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Ruling

Subject: GST and Subdivision 153-B arrangement

Question and Answers

1. Can you claim input tax credits under subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for acquisitions made by entity A and entity A's employees?

No. The draft Deed subdivision 153-B arrangement you will have with entity A does not satisfy all the requirements of section 153-50 of the GST Act.

However, where a valid subdivision 153-B arrangement is made, you may claim the input tax credits for acquisitions made by entity A and entity A's employees as you will be treated to have made acquisitions from third party in your own right and at the same time to have made a corresponding supply to entity A.

2. Can you claim input tax credits under subdivision 153-B of the GST Act for acquisitions made by entity B and entity B's employees?

No. The draft Deed subdivision 153-B arrangement you will have with entity B does not satisfy all the requirements of section 153-50 of the GST Act.

However, where a valid subdivision 153-B arrangement is made, you may claim the input tax credits for acquisitions made by entity B and entity B's employees as you will be treated to have made acquisitions from third party in your own right and at the same time to have made a corresponding supply to entity B.

Relevant facts

You are an Australian company and are registered for the goods and services tax (GST).

You have prepared a draft Deed subdivision 153-B arrangement (draft Deed) which you will have with entity A and entity B. You would like the ATO to confirm that you can claim input tax credits under subdivisions 153-B of the GST Act for acquisitions made by entity A and entity B under this draft Deed.

You have provided us with a copy of the draft Deed.

Entity A and Entity B are referred as 'Company' in the draft Deed.

Clause 3.3 in the draft Deed states:

3.3 Section 153-B Arrangement

The Australian company will, on behalf of Company facilitate the acquisition of salary packaged item for the employee of the Company from third parties by providing consideration from the Fund for such acquisitions.

The parties acknowledge that solely for the purposes of the GST law:

i. The Australian company will be treated as an intermediary in making acquisitions from third parties.

ii. The Australian company will not be required to provide a tax invoice to the Company for the corresponding supply.

iii. If a party ceases to be registered for GST, it must notify the other parties to this deed.

iv. If a party ceases to be registered for GST, it must notify the other parties to this deed immediately.

Under clause 1 in the draft Deed, 'Fund' is defined to mean 'fund held on behalf of the Company for the benefits of their employee.

Reasons for decisions

Questions 1 and 2

Subdivision 153-B of the GST Act provides special rules with respect to the GST treatment of supplies and acquisitions made under an arrangement between principals and intermediaries.

You advise you will enter into subdivision 153-B arrangement with entity A and entity B and you have provided us with a copy of the draft Deed subdivision 153-B arrangement you will have in place.

The provision under subdivision 153-B of the GST Act would only apply where you and Entity A or Entity B have entered into an arrangement that satisfies all the requirements of section 153-50 of the GST Act and the relationship between you and Entity A or Entity B is that of principal and intermediary, for the facilitating of the specified acquisitions.

Section 153-60 of the GST Act details the effect of an arrangement under subdivision 153-B of the GST Act on acquisitions that the principal makes through the intermediary. Accordingly, you, entity A and entity B will need to be aware of the respective GST obligations where your subdivison153-B arrangement satisfies all the requirements of section 153-50 of the GST Act.

We will now consider sections 153-50 and 153-60 of the GST Act.

Section 153-60 of the GST Act

Section 153-60 of the GST Act states:

(1) An acquisition that the principal makes from a third party through the intermediary is taken to be a *creditable acquisition made by the intermediary from the third party, and not the principal, if:

(a) the acquisition is of a kind to which the arrangement applies; and

(b) the acquisition is made in accordance with the arrangement; and

(c) both the principal and the intermediary are *registered.

(2) In addition, the intermediary is taken to make a supply that is a *taxable supply to the principal. This supply is taken:

(a) to be a supply of the same thing as is acquired in the *creditable acquisition (the intermediary's acquisition) that the intermediary is taken to make; and

(b) to have a *value equal to 10/11 of the amount that is payable to the intermediary by the principal in respect of the intermediary's acquisition.

The principal is taken to make a corresponding acquisition from the intermediary, and the acquisition is taken to be a creditable acquisition if, apart from this section, the principal's acquisition from the third party would have been a creditable acquisition.

(3) If the principal pays, or is liable to pay, an amount, as a commission or similar payment, to the intermediary for the intermediary's acquisition from the third party:

(a) for the purpose of paragraph (2((b), the amount payable by the principal to the intermediary is taken to be increased by the amount the principal pays, or is liable to pay, to the intermediary; and

(b) the supply by the intermediary to the principal, to which the principal's payment or liability relates, is not a *taxable supply.

(4) This section has effect despite section 11-5 (which is about what are creditable acquisitions), section 11-10 (which is about what are acquisitions), section 9-5 (which is about what are taxable supplies) and section 9-75 (which is about the value of taxable supplies).

(*is a defined term in section 195-1 of the GST Act)

The general effect of entering into a subdivision 153-B arrangement in respect of acquisitions is that the principal and intermediary treat acquisitions that the principal makes from third parties through the intermediary as two separate acquisitions as though they are acting as principal to principal.

Under the arrangements, when an intermediary makes a creditable acquisition from a third party on behalf of the principal, it will be taken to have made a creditable acquisition in its own right. The intermediary will be entitled to claim input tax credit on that acquisition.

The intermediary will then be taken to have made a taxable supply to the principal and will issue a tax invoice to the principal. The value of that acquisition is determined by reference to the amount that the principal is required to pay the intermediary. Usually this amount will be the amount the third party charged for the supply plus the amount the intermediary is permitted, under the contract with the principal, to charge as a commission or similar payment for intermediary services.

However, the intermediary's supply of services is not a taxable supply in its own right and the principal is not entitled to claim input tax credit relating to the payment of commission or similar payment.

As the supply by the intermediary to the principal would be considered a taxable supply under the arrangement, the intermediary will be required to remit 1/11 of the supply to the Australian Taxation Office (ATO). The principal will be able to claim 1/11 of that amount as an input tax credit if they would have otherwise been making a creditable acquisition from the third party had subdivision 153-B of the GST Act not applied.

In some cases, the intermediary will be paid the entire amount the third party charged for the supply but then, in a separate transaction, the principal will pay the agent a commission or similar payment for intermediary services. If this situation occurs, subsection 153-60(3) of the GST Act provides that the amount the principal has already been required to pay will be increased by the amount of the commission or similar payment for the intermediary services. The intermediary's supply of services is then not considered to be a taxable supply in its own right.

The normal attribution rules would apply to the supplies from the third party to the intermediary and intermediary to the principal.

Accordingly, the effects of the 153-B arrangement where the draft Deed satisfies all the requirements in subsection 153-50(1) of the GST Act are that you the intermediary and the principal (entity A or entity B) will be acting as principal to principal and will treat acquisitions you make from a third party on behalf of the principal as two separate supplies and acquisitions as follows:

· When you make a creditable acquisition from a third party on behalf of the principal, it will be taken that you have made a creditable acquisition in your own right. You will be entitled to claim input tax credit for that creditable acquisition;

· You will also be taken to have made a taxable supply to the principal of the same thing that you are taken to acquire. You will issue a tax invoice to the principal and will be required to remit 1/11 of the price of the supply to the ATO; and

· The principal will be able to claim an input tax credit for the creditable acquisition they acquired from you on receipt of the tax invoice.

Goods and Services Tax Ruling GSTR 2000/37 (available at www.ato.gov.au) explains the operation of subdivision 153-B of the GST Act. For more information on the effects of 153-B arrangements on acquisitions made from third parties by the intermediary please refer to paragraphs 86 to 91L in GSTR 2000/37.

Section 153-50 of the GST Act

Section 153-50 of the GST Act states:

153-50 Arrangements under which intermediaries are treated as suppliers or acquirers

(1) An entity (the principal) may, in writing, enter into an arrangement with another entity (the intermediary) under which:

 (a) the intermediary will, on the principal's behalf, do any or all of the following:

i. make supplies to third parties;

ii. facilitate supplies to third parties (including by issuing *invoices relating to, or receiving *consideration for, such supplies);

iii. make acquisitions from third parties;

iv. facilitate acquisitions from third parties (including by providing consideration for such acquisitions); and

(b) the kinds of supplies or acquisitions, or the kinds of supplies and acquisitions, to which the arrangement applies are specified; and

(c) for the purposes of the GST law:

i. the intermediary will be treated as making the supplies to the third parties, or acquisitions from the third parties, or both; and

ii. the principal will be treated as making corresponding supplies to the intermediary, or corresponding acquisitions from the intermediary, or both; and

(d) in the case of supplies to third parties:

i. the intermediary will issue to the third parties, in the intermediary's own name, all the *tax invoices and *adjustment notes relating to those supplies; and

ii. the principal will not issue to the third parties any tax invoices and adjustment notes relating to those supplies; and

(e) the arrangement ceases to have effect if the principal or the intermediary, or both of them, cease to be *registered.

(2) For the purposes of subsection (1), an entity can be an intermediary whether or not the entity is the agent of the principal.

(Please note an asterisk denotes a term defined in section 195-1 of the GST Act).

Accordingly, for a subdivision 153-B arrangement to be in place, a written agreement is required and all the requirements in section 153-50 of the GST Act must be satisfied.

We will now determine whether the draft Deed you will have with either entity A or entity B ('Company') satisfies all the requirements in subsection 153-50(1) of the GST Act.

Applying draft Deed to subsection 153-50(1) of the GST Act

Paragraph 153-50(1)(a) of the GST Act

This paragraph is satisfied as the draft Deed provides that you will on behalf of the Company facilitate the acquisitions of salary packaged items for the employees of the Company from third parties by providing consideration from the fund for such acquisitions.

Paragraph 153-50(1)(b) of the GST Act

This paragraph is satisfied as the draft Deed provides that the acquisition you will facilitate is the salary packaged item for the employee of the Company.

Paragraph 153-50(1)(c) of the GST Act

This paragraph has two requirements and they are:

i. you will be treated as making acquisitions from the third parties; and

ii. the Company will be treated as making corresponding acquisitions from you.

The effect of this paragraph is:

· you and the Company will be treated as acting as principal to principal for GST purposes;

· where you have made a creditable acquisition on behalf of the Company, you would be treated to have made a creditable acquisition in your own right. You will be able to claim input tax credit for that creditable acquisition;

· you are also treated to have made a taxable supply to the Company of the same thing that you are treated to have acquired. You will issue a tax invoice to the Company and will be liable to remit 1/11 of the price of the taxable supply to the ATO; and

· the Company is treated to have made a corresponding acquisition from you and will be able to claim to claim input tax credit for the creditable acquisition on receipt of the tax invoice.

Accordingly, both requirements in this paragraph need to be satisfied.

First requirement

In your case, the first requirement is satisfied as the draft Deed provides that you as the intermediary will be treated as making acquisitions from third parties.

Second requirement

The 153-B arrangement in this draft Deed is about acquisitions from third parties and therefore there should be a provision in the draft Deed that the Company will be treated as making corresponding acquisitions from you the intermediary. This provision is not available in the draft Deed and therefore the second requirement is not satisfied.

Accordingly, paragraph 153-50(1)(c) of the GST Act is partly satisfied since the second requirement of that paragraph is missing in the draft Deed.

Additional information

The draft Deed provides that you will not be required to provide a tax invoice to the Company for the corresponding supply.

Where your corresponding supply to the Company is a taxable supply and the value of the taxable supply is over $75, you are required to issue a tax invoice to the Company within 28 days after the Company requests you to provide them with a tax invoice for their corresponding acquisitions from you.

Paragraph 153-50(1)(d) of the GST Act

The draft Deed is about acquisitions from third parties and not about supplies to third parties. This paragraph is therefore not applicable.

Paragraph 153-50(1)(e) of the GST Act

The draft Deed only provides that notification is to be made whenever a party ceases to be registered for GST and did not state what happen to the arrangement.

Accordingly, this paragraph is not satisfied as the draft Deed does not provide that the arrangement will cease to have effect where the Company or you or both ceased to be registered for GST.

Summary

The draft Deed you will have with entity A or entity B does not satisfy all the requirements in subsection 153-50(1) of the GST Act.

However, where a valid subdivision 153-B arrangement is made, you will be able to claim the input tax credits for acquisitions made by either entity A and entity A's employees or entity B or entity B's employees through you as you will be treated to have made acquisitions from third party in your own right and at the same time to have made a corresponding supply to entity A and entity B.

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