Edited version of private ruling

Authorisation Number: 1011923910380

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Ruling

Subject: Entitlement to input tax credits - supplies subsidy

Question 1

Are you entitled to input tax credits for payments made to a specified supplier under a government concession scheme (the scheme)?

Advice/Answers

Yes.

Question 2

Is there a requirement for the supplier to issue tax invoices to you for payments under the scheme?

Advice/Answers

Yes.

Question 3

Are you entitled to input tax credits for tax periods prior to the valid period of your notification of entitlement?

Advice/Answers

No.

Relevant facts

You provide financial assistance under a scheme to eligible persons.

You are responsible for administration of the scheme. You receive funds to meet the costs incurred under the scheme, and the concession is provided from this funding.

To receive entitlements under the scheme an individual must lodge an application with you and produce eligibility documentation.

Included in the scheme is a concession paid by you to a supplier towards the cost of certain goods supplied by the supplier to members.

To obtain the concession the member must register their entitlement by presenting their card to the supplier. No concessions can be obtained until after the card has been registered.

You have a written agreement with the supplier that provides a list of responsibilities for each party.

The supplier automatically deducts the concessions, via the computer interface, from all eligible clients' accounts.

The supplier issues the member with a tax invoice that includes GST on the full amount of the supply to the cardholder. The concession is applied to the GST-inclusive amount and the member is liable for the balance.

The agreement provides for block funding to be paid by you in advance, but the current practice is for the supplier to invoice you periodically for the actual concessions provided. You pay the supplier's invoice and the GST attributable to the amount of the rebate.

A notification of entitlement to a GST refund was lodged by you with the Australian Taxation Office (ATO).

The ATO has previously issued a private ruling to the supplier on issues including whether payments by you to the supplier were consideration for a taxable supply. This ruling covered the same material facts and arrangements as currently exist between the parties.

Reasons for decision

Issue 1

Question 1

Summary

You have made creditable acquisitions in respect of the subsidy payments and are therefore entitled to input tax credits.

Detailed reasoning

A previous ruling issued to the supplier found that the amounts paid to the supplier by you were consideration for a taxable supply of the relevant goods by the supplier to the member. The supplier was therefore required to remit GST on the full amount of consideration received.

The ruling found that in relation to the obligations arising under the Agreement, due to the broad meaning of supply in the GST Act these would likely constitute supplies. However, it found that there was no separately identifiable supply by the supplier to you for which the subsidy constituted consideration. Further, as you were not considered to be the recipient of any supply in exchange for the rebate, you would not be entitled to any input tax credit for those payments.

The decision in Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84 (Department of Transport case) and the subsequent issue of draft addendum GSTR 2006/9DA necessitates a review of the analysis of whether the relevant supplier is making a supply to the department under the scheme. This will impact upon the issue of whether you are entitled to input tax credits.

As stated in the draft addendum GSTR 2006/9DA, the Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer in a tripartite arrangement that involves a supplier providing a service or goods to the customer, and where there is no binding obligation between the payer and the supplier for the supplier to provide the service or goods to the customer:

· There is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies that are to be provided by the supplier to particular third parties or a class of third parties.

· The pre-existing framework or agreement identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies provided to them come within the scope of the framework.

· The pre-existing framework or agreement specifies that the payer is under an obligation to pay the supplier if the supplier provides a relevant supply to a third party and also sets out a mechanism by which such payment is authorised.

· The framework or agreement and the mechanism for authorising the payment are in existence before the supplier provides the supply to the third party (ie the supplier knows in advance that the payer is obliged to pay some or all of the consideration where that supply is provided to the third party)

· The supplier provides the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and

· The obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the third party) to the supplier in the event that the supplier provides the relevant supply to the third party.

Where the above conditions are met there may be two supplies. These are the supply of service to the member and the supply to you of the service to the member.

Pre existing framework for the supplier to act in a particular manner

There is an agreement between the supplier and you for administration of the scheme. While some aspects of this framework have been altered, particularly the method of payment of the amounts to the supplier, the agreement otherwise remains on foot and outlines the obligations of the respective entities. There is therefore a pre existing framework in operation.

The agreement sets out the terms and conditions governing the parties and requires the supplier to act in a particular manner in respect of supplies provided to members. Specifically, the agreement requires the supplier to charge a lower amount for supplies to members.

Mechanism for identifying eligible recipients

The requirement that there be a mechanism for identifying eligible recipients is also satisfied in these circumstances. The card is authorisation from you that the cardholder is entitled to the benefits under the scheme.

A cardholder presents the card to the supplier before the supply of the goods. It is at this point that it becomes a supply of goods under the scheme and you assume liability to make payments under the scheme. You sought this supply when the presentation of the card authorised the supply of the goods as a supply under the scheme.

The supplier obtains authorisation in the form of the card before providing the subsidised goods. This validation means that the supplier does what you have asked it to do on the basis that you would pay.

Requirement to pay the supplier and an established mechanism for making payment

The member pays their amount and the GST attributable, and you pay the rest and the GST attributable to that amount. The supplier invoices you periodically for the actual concessions provided in the prior period. The subsidy payment from you to the supplier is directly referrable to the number of concessions provided to eligible consumers.

Therefore the requirement that the supplier be paid directly by you is met, and there is an established mechanism for making this payment. You therefore acquire the service for consideration, even though it is not the full amount of consideration.

Supplier knows that where the supply is made to the member that you will pay

The supplier knows that if the supply of discounted supplies is made to the cardholder then you are obliged to pay the difference. This is a liability owed by you. It is on this basis, and on the basis of the whole of the arrangements between the supplier and you, that the subsidised goods is supplied to the entitled cardholders.

Liability is owed by you

A supply will not be made to you in circumstances where supplies have been obtained by a person before they have presented their card to the supplier. A supply has not been made to you where there is merely an arrangement to pay on behalf of the third party for a liability already owed by the third party. Supplies are only made on a going forward basis from the time the card is accepted by the supplier. This is continuous until the card is revoked.

Supplier provides the supply in accordance with the pre-existing framework or agreement

Where the requirements of the arrangement between the supplier and you are followed in accordance with these arrangements there will be a supply to you.

Therefore, in the circumstances considered above we accept that supplies have been made by the supplier to you. The supplies by the supplier are taxable supplies because they have provided a supply for consideration in the course of their enterprise, the supply is connected with Australia and they are registered for GST (section 9-5 GST Act).

As the supplies to you are taxable supplies, you have provided consideration and you are registered for GST this meets all the requirements of section 11-5 of the GST Act.

You have made creditable acquisitions as you have acquired the service in carrying out your enterprise and it is not in relation to making supplies that are input taxed or private or domestic (section 11-15 GST Act). You have acquired the service as part of your enterprise, as an enterprise includes an activity or series of activities done by the Commonwealth, a State or a Territory (section 9-20 GST Act).

Therefore, you are entitled to input tax credits. The period for which you are entitled to input tax credits is considered at Question 3.

Question 2

Summary

As you are the recipient of a taxable supply from the supplier, you are entitled to receive a tax invoice.

This is because the supplier has made a taxable supply to you, and a supplier must issue a tax invoice for taxable supplies. However, a document that does not meet all the requirements may be treated as a tax invoice.

Detailed reasoning

A tax invoice for a taxable supply must be issued by the supplier and must contain relevant information (subsection 29-70(1) GST Act). However, the Commissioner may treat as a tax invoice a particular document that is not a tax invoice.

If requested, the supplier of a taxable supply must give the recipient a tax invoice for the supply within 28 days of the request (subsection 29-70(2) GST Act).

You have provided a copy of a 'tax invoice' issued by the supplier to you. This requests payment of the amount of actual concessions provided by the supplier under the scheme. An invoice is a document notifying an obligation to make a payment, whereas a tax invoice is a document that contains the information about a taxable supply required by the GST Act. This information may not otherwise appear on an invoice.

While the words 'tax invoice' appear on the document provided, there is no information provided on the amount of GST included in the invoice. A tax invoice must contain enough information to determine the extent to which a supply is a taxable supply. For example, the amount of GST payable, a statement of the extent to which the supply is a taxable supply or asterisking each taxable supply with a corresponding statement of the extent to which the supply is a taxable supply (see GSTR 2011/D1).

A document issued by the supplier that does not meet all of the tax invoice requirements may be treated by the recipient as a tax invoice if:

· it is clear from the document that it is intended to be a tax invoice, and

· it would be a tax invoice but for the missing information, and

· all of that missing information can be clearly ascertained from other documents given to the recipient by the supplier.

It is at the discretion of the recipient (you) whether or not to treat a document as a tax invoice. The recipient needs to know the tax treatment adopted by a supplier, and the Commissioner needs to be able to reconcile the credit claimed by the recipient.

If the recipient prefers, the recipient can require the supplier to issue a tax invoice (that is, a document that meets all of the tax invoice requirements) (paragraph 89 GSTR 2011/D1).

While the Commissioner may exercise a discretion to treat a document as a tax invoice (subsection 29-70(1B)), the onus is on the supplier or the recipient to demonstrate that their circumstances make it appropriate for the Commissioner to treat the document or documents as a tax invoice.

Question 3

Summary

You are not entitled to input tax credits for tax periods prior to the period described in the notification of entitlement to input tax credits.

Detailed reasoning

Section 93-5 of the GST Act places a time limit on entitlement to input tax credits. You cease to be entitled to an input tax credit to the extent that you have not taken it into account in working out your net amount for the tax period in which the credit is attributable, or any other tax period within four years of the after the day on which you were required to give a return for the tax period when it was attributable.

However, under subsection 93-10(3), you do not cease to be entitled to the input tax credit if you have notified the Commissioner within four years after the end of the tax period to which the credit would be attributable (paragraph 105-55(1)(a) in Schedule 1 to the Taxation Administration Act 1953 (TAA)).

As a consequence of the Department of Transport decision, you lodged a notification of entitlement under paragraph 105-55(1)(a) of Schedule 1 to the TAA. This notification will preserve your department's entitlement to input tax credits resulting from the payments it makes under the scheme for tax periods four years prior to the notification.

For tax periods prior to this four year notification, you would only be entitled to claim input tax credits as a result of payments you make under the scheme where you have lodged a notification of entitlement under paragraph 105-55(1)(a) of Schedule 1 to the TAA within four years of the end of the tax period to which the input tax credit would be attributable.

We note that a request for a private ruling was lodged by the supplier on a number of issues including whether payments received by it under the scheme were consideration for a taxable supply of the goods by the supplier. Our comments regarding your entitlement to input tax credits associated with the payments you make under the scheme should now be reviewed in light of the decision in the Department of Transport case and the release of draft addendum GSTR 2006/9DA.

Despite these comments, we do not accept that the private ruling request lodged by the supplier amounts to a notification of entitlement by you for the purposes of paragraph 105-55(1)(a) of Schedule 1 to the TAA.

If you considered that the comments were incorrect, you should have lodged a notification of entitlement for the purposes of paragraph 105-55(1)(a) of the TAA yourself and considered the various avenues of review available to you.

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