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Ruling

Subject: GST and Supplies

Question 1

Is the receipt of money by a Government entity under the relevant legislation subject to GST after 30 June 2012?

Answer: No

Question 2

Is the Government entity entitled to an input tax credit in relation to payments made under the relevant legislation after 30 June 2012?

Answer: No

Relevant facts and circumstances

The Government entity has been registered for GST since 1 July 2000 and administers the relevant legislation.

An eligible business has responsibilities under the relevant legislation and is required to lodge a form and pay money to the Government entity.

On payment to the Government entity, the business is discharged from further liability in respect of the payment.

In certain circumstances the Government entity may make payments under the relevant legislation.

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 Section 9-10

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

Question 1

Summary

The receipt of money by the Government entity is not a taxable supply and thus, not subject to GST, either before or after 30 June 2012, because there is no supply by the Government entity for which the money is consideration.

Detailed reasoning

In Waverley Council v FC of T 2009 ATC 10-095; [2009] AATA 442 the AAT noted, at paragraph 30, that the basic rules in Chapter 2 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) explain that GST is a tax on 'taxable supplies'. Provided other conditions are satisfied, there will be a taxable supply when there is a supply for consideration.

Under section 9-5 of the GST Act 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 under the exemptions.

Note: Definitions of asterisked terms are provided in the Dictionary under section 195-1 of the GST Act.

Supply

The term supply is defined under section 9-10 of the GST Act which relevantly states as follows:

9-10 Meaning of supply

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of *real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a *financial supply;

(g) an entry into, or release from, an obligation:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

…

(4) However, a supply does not include a supply of *money unless the money is provided as *consideration for a supply that is a supply of money.

Goods and Services Tax Ruling GSTR 2006/9: GST supplies, examines the meaning of 'supply' in the GST Act. The 'Background' section of the Ruling discusses the general context of the GST Act and outlines how this informs the meaning of the term 'supply' in the GST Act including its relevance to input tax credit entitlements.

Paragraphs 11 and 12 of GSTR 2006/9 provide:

The meaning of 'supply' is given in section 9-10.

11. Chapter 2 of the GST Act has the basic rules dealing with liability for GST and the obligations for recording and reporting GST noted in Sterling Guardian. The basic rules provide for when and how GST arises, who is liable to pay GST and how input tax credits arise.

12. The basic rules require an entity, the supplier, to make the supply and generally another entity, the recipient, to acquire the supply. GST on a taxable supply is payable by the supplier who is registered or required to be registered for GST. The requirements for a taxable supply are stated in section 9-5.

GSTR 2006/9 also considers 'propositions' for characterising supplies and analysing transactions in the context of both a broad based GST and the text and structure of the GST Act. Paragraphs 71 to 91 consider Proposition 5 - To 'make a supply' an entity must do something. In summary, the use of the word 'make', in the context of section 9-5 of the GST Act, dictates that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply.

Furthermore, In Reliance Carpet Company Pty Ltd v FC of T 2007 ATC 4650; [2007] FCAFC 99, at ATC 4659, the full federal court held:

19. The identification of a supply in terms of the "rescission supplies" is, in our view, equally unsustainable. In Westley Nominees the Full Court at [16] (2006 ATC 4366) said:

"The concept of 'supply' in its ordinary meaning in subs 9-10(1) of the GST Act does seem to require some act of provision, furnishment, conferral or giving of some thing. The inclusions in s 9-10(2) specifically identify some of these things, without limitation to subs (1), as goods, services, advice or information, real property and any right, (paras (a) to (e) inclusive). On the other hand, the concept of 'financial supply' in para (f) is defined in the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (reg 40-5.09) to include, amongst other things, the acquisition of an interest in or under specified financial instruments, and para (g) extends the concept of 'supply' to include the entry into an obligation to do something, to refrain from doing something or to tolerate an act or situation. For these reasons, the ordinary meaning of 'supply' is arguably extended by paras (f) and (g), if not by paras (a) to (e) inclusive."

20. The mere extinguishment of contractual rights would not, on this view, fall within the ordinary meaning of "supply".

In this case, the relevant legislation provides that eligible businesses must pay money to the Government entity.

The payment by a business is a supply of money. Under subsection 9-10(4) of the GST Act this is not a supply for purposes of the GST Act because the payment is not consideration for a supply that is a supply of money or a supply by the Government entity.

On payment to the Government entity, a business is discharged from further liability in respect of that amount. The mere extinguishment from further liability does not occur as a result of the business or the Government entity doing anything. The discharge and transfer of liability is accomplished through the legislative instrument. This is also not a supply for the purposes of the GST Act.

The businesses are also required to lodge a form. This is not a supply for consideration for the purposes of the GST Act.

In our view there is no taxable supply by the businesses to the Government entity. Neither is there a supply by the Government entity to the businesses in return for the money.

Therefore, the receipt of money by the Government entity under the relevant legislation is not subject to GST either before or after 30 June 2012.

Question 2

Summary

The payment of money by the Government entity under the relevant legislation is not consideration for a taxable supply under the GST Act. As the requirements of section 11-5 of the GST Act are not satisfied, the Government entity is not entitled to an input tax credit under section 11-20 of the GST Act in relation to payments made either before or after 30 June 2012.

Detailed reasoning

Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Section 11-5 of the GST Act lists the requirements that must be satisfied for an entity to make a creditable acquisition. Section 11-5 provides that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose

(b) the supply of the thing to you is a taxable supply

(c) you provide, or are liable to provide, consideration for the supply, and

(d) you are registered, or required to be registered for GST.

Another entity may apply to the Government entity for the payment of money under the relevant legislation.

In making a payment of the money the Government entity does not acquire anything solely or partly for a creditable purpose

In applying for a payment of the money, the other entity does not make a supply of anything for consideration.

The payment of the money is not consideration for a taxable supply because there is no supply.

As the requirements of section 11-5 of the GST Act are not met, the Government entity is not making a creditable acquisition when it makes a payment. Therefore, the Government entity is not entitled to an input tax credit in relation to the payment either before or after 30 June 2012.

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