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Ruling

Subject: Entitlement to input tax credits - subsidy schemes

Question 1

Are you entitled to input tax credits for payments made to operators under the subsidy scheme?

Answer

Yes.

Question 2

Are you entitled to input tax credits for payments of a service subsidy to operators in accordance with the agreement?

Answer

Yes.

Question 3

Are you entitled to input tax credits for payments of concession reimbursements to operators for providing services to eligible members at a discounted price in accordance with the agreement?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You administer two subsidised schemes: the subsidy scheme and a services scheme.

Subsidy scheme

§ Subsidy scheme is a subsidised program for eligible members.

§ The subsidy scheme is established under relevant legislation and regulations.

§ The legislation also provides you with the authority and responsibility for regulating operators contracted to provide the service.

§ The terms and conditions of the subsidy scheme for the operator are included in a document detailing the arrangements for operators.

§ Operators are required to provide services to subsidy scheme members at a discount.

§ The subsidy scheme conditions specify that accredited operators must operate according to the conditions, and provide a copy of the conditions to each co operator. Operators must ensure that they understand and must comply with all the conditions.

§ Under the conditions, operators are required to verify membership by requesting to see the member's subsidy scheme photographic identification card and the voucher before the service begins.

§ The vouchers can only be used by subsidy scheme members to obtain discounted services from operators, and they cannot be used to pay for the whole service.

§ The discount offered under the subsidy scheme is limited to a certain dollar amount, based on the type of subsidy scheme membership.

§ Operators are required to enter information on the vouchers.

§ To collect the subsidy payments from you, operators must forward the vouchers to subsidy scheme data processing centres within X days of the service being performed.

§ You have the right to audit the vouchers presented by the operators to confirm their eligibility for the subsidy claim.

The scheme

§ The scheme is a program for people eligible for concessions for a service.

§ The scheme is governed by an agreement between yourself and the operator.

§ Under the agreement, operators are required to provide services within a designated area and in accordance with agreed conditions. They charge people eligible for concessions a discounted rate for the services.

§ The operator is paid for operating the services in accordance with the agreement. You are liable to pay where the operator meets the service requirements outlined in the agreement. Where the operator does not meet the service requirements, the amount is reduced to take into account any service defects.

§ A reimbursement is paid if the operators provide services to people eligible under the scheme at a discounted rate. The reimbursement is calculated as the difference between the full price and the concessional amount charged.

§ The operator applies for a reimbursement of the amounts of concessions on a prescribed application form on a periodic basis. Payment is made within 14 days of receipt of the application for the payment.

Relevant legislative provisions

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

Section 9-5

Section 9-15

Section 9-20

Section 11-5

Section 11-15

Reasons for decision

Question 1

Summary

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

Detailed reasoning

You make a creditable acquisition if you acquire something solely or partly for a creditable purpose, the supply of the thing to you is a taxable supply, you provide or are liable to provide consideration for the supply, and you are registered or required to be registered (section 11-5 GST Act).

It is first necessary to determine whether the suppliers have made taxable supplies to you.

As stated in the GST ruling GSTR 2006/9 (paragraph 221B), 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 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 the transport to the member and the supply to you of the service of transporting the member.

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

In your circumstances there is an administrative framework in place governing the operation of the scheme. It is a requirement under the subsidy scheme conditions that all operators must accept the vouchers when offered by a subsidy scheme member. An operator who contravenes the code is guilty of an offence. Once the membership card has been presented the administrative obligations of the scheme must be carried out by both the operator and you. These obligations require that operators act in a particular manner in respect of supplies made to subsidy scheme members, and specifically the framework requires that the operator charge a lower amount to subsidy scheme members.

Mechanism for identifying eligible recipients

Presentation of the card authorises the supply of the service as a supply under the subsidy scheme. The supplier obtains authorisation in the form of the card before providing the service. The card itself is advance authorisation from you that the subsidy scheme member is entitled to the benefits under the subsidy scheme.

A subsidy scheme member presents the card to the operator before the supply of the service. It is at this point that it becomes a supply under the scheme and you assume liability to make payments under the scheme.

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

At the end of the service the subsidy scheme member pays the amount less the subsidy. To collect the subsidy payments, the operator must forward the vouchers to your processing centre within 60 days. You may audit the vouchers to confirm the eligibility of the subsidy claim. Where all the requirements of the scheme are met you then pay the subsidy amount.

You have a requirement to pay the supplier, and an established mechanism for doing so.

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

The subsidy operates on the basis that when the vouchers are presented you will pay the subsidy amount. Conditions are in place that require operators must charge subsidy scheme members a lower amount and accept the vouchers as part-payment for the supply, and that the corresponding amount will be paid by you in accordance with their obligations under the scheme.

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

Viewing the membership card and accepting the vouchers means that the supplier is acting in accordance with the pre-existing arrangement, and is bound to provide the relevant services. In these circumstances the supply is in accordance with the agreement arranged between you and the operator.

Liability is owed by you

When the subsidy scheme membership card is presented the supply becomes a supply under the scheme and you assume liability to make payments under the scheme. You owe the amount of the subsidy to the operator under the scheme in your own right.

Conclusion

In considering the above factors in combination, we accept that a supply has been made to you.

The supply by the operator is a taxable supply where 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). The supply to you is a taxable supply, you have provided consideration and 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.

Therefore, you are entitled to input tax credits.

Question 2

Summary

You are entitled to input tax credits for payments of a subsidy to operators for operating services in accordance with the agreement. The agreement is binding on the parties to it.

Detailed Reasoning

The agreement sets out the arrangement between the parties, and documents the binding obligations between the parties. In this case, the contractual flow of the supply is to you, whilst the actual flow of the supply is to the public. When you have an agreement with the operator for the operators to provide a supply to the public there is a supply made by the operators to you, that the operators provide to the public.

Under section 195-1 of the GST Act, the recipient in relation to a supply means the entity to which the supply was made. In these circumstances, we consider that the supply is made to you. Therefore you are the recipient of the supply, and we consider that you acquire the supply.

The supply to you will be a taxable supply. This is because the supply is made for consideration, in the course of the operators' enterprise, it is connected with Australia, and they would be expected to be registered or required to be registered for GST (section 9-5 GST Act).

Therefore, you make a creditable acquisition. This is because the supply to you is a taxable supply, you acquire the supply for a creditable purpose in carrying on your enterprise, you provide consideration for the supply and you are registered for GST (section 11-5 GST Act).

Question 3

Summary

You are entitled to input tax credits for payments of reimbursements to operators for providing services to people eligible under the scheme at a discounted price in accordance with the agreement.

Detailed Reasoning

We consider that there is a pre-existing framework between you and the operators that means that when subsidised service is provided to an eligible person, as contemplated by your agreement, you are also the recipient of a supply.

Two taxable supplies are being made in this instance - to you and to the person receiving the supply. Both parties provide consideration for their respective supplies.

There is a pre-existing framework between you and the contractor that governs these circumstances and requires that the contractor acts in a particular manner in relation to supplies that are to be provided by the operators to the eligible persons. In particular, the operators must provide the service to the eligible person at the discounted concession rate. These persons are identified by providing proof that they are entitled to a concession. Their concession cards authorise the service under the framework at a discount.

Where the service is provided at a concessional rate you are under an obligation to pay by subsidising the service, and there are mechanisms by which these payments are authorised. The agreement between you and the operator mean that the operator knows in advance that you will pay this consideration where the relevant supplies are made.

Where all the administrative requirements of your agreement are met you have a liability in your own right to provide consideration to the operator. Therefore, we consider that these factors mean that a supply is made to you in these circumstances.

The supply to you is a taxable supply, as the operator has provided this supply for consideration in the course of their enterprise, the supply is connected with Australia and it is assumed that they would be registered for GST.

You have therefore made creditable acquisitions in relation to these payments, as the supply to you is a taxable supply, you have provided consideration and you are registered for GST. As previously considered, these acquisitions are in the course of your enterprise and are not input taxed or private or domestic.

You are therefore entitled to input tax credits.

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