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Ruling

Subject: taxable supplies

Question 1

Is Entity A making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it makes a supply to Entity B?

Answer

No, Entity A is not making a taxable supply under section 9-5 of the GST Act when it makes a supply to Entity B as the payments are deemed not be consideration due to the operation of paragraph 9-15(3)(c) and therefore, section 9-5 is not satisfied.

Relevant facts and circumstances

· Entity A is a government related entity and was established for a particular purpose.

· Entity A is registered for GST.

· Entity B is a government related entity and was established for a particular purpose.

· Entity B is registered for GST.

· Entity C is a government related entity and receives an appropriation.

· The relevant budget papers provide for the purpose of the appropriation.

· Entity A and Entity C entered into funding agreement for the supply Entity A makes to Entity B.

· Entity A and Entity B entered into an agreement which details the obligations of Entity A and Entity B in regards to the supply from Entity A to Entity B.

· Under the agreement it states the funding and risks in relation to the supply. Specifically that Entity A shall pay all costs in delivering the supply.

 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 paragraph 9-15(3)(c)

Reasons for decision

Question 1

A supply is taxable were section 9-5 of the GST Act is satisfied. This section provides:

You make a taxable supply if:

(a) you make a 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 a taxable supply to the extent that it is GST-free or input taxed.

Paragraph 9-5(a) requires three things: a supply, consideration and that the consideration is for that supply.

Entity A is funded to carry out its activities via a grant provided under the funding agreement. Whether the payments are consideration for a supply to Entity B will be determined if the payments are covered by an appropriation that paragraph 9-15(3)(c) of the GST Act applies to or not.

Paragraph 9-15(3)(c) of the GST Act provides:

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.

Therefore, the following requirements have to be met for a payment not to be consideration under that paragraph:

· there has to be an appropriation under an Australian law;

· the payment must be made by a government related entity to another government

· related entity; and

· the payment must be specifically covered by the appropriation.

Appropriation under an Australian law

An appropriation under an Australian law provides the Parliamentary authority for the expenditure of government monies for a particular purpose.  An appropriation is an authorisation for an arm of government to draw funds from a specified fund, such as a consolidated revenue fund, in furtherance of the particular purpose.

We are satisfied that the first requirement of paragraph 9-15(3)(c) of the GST Act is met in this case as Entity C is provided with an Appropriation.

Payment must be made by a government related entity to another government related entity 

The requirement that the payment must be made by a government related entity to another government related entity means that the entities must be entities that satisfy the definition of government related entity as defined in section 195-1 of the GST Act.  The definition of government related entity is summarised in paragraph 42 of GSTR 2006/11 and states:

For the purposes of this Ruling the two definitions are read together and the term 'government related entity' is taken to mean:

(a) a Department of State of the Commonwealth;

(b) a Department of the Parliament;

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

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

(e) an organisation, whether or not it is an entity, that:

(i) 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

(ii) 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 the first four dot points above or of another organisation of the kind described in (i) or (ii); or

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

We are satisfied that Entity C is a government related entity. Furthermore, we are satisfied that Entity A is also a government related entity.

Hence, the second requirement of paragraph 9-15(3)(c) is satisfied.

Specifically covered by an Australian law

In accordance with paragraph 9-15(3)(c) of the GST Act, the third requirement that must be satisfied is that the payment must be specifically covered by an appropriation under an Australian law.

Paragraph 48 of GSTR 2006/11 provides that:

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.

Although the authorisation for the payment derives from an appropriation Act, that Act may only be based on a higher-level 'Outcomes' approach. In practice, the details of an appropriation, such as particular information about its purpose, may not always be specified by the appropriation Act. In many cases, the purpose will be documented in very general terms in the appropriation Act, but explained further in relevant supporting documents. For this reason the details relevant to a payment, being its purpose and amount, that can show it is specifically covered by an appropriation, have to be specified in the appropriation Act taken together with the relevant supporting documents.

Budget papers, Portfolio Budget Statements and Agency Budget Statements are relevant supporting documents because they explain the specific purpose of the appropriation. Other documents that are a part of the appropriation process may also be relevant to substantiating the specifics of the appropriation such as, written funding agreements, letters from Ministers.

The specific purpose of providing the funding to Entity A is stated in the relevant budget papers.

The total amount to be paid which is to be allocated in accordance with the funding agreement is also provided.

We are satisfied that the third requirement of paragraph 9-15(3)(c) is satisfied.

Hence, the funding payment provided by Entity C to Entity A will satisfy paragraph 9-15(3)(c) of the GST Act and is deemed not to be the provision of consideration for a supply as the payment is specifically covered by an appropriation under an Australian law. Therefore, section 9-5 of the GST Act will not be satisfied and Entity A will not be making a taxable supply to Entity B.

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