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Ruling

Subject: Payments from a government entity to another government entity under a scheme

Question 1

Are you making a supply to the Government Department under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the Scheme for which you receive a payment?

Answer

No, you are not making a supply to the Government Department for which you receive a payment.

Question 2

Are the payments you receive from the Government Department consideration for a supply under paragraph 9-15(3)(c) of the GST Act?

Answer

No, the payments you receive from the Government Department do not represent consideration for a supply under paragraph 9-15(3)(c) of the GST Act because the payments are not specifically covered by an appropriation under an Australian law.

Question 3

Are any payments made by the Government Department to you in respect of the Scheme in the future covered by subsection 9-15(3)(c) of the GST Act.

Answer:

We are not able to provide a ruling on hypothetical or theoretical circumstances.

Relevant facts and circumstances

You are a State owned Corporation.

You are registered for Goods and Services Tax (GST).

You are a service provider in your State.

You own and maintain a distribution network that supplies services to customers.

The State Government introduced the Scheme which is administered by the Government Department.

You are required to provide discounts to particular customers in particular circumstances.

The State Government meets the cost of the Scheme through payments made by the Government Department to you equivalent to the discounts provided.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15

Reasons for decision

Under section 9-5 of the GST Act you make a taxable supply if:

1. you make a supply for consideration,

2. the supply is in the course or furtherance of your enterprise,

3. the supply is connected with Australia and

4. you are registered for GST.

The supply is not taxable to the extent it is GST-free or input taxed.

Under section 9-10 of the GST Act a supply means any form of supply whatsoever and includes a supply of services.

Under section 9-15 of the GST Act consideration includes any payment, or any act or forbearance, in connection with a supply of anything or in response to or for the inducement of a supply of anything. It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

The criteria at issue are:

1. Whether you are making a supply; and

2. Whether the payments you receive from the Government Department are consideration for that supply.

Question 1

Summary

You are making a supply of services to the Government Department under section 9-5 of the GST Act in relation to the Scheme, but do not receive consideration for that supply. The payments by the Government Department are reimbursements to you in relation to costs incurred on the supplies made by entities that satisfy the requirements of the Scheme.

Detailed reasoning

Section 9-10 of the GST Act defines a supply as any form of supply whatsoever. Without limiting this definition, examples of supplies are provided which includes a supply of services.

In administering the Fund, the Government Department requires information to operate the scheme and to deliver payments to eligible consumers.

In providing information and delivering payments by allowing credits, you are providing a service to the Government Department.

This service is a supply for purposes of section 9-10 of the GST Act.

Under the Act you are required to make specific payments to customers in relation to the Scheme. Because the supplies are generally from private suppliers and the suppliers are not registered for GST, the supplies to you are generally not taxable supplies. Accordingly, these payments are not consideration for a taxable supply.

Under the Scheme, the Government Department reimburses you the cost of the specific payments you make to customers in relation to the Scheme under the Act.

Goods and services tax ruling GSTR 2006/9: GST - supplies, examines the meaning of 'supply' in the GST Act. Example 7A, paragraphs 192A to 192H of GSTR 2006/9 (amended 1 July 2009) makes it clear that the ATO view is that the reimbursement payments are consideration for the non-taxable supplies by customers to you under the Scheme.

This view is consistent with the findings of the Full Federal Court in Commissioner of Taxation v Secretary to the Department of Transport (Vic) [2010] FCAFC 84; 2010 TC 20-196; 76 ATR 306 and TT-Line Company Pty Ltd v FC of T [2009] FCAFC 178; 2009 ATC 20-157.

Where a customer is registered for GST and the supply is part of an enterprise carried on by the customer, the supply will be a taxable supply. In these circumstances you will be entitled to claim an input tax credit if you hold a valid tax invoice from the registered customer.

Draft Goods and Services Tax Ruling GSTR 2011/D4: financial assistance payments deals with the application of the goods and services tax (GST) to financial assistance payments. At paragraphs 17 to 20 the draft ruling provides:

17. For a financial assistance payment to be consideration for a supply it is not sufficient for there to be a supply and a payment. The supply must be for that payment.

18. A financial assistance payment is consideration for a supply if the payment is 'in connection with' a supply.

19. Consideration can also be 'in response to' or 'for the inducement of' a supply.

20. To determine whether a financial assistance payment is consideration 'in connection with', 'in response to' or 'for the inducement of' a supply it needs to be established whether there is a sufficient nexus between the financial assistance payment and the supply.

Under the Scheme, the Government Department reimburses you the cost of the specific payments you make to customers in relation to the Scheme under the Supply Act. In our view, the reimbursement payments to you from the Government Department are financial assistance payment from the State to support the scheme and relieve the distributers such as you from the burden of meeting the costs.

In our view there is insufficient nexus between the financial assistance payment from the Government Department to you and the supply by your customers to you. The financial assistance payments are not consideration for a supply.

Question 2

Summary

The payments you receive from the Government Department do not represent consideration for a supply under paragraph 9-15(3)(c) of the GST Act because the payments are not specifically covered by an appropriation under an Australian law.

Detailed reasoning

Section 9-15 of the GST Act relatively defines consideration as including:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

However paragraph 9-15 (3)(c) states:

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.

Goods and Services Tax Ruling GSTR 2011/2 GST: appropriations (GSTR 2011/2) deals with the application of paragraph 9-15 (3)(c) of the GST Act to payments made between government related entities that are specifically covered by an appropriation under an Australian law.

We accept that you and the Government Department are government related entities and that the payments from the Government Department to you are payment made by a government related entity to another government related entity.

Goods and Services Tax Ruling GSTR 2006/11 which also referred to appropriations, was withdrawn with effect from 13 July 2011. That ruling identified an 'Australian law' to mean a law of the Commonwealth, a State, or a Territory (paragraphs 26 to 29).

The Appropriation Acts are appropriations under an Australian law.

The payment must be specifically covered by an appropriation. GSTR 2006/11 provided similar guidance to that provided under GSTR 2011/2. GSTR 2006/11 at paragraphs 46 and 47 explained 'specifically covered', what was to be specified at paragraphs 48 and 49, and where this information had to be specified at paragraphs 50 to 62. To be specifically covered, GSTR 2006/11 at paragraph 48 required the purpose of the payment and the amount of the payment to be specified. This has been narrowed in the revised ruling. GSTR 2011/2 provides the following in relation to paragraph 9-15(3)(c) of the GST Act:

Specifically covered

14. Paragraph 9-15(3)(c) requires that the payment be 'specifically covered by an appropriation' under an Australian law.

15. The phrase 'specifically covered' is not defined in the GST Act. Edmonds J in the Full Federal Court in TT-Line Company Pty Ltd v. Commissioner of Taxation (TT-Line) considered that the minimum level of specificity required for paragraph 9-15(3)(c) to apply is that the payment is made pursuant to an appropriation 'the terms of which specify the government related entity by name or, generically, to those entities having that status.

In TT-Line Company Pty Ltd v. Commissioner of Taxation [2009] FCAFC 178; (2009) 181 FCR 400; 2009 ATC 20-157; (2009) 74 ATR 771 at Paragraph 23 Emmett J observed:

However, while the item in the Output 1.4.1 section of figure 3.2 in the Budget Statements refers to the Scheme in specific terms, it does not refer to TT Line.

GSTR 2011/2 also explains what must be specified and where this information can be provided. Paragraphs 20 and 21 of GSTR 2011/2 state:

What must be specified?

20. For a payment to be specifically covered by an appropriation under an Australian law for the purposes of paragraph 9-15(3)(c), the terms of the appropriation must specify that the payment be made to a government related entity or entities, by name or generically.

21. If the 'specifically covered' requirement is not met the basic GST rules apply to determine whether the payment is consideration for a taxable supply.

Paragraphs 22 to 27 of GSTR 2011/2 provide that the sources of the specification can include:

§ An Appropriation Act

§ Budget papers linked to the relevant Appropriation Act

§ Documents that were considered by Parliament together with the relevant appropriation Bill; and

§ Documents that are referred to in the above documents such as Ministerial directions.

Based on the information provided, the appropriation by the Parliament is to establish the Fund which funds a number of projects including the Scheme. It is the Minister of State for the Government Department who authorises payments from the fund in relation to the scheme.

The Appropriation Act (Budget Paper) appropriates funds for the government's programs but does not specifically refer to the Scheme. The Budget Speech (Budget Paper) provides estimates of increased costs in the scheme but fails to specify specific amounts that will be payable to government entities.

In our view the payments proposed to be paid to you are not specifically covered by an appropriation under an Australian law.

The payments represent reimbursement payments from a government trust fund made to entities that have satisfied the requirements under the Scheme. These payments do not satisfy the requirements of paragraph 9-15 (3)(c) of the GST Act.

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