Edited version of your private ruling

Authorisation Number: 1012446842322

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Ruling

Subject: GST and tripartite supplies

Question 1

Are you entitled to input tax credits for payments made to suppliers under the government's Program?

Answers

Yes

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· You are a Government agency registered for goods and services tax (GST).

· You received written advice from the Australian Tax Office (ATO) advising that you were a third party payer in relation to the Program and therefore could not make a creditable acquisition and claim an input tax credit.

· You have advised that due to the recent decision in the Commissioner of Taxation v Secretary of Department of Transport (Victoria)(DoT) (2010) FCAFC 84, in relation to Input Tax Credits (ITC) entitlements in multiparty arrangements, the ATO has identified that you may be entitled to claim ITCs in relation to the Program and have asked us to reconsider the previous advice.

· The Program was administered by you.

· The facts provided to the ATO for the previous advice given in 200X and subject to the following advice are as follows:

o Under the Program, you paid for supplies in eligible houses.

o Under the Program, eligible householders or landlords were able to ring a free hotline and be provided with or given a list of approved suppliers in their area.

o The householder or landlord, were then able to approach a supplier who would complete a certain program of works to a specified standard. The supplier then billed the Commonwealth for the work. The Commonwealth paid for the supplies up to a certain value - anything in excess of that was to be paid for by the householder or landlord.

o You established a register of suppliers. Before the Commonwealth would include a supplier on the register, they must have met a number of requirements and agreed to a number of conditions. Set out below are the requirements and conditions:

o Once a supplier met the eligibility criteria to be placed on the register of suppliers, the government had no enforceable right to compel a supplier to carry out work for a particular householder. The supplier could choose which work to undertake.

o The program in intended to be akin to an earlier program, that was currently in use at the time which provided for reimbursement of cost directly to a householder. The government would pay supplier directly for administrative reasons.

o Suppliers were required to provide the government with an indemnity as a precaution in case an event lead a householder to take action against the government in respect of work undertaken by a supplier - for example if a supplier damaged a home, a householder may have wanted to take action against the government for recommending the supplier.

o Once the program of work was completed the supplier s lodged an electronic claim for payment through another Government entity as your computer systems at that time were not set up for that type of arrangement.

o You do not hold any tax invoices for the amounts paid to the suppliers.

o It was not intended to place restrictions on the number of suppliers that may go on the Register - provided they meet the Commonwealth's requirements and agreed to the conditions, they would be included on the Register and could participate in the Programs. The selection of the particular approved supplier was also a matter for the householder or landlord - the Commonwealth would make clear in the Guidelines for the Programs that it did not accept any liability for loss or damage arising from the acts or omissions of a supplier.

Your contentions

· You previously saw the arrangement as providing assistance to the householder or landlord to enable the program of works and not as a supply by the supplier to the Commonwealth. The proposed conditions did, however, include some conditions, in particular an indemnity, that to be effective would need to be enforceable by the Commonwealth against the installer. As such it would be more than a condition the breach of which would simply enable the Commonwealth to remove a supplier from the register.

· You believe that due to the recent decision in the Commissioner of Taxation v Secretary of Department of Transport (Victoria)(DoT) (2010) FCAFC 84, in relation to Input Tax Credits (ITC) entitlements in multiparty arrangements, that you may be entitled to claim ITCs in relation to the Program.

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

Section 29-70

Section 93-5

Section 93-10

Taxation Administration Act 1953

Schedule 1, section 105-55

Reasons for decision

Question 1

Summary

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

Detailed reasoning

As a result of the Full Federal Court's decision in Commissioner of Taxation v Secretary to the Department of Transport (Vic), [2010] FCAFC 84; 2010 ATC 20-196; 76 ATR 306 (Victorian Department of Transport case), you have sought a review of the Commissioner's previous advice to you that stated that you were a third party payer in relation to the Program and therefore could not make a creditable acquisition and claim an input tax credit.

Entitled to an input tax credit

Section 11-20 of the GST Act states you are entitled to the input tax credits for any creditable acquisition that you make.

You make a creditable acquisition if you satisfy all of the requirements of section 11-5 of the GST Act.

The two requirements of the section at issue are:

· that you are the recipient of a taxable supply (paragraph 11-5(b) of the GST Act) and

· that you provide or are liable to provide consideration for the supply (paragraph 11-5(c) of the GST Act).

Recipient of a Taxable Supply

The basic rules

Under the basic rules, Division 9 of the GST Act defines taxable supplies, states who is liable for the GST, and describes how to work out the GST on supplies.

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.

Is there a supply?

Section 9-10 of the GST Act provides the definition of supply 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).

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.

At page 27, in relation to Proposition 6, GSTR2006/9 states

Proposition 6: 'supply' usually, but not necessarily, requires something to be passed from one entity to another

92. The fact that 'supply' requires something to be passed from one entity to another is largely self-evident in a transaction based tax. However, not all forms of supply have this characteristic. For instance, paragraph 9-10(2)(e) includes a creation of a right as a supply. The 'creation' of a right does not involve a passing of the right from one entity to another. In this case, the action of the supplier causes the recipient to make an acquisition but without anything passing between them.

93. Also, a comparison of subsection 9-10(2) with its corresponding provision, subsection 11-10(2), shows that the thing supplied is not necessarily the thing acquired. For example, a supply that is 'an entry into an obligation' is mirrored by an acquisition that is 'an acquisition of a right'. The obligation remains with the supplier, while the 'right' is created in the hands of the recipient, rather than there being a thing that passes from one entity to another

Of relevance to this case is Proposition 14: a third party may pay for a supply but not be the recipient of the supply and also Proposition 15: one set of activities may constitute the making of two (or more) supplies. Paragraphs 217 and 217A of GSTR 2006/9 state that:

217. Examining the levels of contractual or reciprocal relationships between the entities in a tripartite arrangement may reveal two or more supplies being made based upon the one set of activities.

217A. This proposition is illustrated by Federal Commissioner of Taxation v. Secretary to the Department of Transport (Vic) 63A (Department of Transport), where the activity undertaken by the taxi operator of transporting the eligible passenger resulted in two supplies being made:

(i) the supply of transport to the passenger; and

(ii) the supply to the Department of the service of transporting the eligible passenger

In paragraph 221B of GSTR 2006/9 the Commissioner suggests a number of factors that need to be considered whether a supply is made to a third party.

221B. The Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer under a tripartite arrangement that involves a supply by the supplier to the customer, even where there is no binding obligation between the payer and the supplier for the supplier to make a supply to the customer:

(a) 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 by the supplier to particular third parties or a class of third parties;

(b) the pre-existing framework or agreement:

(i) identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies made to them come within the scope of the framework or agreement; and

(ii) specifies that the payer is under an obligation to pay the supplier if there is a relevant supply by the supplier to a third party and also sets out a mechanism by which such payment is authorised;

(c) the framework or agreement and the mechanism for authorising the payment are in existence before the supply by the supplier to the third party (that is, the supplier knows in advance that the payer is obliged to pay some or all of the consideration in the event of the supply to the third party);

(d) the supplier makes the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and

(e) 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 there is a supply by the supplier to the third party.

In your circumstances, where the above conditions are met there may be two supplies, one to the approved suppliers and one to the householders.

Following the principles in GSTR 2006/9 (and the Department of Transport Case), one set of activities may constitute the making of two (or more) supplies.

Where an entity (such as a the supplier) agrees with you to provide goods, services, rebates or anything else to another party (the home owner), if the supplier enters into a binding obligation with you to provide goods under certain terms, perform services or do something else for the home owner, and you are liable to pay for those services, the i supplier makes a supply to you, even though the supply may be provided to another entity.

Similarly, you may enter into a pre-existing framework or arrangement with the supplier which contemplates that the parties act in a particular manner in respect of supplies by the supplier to the home owner which establishes a liability owed by you to the supplier (rather than the home owner having the liability to the supplier) in the event that there is a supply to the eligible person.

Both of these types of arrangement (binding obligation or pre-existing framework) result in a supply being made to you under the arrangement.

In your circumstances, you entered into an arrangement with the supplier s. We consider that the Project arrangement formed the obligations between you and the suppliers. When the suppliers entered into the arrangement with you they entered into an obligation to do something, which resulted in a supply being made to you (see section 9-10(2)(g)(i)).

Your Project arrangement set out the terms and conditions governing the parties (the supplier and you) and required the supplier to act in a particular manner in respect of the supplies provided to third parties (the home owner).

We consider that under the arrangement it was the supplier that was required to provide the 'rebate' to the home owner (by way of a reduced payment being required if the program of works was above a set amount.)

Under the arrangement you were required to reimburse the supplier a set amount depending on a set criteria for work performed for the home owner. There were mechanisms for how and when the supplier submitted their claims. Your payments of the amounts under the arrangement are payments for the liability that you owe in your own right, for the supplies contemplated under the Arrangement.

We consider that there are two supplies made by the supplier under your particular arrangements - one to you and a separate (and not necessarily concurrent) one to the home owners. The supply made to you is the supplier's service of providing the program of works to the homeowners under the Arrangement. The homeowner receives the supply for consideration being the lesser amount that they are required to pay (reduced because of the rebate). The consideration received from each party is in connection with the corresponding supplies made to them.

Your payments of the reimbursement amounts are consideration for the separate supply made to you. The supply is made by a registered supplier in the course of their enterprise, it is connected with Australia and the supply is for consideration. Therefore the supply made to you is a taxable supply.

From the perspective of the supplier it is not important who provides the consideration for the taxable supplies that are made, GST is payable on the full consideration received.

However, as you are the recipient of a taxable supply from the supplier this is relevant to your entitlement to input tax credits.

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).

You have made a creditable acquisition as you have acquired the services under the agreement 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. You may claim past credits for the period we advised in our response to your notification of entitlement to those credits, subject to you holding a valid tax invoice.

Further issues for you to consider

Prior to 12 May 2009 (the 2009 Federal Budget night), there was effectively no time limit on claiming GST credits for purchases that had not been taken into account either fully or partially in an earlier activity statement.

Under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA) a four year time limit now applies to claiming all GST credits unless one of the exceptions applies.

Your entitlement to an outstanding indirect tax refund will expire four years from the end of the tax period to which the refund relates unless you notify us of your entitlement to the refund, or we notify you of your entitlement to the refund, during the four year period.

You wrote to us previously seeking GST advice concerning an entitlement to a GST refund or credit in relation to the Program. You have recently sought a 'review' of that advice.

Your correspondence constitutes a notice of your entitlement to the refund.

We acknowledge receipt of your notification for the relevant monthly tax periods and confirm that it was made within the appropriate time.

Action you need to take to claim the GST refund or credit

Information on how to claim your GST refund or credit is contained in the ATO fact sheet entitled Time limits on GST refunds (Nat 11645). You can download this fact sheet from the ATO website www.ato.gov.au

PLEASE NOTE:

As mentioned previously you may claim past credits subject to you holding a valid tax invoice.

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