taxable supplies irrespective of the status of the supplier. On the other hand, the potentiality for discrimination between government related and non-government related entities does not exist where, by the terms of the appropriation, the services can only be supplied by a government related entity. The exclusion created by s 9-15(3)(c) is only intended to operate in this limited class of case; it is not intended to extend to payments, pursuant to an appropriation, for a supply of services which can, under the terms of the appropriation, be supplied by a government related entity or a non-government related entity (even if the appropriation is otherwise specific as to the amount and particular purpose) because that would discriminate in favour of the government related entity contrary to the general policy underlying the application and scope of the GST Act.

So understood, it is not a giant leap to adopt a construction of s 9-15(3)(c) which confines it to payments pursuant to an appropriation the terms of which specify the government related entity by name or, generically, to those entities having that status. That is the minimum specificity of coverage that is required to be found in the terms of the appropriation for the exclusion to apply; whether it is sufficient, is something with which I need not be concerned because clearly, in the present case, the minimum specificity of coverage is not met.

Perram J agreed with Edmonds J's reasons, referred (Para 66) to clause 17 of the 1998 Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations:

The Parties intend that the Commonwealth, States, Territories and local government and their statutory corporations and authorities will operate as if they were subject to the GST legislation. They will be entitled to register, will 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.

and stated (Para 69):

The learned primary judge thought that 'specifically' should be interpreted to mean 'expressly' or 'explicitly' and that those words qualified the payment. The appellant, on the other hand, contended that all that is meant is that appropriation must be sufficiently specific to cover the payment claimed to attract GST. The trial judge's view is, with respect, more consistent with clause 17. This is for the positive reason that expenditure by way of specific appropriation is unlikely to resemble any expenditure which a non-government organisation might make and hence to fall outside what is contemplated by cl. 17. It is also for the negative reason identified by Emmett and Edmonds JJ that the appellant's position leaves non-government operators having to collect GST whilst exempting the appellant, an outcome inconsistent with the principle of equality underpinning cl. 17.

The ATO's Decision Impact Statement in respect of the Full Federal Court's decision in TT Line refers to the reasoning of Edmonds and Perram JJ:

Edmonds J., with whom Perram J agreed, found that paragraph 9-15(3)(c) should be interpreted by reference to the underlying policy that the GST is generally to apply to government related entities, organisations and instrumentalities - Commonwealth, State, and local - in the same way as it does to non-government entities. The exclusion created by paragraph 9-15(3)(c) is only intended to operate where, by the terms of the appropriation, the services can only be supplied by a government related entity. It is not intended to extend to payments, pursuant to an appropriation, for a supply of services which can, under the terms of the appropriation, be supplied by a government related entity or a non-government related entity (even if the appropriation is otherwise specific as to the amount and its particular purpose).

Tax Office view of decision:

…

While favourable to the Commissioner, the reasoning of the Court in relation to the interpretation of paragraph 9-15(3)(c) differs to how the Commissioner has expressed his views on this issue in GSTR 2006/11. The view expressed in GSTR 2006/11 is that for a payment to come within paragraph 9-15(30(c), the payment has to be of a funding nature and not commercial in character.

Implications for current Public rulings and Determinations:

As noted above, the Commissioner's views as set out in GSTR 2006/11 in relation to the application of paragraph 9-15(3)(c) are expressed in different terms to the reasoning of the Court. The application of the decision to Example 10 in GSTR 2006/11, specifically paragraphs 91 to 93, may lead to a different outcome to that expressed in this example. The Commissioner will review GSTR 2006/11 to ensure that it is consistent with the Court's reasoning.

Following the TT Line decisions and the Decision Impact Statement, in order for a payment by one government related entity to another government related entity to be 'specifically covered by an appropriation under an Australian law' there must be:

an authorisation for the expenditure of money by a statue of the Commonwealth, a State or a Territory, or by delegated legislation (or by reference to relevant supporting documents such as Ministerial statements, speeches, or media releases related to a budget, documents prepared at agency level which are related to an Appropriation Act, Funding Deeds, Service Level Agreements or Memoranda of Understanding between government related entities); and

that authorisation must specify the purpose of the payment and the amount of the payment; and

that authorisation must specify that the payment is to be made to one or more government related entities which are specified either by name or generically.

Applying these criteria to the payment by the Department to the Institution, we consider that there is an authorisation under and Australian law for expenditure of money, i.e. the Appropriation Act (No. 1) 2009-10 (Cth) and the appropriation of funds to the Department's portfolio.

We also consider that the authorisation specifies the purpose and amount of the payment because the 2009-10 Federal Budget Paper No. 2 refers to the establishment of the national collecting institutions touring and outreach program.

We also consider that the authorisation specifies that the payment must be paid to government related entities which are specified either by name or generically as the 2009-10 Budget Paper No. 2 refers specifically to the Institution as a recipient of funding under the Touring program. Thus, adopting Stone J's reasoning, the payment by the Department under the Funding Agreement is 'specifically covered' by an appropriation because that payment is made to the Institution and the Institution is named in the 2009-10 Federal Budget Paper No. 2. Thus the payment is 'specifically covered' by an appropriation as that test has been modified following the TT Line decision.

Question 2:

Given our conclusion above that the funding paid by the Department to the Institution under the Touring program is specifically covered by an appropriation under an Australian law, that funding is not consideration for a taxable supply.

Question 3:

Summary:

We consider that the payment made by the Department to the Institution under the Repatriation program is a payment of a funding nature and is made by a government related entity to another government related entity. As the 2010-11 Federal Budget Paper No. 4 and Federal Budget Related Paper 1.7 indicate that a special appropriation for the Repatriation program is paid into a Repatriation program Special Account and the National Coordination Framework for the Repatriation program lists the eight Australian institutions (each of which is a government related entity) which participate in the Repatriation program, we are satisfied that the payment is 'specifically covered' by an appropriation.

Detailed reasoning:

'Payment' within the meaning of paragraph 9-15(3)(c):

We consider that the payment made by the Department to the Institution under the Repatriation program is a payment of a funding nature as the funding is an allocation of government money to a government related entity (the Institution) to be used in the course of the Institution's operations and is not an expenditure of funds on goods and services.

Payment made by a government related entity to another government related entity:

For the reasons set out above in Question 1 we consider that the payment made by the Department to the Institution under the Repatriation program is made by a government related entity to another government related entity.

Payment 'specifically covered' by an appropriation:

The ruling request referred to the introduction of the Repatriation program in the 1999-2000 Federal Budget. The 1999-2000 Federal Budget Paper No.2 refers (p. 78) to the allocation of funds to a new Cultural Heritage Projects Program to support the conservation and restoration of places of cultural significance, with a priority for built works and indigenous heritage. The Minister's Speech refers to a Heritage Protection and Environment Program which, inter alia, seeks to return to indigenous ownership and management culturally significant property from overseas and Australian collections.

The 2010-11 Federal Budget Paper No. 4 refers to a special appropriation for the Repatriation program. Federal Budget Related Paper No. 1.7 contains the Portfolio Budget Statement for the Department. The Program Expenses for Program 5.1: Arts and Cultural Development include funds for a Repatriation program Special Account (p. 67) and Table 3.12: Estimates of Special Account Flows and Balances (p. 77) sets out the opening balance, receipts, payments, adjustments and closing balance for that Special Account. A note to Table 3.12 states:

Special Accounts provide a means to set aside and record amounts used for specified purposes.

This would appear to satisfy the requirement that the payment is 'specifically covered' by an appropriation under an Australian law as discussed in GSTR 2006/11, i.e. the purpose of the payment and the amount of the payment must be specified.

As noted above in Question 1, however, following the TT-Line decision there now appears to be a further requirement that that authorisation must specify that the payment is to be made to one or more government related entities which are specified either by name or generically. In our view the creation of the Repatriation program Special Account plus the evidence in the National Coordination Framework for the Repatriation program that only eight Australian institutions (each of which is a government related entity) participate in the Repatriation program satisfies Edmonds J's dictum that paragraph 9-15(3)(c) applies only where, by the terms of the appropriation, the services can only be supplied by a government related entity.

Question 4:

Given our conclusion above that the funding paid by the Department to the Institution under the Repatriation program is specifically covered by an appropriation under an Australian law, that funding is not consideration for a taxable supply.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).