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Ruling

Subject: GST and the attribution rules

Question 1

When and to what extent is your Associate Member required to attribute the goods and services tax (GST) payable on a taxable supply it makes in connection with the financial assistance provided by the State Department and distributed through you?

Answer

The Associate Member is required to attribute the GST on the taxable supply they make under the general rules specified in section 29-5 and 29-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances

· You are a State association of professional service providers.

· A State Government, through a State Department (SD) has made funding available to service providers under the State Funding Scheme (the Scheme).

· Under the Scheme, funding the service providers, approved by SD as Approved Program Providers (PP), is made available through entities approved for funding as a 'Central Body' (the CB). These entities are responsible for distribution of funds to the PPs and support them to provide quality programs.

· SD has approved you to act as CB and agreed to provide funding to you for distribution to PPs on certain terms and conditions and SD has agreed to provide administration funding assistance to enable you to provide your obligations and services to yours members/associates.

· The Member has applied to the SD to become a PP and SD has approved the application.

· The PP has applied to you to become a Member of your association and you have approved the application and agree to provide your services to the Member on the terms set out on the Associate Member Service Agreement (Associate Member Agreement). This arrangement is governed by the State Funding Scheme Agreement (the Agreement) entered into between SD and you early this calendar year.

· Broadly, the Agreement provides that 'bucket' funds are paid to you by SD on a six monthly basis. Each instalment is based on an estimate of the total financial assistance attributable to your Member over the relevant six months period.

· The financial assistance to each of your Member is determined by the number of factors such as location and socio-economic indicators.

· The instalments paid by SD to you are reconciled against actual data on an annual basis. Depending on the outcome of the reconciliation, a further instalment may be paid by SD or an amount may be refunded to SD.

· Briefly, under the Agreement, you undertake the following roles:

o carries out the distribution of Financial Assistance and support services

o data collecting and reporting

o monitor the use of the Financial assistance and ensures that the PPs:

§ use only for the purposes of the delivery an agreed program

§ submit to you audited financial statements relating to the receipts and expenditures of the Financial Assistance

§ continue to meet the Eligible Criteria comply with the fee guideline sets out in the Guidelines

RESPONSIBILITY

The state Funding Scheme

The State Department

· assess applications from organisations seeking approval for funding as Central Body

· assess applications for program funding from an organisation approved as a Central Body

· process eligible payments, based on data of member services, supplied by each Central Body

· monitor and review program funding policies and guidelines

Organisation approved as Central Body

· direct funds to members services for provision of a program to recipients meeting the eligibility requirements.

· comply with the data and reporting requirements and evaluation activities required by the Office

Approved Program Providers

· maintain membership of an approved Central Body

· meeting program provider eligibility criteria

· deliver a quality program that complies with the funding eligibility criteria

· provide an annual audited financial statement to their Central Body.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5, Sub-division 153-A.

Reasons for decision

Summary

As you cannot issue the tax invoice as agent for your Members under Sub-division 153-A of the GST Act, each Member is required to issue a tax invoice under its own ABN. The general attribution rules for GST on taxable supplies under section 29-5 of the GST Act and section 29-20 of the GST Act apply to each Member.

Detailed reasoning

You have contended that under the Agreement and its Schedules, the Associate Member Service Agreement between you and an Approved Program Provider (PP), and Your Funding Distribution Strategy:

· the Financial Assistance is the considerations made by SD to the Member in return for an entry into an obligation to provide accredited programs (governed by specified key performance indicators to be met by the Approved PPs) to SD.

· The funding to the Member is made by SD through you, in your capacity as a CB under an agreement with SD. That is, you in your capacity as a CB receive funds and issues tax invoice to SD as agent for Members. On this basis, you consider the GST payable in respect of the funds receives by you from SD is attributable to each respective principal Member and Branch service and not to you in your capacity as a CB.

THE SUPPLY

For GST purposes, in the circumstances of a Member as an Approved PP, we consider that the Member makes a supply of services by delivering accredited programs (governed by specified key performance indicators to be met by the Approved PPs) to SD in return for the Financial Assistance. The supply is not made from you to SD. The supply is not made from the Member to SD through you either.

We consider that the supply made by the Member to SD as stated above is a taxable supply for GST under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Under section 9-40, an entity must pay the GST payable on any taxable supply it makes. We consider that the GST payable in respect of the funds receives by you from SD is attributable to each respective principal Member and Branch Service and not to you in your capacity as a CB.

THE AGENT/PRINCIPAL RELATIONSHIP

Goods and Services Tax Ruling GSTR 2000/37 describes what is a principal/s agent relationship and explains the operation of Subdivision 153-A and 153-B, Divisions 57 and 111 of the GST Act.

Paragraph 47 of GSTR 2000/37 states that:

the provisions of the GST Act require, inter alia, that you 'make' a supply or an acquisition if it makes for consideration. When the supply is made through an agent, it is necessary for the agent to make supply for consideration on behalf of the principal and it can only do that if it has the authority of the principal. Also, the Explanatory Memorandum to the GST explains that the principles of general law of agency are to be followed in applying GST law to agency relationship.

GSTR 2000/37 explains the general law and agency relationship. Some key points are briefly reproduced as follows:

· For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relation between the principal and third parties.

· For a transaction (i.e. taxable supply, taxable importation, creditable acquisition or creditable importation) to be made through an agent, the agent must have the authority of the principal to make the supply for consideration on the principal's behalf.

In your circumstances:

The supply of services of accredited programs is made by the Member to SD, not by you. There are no Agreements and other documents indicates that:

· you would act as a common law agent for the Member

· you would make supplies of the program on behalf of the Member. That is, the supply of accredited program is made to SD through you acting as a common law agent, and

· your main roles as defined in the Agreement, the Scheme and other documents are to distribute the funding to the Member, supporting the Member in the delivery of the accredited programs and monitor/report the use of the funding by the Member to SD.

It should be noted that representative of the principal who are not agents under the common law (for example, billing agent, paying agent…) are not covered by Division 153-A of the GST Act. That is, Subdivision 153-A of the GST Act cannot be used by entities (intermediaries) who make or receive payments on behalf of another entity (the principal) for supplies or acquisitions to or from third parties, but do not make those supplies or acquisition on that other entity's behalf. Nor can certain other service providers who perform functions for the principal but fall short of the legal definition of an agent, use Sub-division 153-A of the GST Act.

You have also contended that Clause xxx of the Associate Member Service Agreement provides that the parties agree that no agency agreement exists between you and the Associate with the sole exception of you acting as the agent of the Member in accordance with Subdivision 153-A of the GST Act for the purpose of issuing tax invoices and adjustment notes for the Financial Assistance payable under this Agreement.

Although Clause xxx of the Agreement provides that you are the agent for the Members in accordance with Subdivision 153-A of the GST Act for the purpose of issuing tax invoices and adjustment notes for the Financial Assistance payable under this Agreement, paragraph 34 of GSTR 200/37 states:

34. A clause in an agreement which states that an agency relationship exists must be considered with all the other terms of the agreement. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole; the parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label (see Potter & Anor v. Customs and Excise Comrs [1985] STC 45).

We consider that you cannot act as an agent under Sub-division 153-A of the GST Act for any purposes as you are not a common law agent as discussed above. In fact, your role in the distribution of the Financial Assistance can be termed facilitating the supply (transaction facilitator such as billing/paying agent) but fall short of the requirements to be regarded as common law agents.

TAX INVOICE AND ATTRIBUTION

You cannot issue the tax invoices in your own right as you are not an agent for the Member as specified in Sub-division 153-A of the GST Act. The tax invoice can only be issued by you as a billing agent and if so must contain the ABN of the relevant suppliers, the PP.

You have contended that the attribution rules for Member who make the supply in question fall under the determination under section 29-25 in Schedule 4 and Schedule 5 in the GSTR 2000/29.

We consider that the Schedule 4 determination does not apply as the supplies are not made through an agent as discussed above.

We consider that the Schedule 5 determination in the GSTR 2000/29 does not apply as the Members are required to issue their tax invoice (under its own ABN) and at the time the tax invoice is issued upon SD request, the amount is not unknown.

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