Edited version of your private ruling

Authorisation Number: 1012551379754

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Ruling

Subject: GST and appropriations

Question 1

Are the fund contributions received by Entity A, Entity B, Entity C and Entity D from a Government department not the provision of consideration for a supply under subsection 9-17(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The fund contributions received by Entity A, Entity B, Entity C and Entity D from Government department are not the provision of consideration for a supply under subsection 9-17(3) the GST Act.

Question 2

Are the payments received by Entity B from Entity C for the provision of certain services not the provision of consideration for a supply under subsection 9-17(3) of the GST Act?

Answer

The payments received by Entity B from Entity C for the provision of certain services are not the provision of consideration for a supply under subsection 9-17(3) of the GST Act.

Question 3

Are the payments received by Entity B from Entity A for the provision of certain goods and services not the provision of consideration for a supply under subsection 9-17(3) of the GST Act?

Answer

The payments received by Entity B from Entity A for the provision of certain goods and services are not the provision of consideration for a supply under subsection 9-17(3) of the GST Act.

Question 4

Are the payments received by Entity D from Entity B for the provision of certain services not the provision of consideration for a supply under subsection 9-17(3) of the GST Act?

Answer

The payments received by Entity D from Entity B for the provision of certain services are not the provision of consideration for a supply under subsection 9-17(3) of the GST Act.

Question 5

Are the payments received by Entity A from Entity B, Entity C and Entity D for the provision of staff for the provision of staff not the provision of consideration for a supply under subsection 9-17(3) of the GST Act?

Answer

The payments received by Entity A from Entity B, Entity C and Entity D for the provision of staff are not the provision of consideration for a supply under subsection 9-17(3) of the GST Act.

Question 6

Is the grant of a licence to Entity B and Entity C by Entity A in respect of their use of assets and infrastructure for no consideration not a taxable supply for GST purposes?

Answer

The grant of the licence in respect of the use of assets and infrastructure for no consideration is also a supply for no consideration under section 72-5 of the GST Act and as such, is not a taxable supply for GST purposes.

Question 7

Where the relevant payments are confirmed to be excluded as being a provision of consideration, are the supplies to which those payments relate taxable supplies?

Answer

As all the provisions of section 9-5 of the GST Act are not met the supplies are not taxable supplies.

Relevant facts and circumstances

· The Government department is a corporation and State Government agency constituted under certain legislation. The Government department's general functions are set out in Schedule 1 to the legislation.

· Entity A is a corporation and a State Government agency constituted under certain legislation whose function under certain legislation is to provide certain services.

· Until recently, Entity A was also responsible for the administration and other services of a function of Government.

o Previously, the Minister announced a restructure of Entity A under which three public subsidiary corporations would be established initially by the Regulations

· As part of the restructure Entity A would also:

o transfer capital projects and planning functions to the Government department

o establish a customer service division

o reduce Entity A's function to asset owner.

· Historically, Entity A has received appropriations from the Government department in respect of its services.

· Under the relevant legislation, Entity A:

o is to provide services

o is to hold, manage, maintain and establish infrastructure vested in or owned by it, or to be vested or owned by it on behalf of the State

o may operate other services

o has the functions conferred or imposed on it by or under this or any other Act or law and lists some of the other functions that Entity A may do such as conducting any business that it considers will further its objectives and providing services or facilities that are ancillary to or incidental to its principal functions

o may acquire land, and

o may, with the approval of the Minister, sell, lease or otherwise dispose of land.

· A certain section of the relevant legislation defines a 'xxxxxxxx authority' to include Entity A and the Government department.

· Under a certain section of the relevant legislation any function of a 'xxxxxxxxx authority' may be exercised by the xxxxxxxxx authority itself or by a subsidiary corporation of the xxxxxxxx authority or by the xxxxxxxxx authority or a subsidiary corporation of the xxxxxxxxx authority or both in partnership, joint venture or other association with other persons or bodies.

· A certain section of the relevant legislation defines a public subsidiary corporation to mean a corporation in accordance with that section. A public subsidiary corporation has such functions of the authority in respect of which it is constituted as are specified in the regulations or delegated to it under the relevant legislation and is, for the purposes of any Act, a StateGovernment agency.

· Under certain Regulations both Entity B and Entity C were constituted as public subsidiary corporations to Entity A to enable the corporations to exercise the functions of Entity A in relation to specific services and associated functions.

· Entity A is to undertake certain services and also undertake and maintain a specified function and provide services (including X services) to Entity C.

· Entity C is to undertake certain services in a specified area managing the operation of a service, providing services between a certain area and other specified areas..

· A regulation of certain Regulations provides that Entity B has the functions of Entity A under certain sections of the relevant legislation and that a certain section of the relevant legislation applies to and in respect of Entity B in the same way as it applies to and in respect of Entity A.

· Similarly, a regulation of certain Regulations provides that Entity C has the functions of Entity A under certain sections of the relevant legislation and that a certain section of the relevant legislation applies to and in respect of Entity C in the same way as it applies to and in respect of Entity A.

· Under a certain Regulation, Entity D was also constituted as a public subsidiary corporation to Entity A.

· A regulation of certain Regulations provides that Entity D has all the functions of Entity A with respect to certain assets and facilities. As well, a certain section of the relevant legislation applies to and in respect of Entity D in the same way as it applies to and in respect of Entity A.

· Under a section of the relevant legislation there is established in the Special Deposits Account a fund called the XXXX fund. Under a section of the relevant legislation payments into the XXXX Fund include:

o all money received by or on account of the Government department

o all money advanced to Government department by the Treasurer

o all money appropriated by Parliament for the purpose of Government department, and

o all other money required by or under this or any other Act to be paid into the XXXX Fund.

· Payments from the XXXX Fund under a section 76C of the relevant legislation include:

o all payments made on account of the Government department or otherwise required to meet expenditure incurred in relation to the functions of the Government department, and

o all other payments required by or under this or any other Act to be paid from the XXXX Fund.

· A Division of the relevant legislation deals with the financial provisions relating to Entity A and covers certain sections of the relevant legislation. A section of the relevant legislation established in the Special Deposits Account a fund called the YYYY Fund. Payments into that Fund under a section of the relevant legislation include:

o all money received by or on account of Entity A

o all money advanced to Entity A by the Treasurer

o all money

· appropriated by Parliament for the purposes of the Government department and allocated to Entity A by the Government department, or

· otherwise appropriated by Parliament for the purposes of Entity A, and

o all fines and penalties recovered for offences

o the proceeds of the investment of money in the fund, and

o all other money required by or under this or any other Act to be paid into the Fund.

· Payments from the YYYY Fund include all payments made on account of Entity A or otherwise required to meet expenditure incurred in relation to the functions of Entity A and all other payments required by or under this or any other Act to be paid from the Fund.

· A regulation of certain Regulations provides that the provisions of certain Divisions of the relevant legislation apply to and in respect of Entity B as if a reference in those provisions to Entity A or to an Authority included a reference to Entity B.

· Similarly, A regulation of certain Regulations provides that the provisions of certain Divisions of the relevant legislation apply to and in respect of Entity C as if a reference in those provisions to Entity A or to an Authority included a reference to Entity C.

· A regulation of certain Regulations provides that the provisions of certain Divisions of the relevant legislation apply to and in respect of Entity D as if a reference in those provisions to Entity A or to an Authority included a reference to Entity D, but not so as to authorise or require the establishment of any fund in addition to the YYYY Fund.

· A Division of the relevant legislation deals with the financial provisions relating to Authorities generally and provides that the term 'Authority' includes Entity A. Another Division 5 of the relevant legislation deals with charges for the services of Entity A.

· A section of the another Act relevantly defines:

Special Deposits Account means:

(a) an account of funds which the Treasurer is, by statutory or other authority, required to hold otherwise than for or on account of the Consolidated Fund,

(b) an account of money directed to be paid to the Special Deposits Account by or under this or any other Act, or

(c) an account of such other money, not directed by or under this or any other Act to be placed to the credit of another account, which the Treasurer directs to be carried to the Special Deposits Account.

public money includes:

(a) securities and all revenue, loans and other money whatever, collected, received or held by, for, or on account of the State, and

(b) without limiting the generality of paragraph (a):

(i) money which, pursuant to any Act, is directed to be paid to or expressed to form part of the Consolidated Fund or the Special Deposit Account, and

(ii) such money, or money of such a class or description of money, as is prescribed for the purposes of this definition.

Consolidated Fund means the fund formed as referred to in section 39 of the Constitution Act 1902.

· A section of the other Act declares that money shall not be drawn from:

o the Consolidated Fund, except under the authority of an Act of Parliament, or

o an account within the Special Deposits Account, except for the purposes of the account and under such authority as may be applicable to the constitution of the account.

· A section of the other Act provides, among other things, that the Treasurer shall cause to be kept accounts relating to the Consolidated Fund, the Special Deposits Account and such other money as the Treasurer may determine under such separate heads as the Treasurer may direct.

· The list of statutory bodies in the other Act includes a reference to Entity A, Entity B, Entity C and the Government department.

· Relevant legislation provides that the Consolidated Fund shall be subject to be appropriated to such specific purposes as may be prescribed by any Act in that behalf.

· Certain Acts appropriate out of the Consolidated Fund sums for the recurring services and capital works and services of the State Government for a financial year.

· A subsection of an Appropriation Act provides that a certain sum of money was appropriated to the Minister for the capital works and services of the Government department. That capital appropriation was to fund capital expenditure of $xxxxxx.

· A subsection of an Appropriation Act declares that a reference to the Government department includes a reference to the relevant Department.

· Budget papers explain that in the previous years Budget, the Government implemented a new approach to appropriations, whereby Coordinating Ministers for each cluster receive an appropriation for the principal department. With the support of Portfolio Ministers and Director-General of each principal department, the Coordinating Ministers then allocate resources to agencies within the cluster through grant funding.

· Under the heading 'Introduction', the Budget paper explains that the Government delivers a range of services through Government owned business entities known as Public Trading Enterprises (PTE's). The PTE section includes Government business undertakings across a number of industries, operating on both a commercial and non-commercial basis. A Table in the Budget paper lists Entity A as a non-commercial PTE which receives ongoing Budget funding to meet policy objectives agreed with the Government, as fare revenue and rent from customers is insufficient to meet operating expenses and capital expenditure.

· Under a subsection of the relevant Act it is the duty of each Authority (Entity A and the Government department) to submit to the Treasurer a detailed estimate of its revenue from all sources and its expenditure proposed for any period.

· In relation to the fund contributions received by Entity A, Entity B, Entity C and Entity D from the Government department we have been advised that:

o the funding is paid to the Government department under the State budget allocation process and under the relevant legislation the Government department pays directly to the other entities

o all of the entities are required to submit annual budgets to the Government department under the relevant legislation. Appropriations to those entities are based on those budgets and are monitored in accordance with actual expenditure

o the entities are only funded on expenditure budgets for capital and operating of that entity. Funding is allocated annually based on the budgets submitted. The allocation is based on zero base, no profit element

o the funding only covers actual cost differentials. There is no dividend back, funding is carried forward and utilised against future years if excess has been provided, and

o the allocation of funding is calculated in accordance with Treasury budget process. The amounts are paid monthly based on monthly budget expenditure estimate. No dividend is required to be paid back as the budget is zero based. If there is funding unutilised it is taken into consideration in the following years allocation.

· Under the new structure, Entity A and each of its three public subsidiary corporations (Entity B, Entity C and Entity D) will be responsible for specific undertakings of services and maintenance.

· Entity A and its three public subsidiary corporations will be separately funded, have separate income streams and have separate expense structures, which is reflective of their independent operations.

· Services will be provided between the Government department, Entity A, Entity B, Entity C and Entity D. The basis for charging for these services will be 'as agreed' which is currently at cost or less than cost ('peppercorn amount').

· The services to be provided between the entities include, but are not limited to, the following:

o Entity A will provide a licence to Entity B and Entity C in relation to their use of infrastructure and assets. It is anticipated that Entity A will not receive any payment in respect of its provision of the licence. To the extent a payment is made by either Entity B or Entity C, it will be a 'peppercorn amount'.

o Entity A will provide staff to Entity D. The amount payable by Entity D in respect of Entity A's provision of staff will be calculated on a cost basis.

o Entity A will also provide staff to both Entity B and Entity C and charge for these staff on a cost recovery basis.

o Entity B may be required to provide staff to Entity D and if so, will charge Entity D for those staff on a cost recovery basis.

o Entity B will provide Y services (which includes X services) to Entity C, for which it will receive a payment equal to the cost of providing those services.

o Entity B and Entity C will enter into a service contract (SC) with the Government department. Service standards and provision for funding for operations and maintenance will be specified through the SC.

o Entity B will provide Z services to Entity A, for which it will receive a payment equal to the cost of providing those services.

o Entity B will provide W to Entity A in respect of infrastructure and assets, for which it will receive a payment equal to the cost of providing those services.

o Entity D will provide Y and X services to Entity B, for which it will receive a payment equal to the cost of providing those services. These include X services which Entity B is obligated to provide to Entity C.

· Entity A, Entity B, Entity C and Entity D are not members of (and do not intend to form) a GST group.

· The Government department, Entity A, Entity B, Entity C and Entity D are registered for goods and services tax (GST).

· You provided copies of the following agreements between the entities:

Services Contract

· An executed services contract (Services Contract) between Entity B and Entity C. The Background to the Services Contract sets out responsibilities, functions and payment provisions for the goods and services between the entities.

Entity B SC:

· An executed services contract (Services Contract) between Entity B and Entity A. The Background to the Services Contract sets out responsibilities, functions and payment provisions for the goods and services between the entities.

Entity C SC

An executed services contract (Services Contract) between Entity C and Entity A. The Background to the Services Contract sets out responsibilities, functions and payment provisions for the goods and services between the entities.

Memorandum of Understanding

· An executed Memorandum of Understanding (MoU) between Entity B, Entity D and Entity A. The Background to the MoU sets out responsibilities, functions, goods and services and payment provisions for the goods and services between the entities

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-10

Section 9-15

Section 9-17

Section 11-5

Section 11-15

Section 11-20

Reasons for decision

Question 1

Summary

On the facts provided, the payments (funds contributions) received by Entity A, Entity B, Entity C and Entity D from the Government department in relation to supplies of various services made by them to the Government department satisfy the requirements of paragraphs 9-17(3)(a), (b) and (c) of the GST Act:

§ Entity A, Entity B, Entity C and Entity D are government related entities and each of them received payments from the Government department which is also a government related entity in connection with supplies of various services,

§ the payments made by the Government department were covered by an appropriation under an Australian law, for example, the Appropriation Act 2013, and

§ the payments in connection with the supplies of various services are calculated on the basis of monthly budget expenditure estimates and do not include a profit element. As such, the payments received for the various services supplied does not exceed each supplier's anticipated costs of making those supplies.

Therefore, the payments received by Entity A, Entity B, Entity C and Entity D from the Government department in connection with the supplies of various services that each provides to the Government department are not the provision of consideration.

Consequently, the supplies of various services made by Entity A, Entity B, Entity C and Entity D are not taxable supplies under section 9-5 of the GST Act. It follows that no GST is payable by Entity A, Entity B, Entity C and Entity D on those supplies under section 9-40 of the GST Act.

Detailed reasoning

Section 7-1 of the GST Act relevantly provides that GST is payable on taxable supplies and entitlements to input tax credits arise on creditable acquisitions.

Under section 9-40 of the GST Act an entity must pay the GST payable on any taxable supply it makes.

A supply is a taxable supply if pursuant to section 9-5 of the GST Act:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· you are registered, or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. From the facts provided, it is considered that the various rail services provided by Entity A, Entity B, Entity C and Entity D are not GST-free or input taxed and therefore, these provisions have not been considered.

Supply

The meaning of 'supply' is given in section 9-10 of the GST Act. Subsection 9-10(1) of the GST Act states that a supply 'is any form of supply whatsoever'. Without limiting subsection 9-10(1) of the GST Act, subsection 9-10(2) of the GST Act provides that a supply includes:

· a supply of goods

· a supply of services

· a provision of advice or information

· the creation, grant, transfer, assignment or surrender of any right, and

· an entry into, or release from an obligation:

o to do anything

o to refrain from an act, or

o to tolerate an act or situation

· or any combination of any 2 or more of the matters referred to in subsection 9-10(2) of the GST Act.

The various services described in the facts, and made by Entity A, Entity B, Entity C and Entity D come within the definition of supply under section 9-10 of the GST Act.

As Entity A, Entity B, Entity C and Entity D are registered for GST and making supplies in Australia to the Government department in the course of an enterprise that each entity carries on, the issue that arises under section 9-5 of the GST Act in the present circumstances is whether the supplies of the various services were supplies made by Entity A, Entity B, Entity C and Entity D for consideration (paragraph 9-5(a) of the GST Act).

Consideration

The term 'consideration' is defined in subsection 9-15(1) of the GST Act so as to include:

· any payment, or any act or forbearance, in connection with a supply of anything' (paragraph 9-15(1)(a) of the GST Act), and

· any payment, or any act or forbearance, in response to or for the inducement of a supply of anything (paragraph 9-15(1)(b) of the GST Act).

In the present case, the supplies in question are the supplies Entity A, Entity B, Entity C and Entity D of various services to the Government department. The fund contributions paid to Entity A, Entity B, Entity C and Entity D by the Government department are payments for those supplies and, as such, are clearly a payment 'in connection with' the supply of the various services.

Therefore, unless the exception in subsection 9-17(3) of the GST Act applies, the payments made by the Government department would fall within the statutory definition of consideration under subsection 9-15(1) of the GST Act and would have the relevant connection with the supplies of various services to satisfy the requirement of paragraph 9-5(a) of the GST Act.

Subsection 9-17(3) of the GST Act

Subsection 9-17(3) of the GST Act provides that a payment is not the provision of consideration if:

· the payment is made by one government related entity to another government related entity for making a supply (paragraph 9-17(3)(a) of the GST Act)

· the payment is (amongst other things) covered by an appropriation under an Australian law (paragraph 9-17(3)(b) of the GST Act), and

· the payment satisfies the non-commercial test (paragraph 9-17(3)(c) of the GST Act).

Government related entity

The first requirement in subsection 9-17(3) of the GST Act is that the payments in question must have been made by one 'government related entity' to another 'government related entity' for making a supply.

The term 'government related entity' is defined in section 195-1 of the GST Act as:

· a government entity

· an entity that would be a government entity but for subparagraph (e)(i) of the definition of government entity in the A New Tax System (Australian Business Number) Act 1999 (ABN Act), or

· a local government body established by or under a State law or a Territory law.

Section 41 of the ABN Act defines the term 'government entity' as:

§ a Department of State of the Commonwealth

· a Department of the Parliament established under the Parliamentary Service Act 1999

· an Executive Agency, or Statutory Agency, within the meaning of the Public Service Act 1999

· a Department of State of a State or Territory, or

· an organisation, that:

o is not an entity

o is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law, and

o can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation,

whether or not the organisation is part of a Department or branch described in the first four dot points above or of another organisation of the kind described in this paragraph.

On the facts, the Government department and each of Entity A, Entity B, Entity C and Entity D are government related entities for the purposes of subsection 9-17(3) of the GST Act. That is, Entity A is a corporation and Government agency which was constituted under a section of the relevant Act and Entity B, Entity C and Entity D are public subsidiary corporations to Entity A constituted in accordance with a section of the relevant Act. As such, each entity comes within the definition of a government related entity in section 195-1 of the GST Act. Similarly, the Government department is a corporation and Government agency constituted under a section of the relevant Act and responsible for the coordination of certain services, infrastructure and management and policy and planning in the jurisdiction.

Accordingly, the first requirement of subsection 9-17(3) of the GST Act is satisfied.

Appropriation under an Australian law

The second requirement of subsection 9-17(3) of the GST Act to consider, in your circumstances, is whether the payment is covered by an appropriation under an Australian law.

The Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2012 Measures No. 1) Act 2012 (EM) explains in paragraph 2.17 in Chapter 2 that the requirement that a payment must be covered by an appropriation under an Australian law is met if the payment is made pursuant to an appropriation.

The term 'appropriation' is not defined in the GST Act. However, the ATO publication entitled 'GST and payments between government related entities - overview' defines the term 'appropriation' in the glossary as:

An 'appropriation' is an authorisation for the expenditure of money under a law.

The term 'Australian law' is defined in section 195-1 of the GST Act and has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The ITAA 1997 defines Australian law to mean a Commonwealth law, a State law or a Territory law.

Relevantly, State law is defined to mean a law of a State. In the present circumstances both a State Appropriation Act, the relevant Act and related regulations are State laws and therefore Australian Laws.

Under paragraph 9-17(3)(b) of the GST Act, the payment need not be 'specifically covered' by an appropriation under an Australian law, as was the case before 1 July 2012 under the former paragraph 9-15(3)(c) of the GST Act. Paragraph 2.19 of the EM explains that subparagraph 9-17(3)(b)(i) will be satisfied where the terms of the appropriation state the purpose for which the funds are appropriated, rather than the entities to which the funds can be paid

In this case, funds have been appropriated under the Appropriation Act 2013 for the recurring services and capital works of the Government department in the areas of asset maintenance, services and operations, and growth and improvement.

The Government department receives funds from a number of sources and these funds are allocated to the Special Deposit Fund. Under a section of the relevant Act funds into the Special Deposit Fund are as follows:

§ all money received by or on account of the Government department, and

§ all money advanced to the Government department by the Treasurer, and

§ all money appropriated by Parliament for the purposes of the Government department, and

§ all other money required by or under the relevant Act or any other Act to be paid into the Special Deposit Fund

Payments from the Fund, under a section of the relevant Act, include payments required to meet the expenditure incurred in relation to the functions of the Government department, which includes the delivery of certain services in the State. As well, a section of a certain Act provides that money can only be drawn from an account within the Special Deposits Account for the purposes of the account and under such authority as may be applicable to the constitution of the account.

A section of the relevant Act is an appropriation under an Australian law relevant to payments by the Government department to Entity A, Entity B, Entity C and Entity D in connection with the delivery of various services.

Accordingly, the payments the Government department made to Entity A, Entity B, Entity C and Entity D for delivering various services are covered by an appropriation under an Australian law and as such, the second requirement of subsection 9-17(3) of the GST Act is satisfied.

Non-commercial test

The third requirement of subsection 9-17(3) of the GST Act to consider (referred to as the non-commercial test) is whether the payment was calculated on the basis that the sum of:

· the payment (including the amounts of any other such payments) relating to the supply, and

· anything (including any payments for any act or forbearance) that the other government related entity receives from another entity in connection with, or in response to, or for the inducement of, the supply, or for any other related supply

does not exceed the supplier's anticipated or actual costs of making those supplies.

The reference to 'anything' in the third requirement of subsection 9-17(3) of the GST Act ensures that things of a non monetary nature received by the government related entity supplier from another entity are also taken into account in determining whether the sum of the payment and things received by the government related entity supplier in connection with the supply does not exceed its anticipated or actual costs of making the supply.

The EM explains at paragraphs 2.27 and 2.31 that:

2.27 Whether or not the amount of the payment exceeds the government related entity supplier's anticipated or actual costs of making the supply, or supplies, is determined at the time at which the amount to be paid is worked out rather than at the time of payment (if it is later). If the determination of the amount of the payment to be made takes place before the relevant supply, or supplies, are made, it will be necessary to base the calculation on the anticipated costs of making the supply, or supplies. The amount of the payment will commonly be calculated in consultation between the government related entity making the payment and the government related entity supplier. If the payment is calculated after the relevant supply, or supplies, are made, the calculation is based on the actual costs of making the supply, or supplies. Where the calculation is based on the anticipated costs of making the supply, or supplies, it is not necessary to subsequently determine the actual costs of making the supply, or supplies. …

2.31 In the context of these amendments, the concept of cost includes the government related entity supplier's direct and indirect costs of making the supply or supplies, but does not include a return on capital or concepts of cost which are measured based on opportunity cost or forgone revenue. An absorption costing methodology is an example of a methodology that may be used to calculate the anticipated or actual costs of making the supply or supplies.

Also, as noted at paragraph 2.25 of the EM, if the payment is made in instalments, paragraph
9-17(3)(c) of the GST Act requires the aggregate of the instalment payments for the supply to be tested against the anticipated or actual costs of making the supply or supplies. Instalment payments are not tested separately. It is therefore necessary to identify the total payment under the factual arrangement in applying the non-commercial test.

Entity A, Entity B, Entity C and Entity D advise that they are required to submit annual budgets to the Government department under the relevant legislation and that payments to them are based on those budgets and are monitored in accordance with actual expenditure. In addition, they are only funded on expenditure budgets for capital and operating expenses and the funding is only to cover actual cost differentials. There is no dividend paid back to the Government and no profit element. Furthermore, the allocation of funding is calculated in accordance with Treasury's budget process with the payments paid monthly based on monthly budget expenditure estimates.

As the amounts of the payments are calculated on the basis to equal Entity A, Entity B, Entity C and Entity D's anticipated or actual costs of delivering various services the third requirement of subsection 9-17(3) of the GST Act is satisfied.

As all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments (fund contributions) received by Entity A, Entity B, Entity C and Entity D from the Government department in connection with the delivery of various services are not the provision of consideration.

Consequently, the supplies of various services made by Entity A, Entity B, Entity C and Entity D are not taxable supplies made for consideration under section 9-5 of the GST Act. It follows that no GST was and is payable by Entity A, Entity B, Entity C and Entity D on those supplies to the Government department under section 9-40 of the GST Act.

Please note, Entity A, Entity B, Entity C and Entity D need to comply with all record-keeping requirements which otherwise apply in relation to the application of paragraph 9-17(3)(c) of the GST Act. That is, it is expected that as the supplier they will each have documentation which sufficiently identifies the basis on which the payment for their relevant supply has been calculated.

Question 2

Summary

On the facts provided, the payments received by Entity B from Entity C for the provision of services are not the provision of consideration as all three of the requirements of subsection 9-17(3) of the GST Act are satisfied.

Consequently, the supplies of maintenance services made by Entity B are not taxable supplies under section 9-5 of the GST Act. It follows that no GST is payable by Entity B on these supplies under section 9-40 of the GST Act.

Detailed reasoning

For similar reasons to those outlined in Question 1, the provision of services by Entity B to Entity C is a supply for GST purposes and the payments received by Entity B for those supplies are clearly payments 'in connection' with the supplies of services.

That is, a clause of the Services Contract provides that under the general payment principles Entity C will pay Entity B the cost that Entity B incurs in performing the 'Services'. The term 'Services' is defined to mean anything that Entity B is required to do under the Services Contract.

However, as determined in Question 1 the payments (fund contributions) received by Entity A, Entity B, Entity C and Entity D were not the provision of consideration under section 9-17(3) of the GST Act. Therefore, what needs to be considered now is whether the payments received by Entity B from Entity C also satisfy the requirements of section 9-17(3) of the GST Act.

As stated previously, subsection 9-17(3) of the GST Act provides that a payment is not the provision of consideration if:

· the payment is made by one government related entity to another government related entity for making a supply (paragraph 9-17(3)(a) of the GST Act)

· the payment is (amongst other things) covered by an appropriation under an Australian law (paragraph 9-17(3)(b) of the GST Act), and

· the payment satisfies the non-commercial test (paragraph 9-17(3)(c) of the GST Act).

Government related entity

As determined in Question 1, both Entity B and Entity C are government related entities for the purposes of subsection 9-17(3) of the GST Act.

Accordingly, the first requirement of subsection 9-17(3) of the GST Act is satisfied.

Appropriation under an Australian law

As discussed in Question 1, the payments from the Government department to Entity A, Entity B, Entity C and Entity D are covered by an appropriation under an Australian law. Therefore, it is now necessary to consider what appropriation, if any, applies to payments made between Entity A, Entity B, Entity C and Entity D and specifically for this question, the payments received by Entity B from Entity C for the provision of services.

As a starting point, the State Budget Paper explains that in the previous years Budget, the Government implemented a new approach to appropriations, whereby Coordinating Ministers for each cluster receive an appropriation for the principal department. With the support of Portfolio Ministers and Director-General of each principal department, the Coordinating Ministers then allocate resources to agencies within the cluster through grant funding.

Under the heading 'Introduction', the Budget Paper explains that the Government delivers a range of services through Government owned business entities known as PTE's which include Government business undertakings across a number of industries, operating on both a commercial and non-commercial basis. A Table in the Budget Paper lists Entity A as a non commercial PTE which receives ongoing Budget funding to meet policy objectives agreed with the Government, as revenue and rent from customers is insufficient to meet operating expenses and capital expenditure.

Under a section of the relevant Act payments into the XXXX Fund, established in the Special Deposits Account, include:

o all money received by or on account of the Government department

o all money advanced to the Government department by the Treasurer

o all money appropriated by Parliament for the purpose of the Government department, and

o all other money required by or under this or any other Act to be paid into the XXXX Fund.

Payments from the XXXX Fund under section 76C of the TAA include:

o all payments made on account of the Government department or otherwise required to meet expenditure incurred in relation to the functions of the Government department, and

o all other payments required by or under this or any other Act to be paid from the XXXX Fund.

A Division of the relevant Act deals with the financial provisions relating to Entity A and covers various sections of the relevant Act. Of relevance to this case is a specific section of the relevant Act which provides that payments into the YYYY Fund, a Special Deposits Account include:

o all money received by or on account of Entity A

o all money advanced to Entity A by the Treasurer

o all money

· appropriated by Parliament for the purposes of the Government department and allocated to Entity A by the Government department, or

· otherwise appropriated by Parliament for the purposes of Entity A, and

o all fines and penalties recovered for offences under the regulations, or under a section of another specified Act or Acts, in connection with railway services operated by Entity A (but only if proceedings or penalty notices for the offences were instituted or issued by Entity A or an employee of Entity A),

o the proceeds of the investment of money in the Fund…

o all other money required by or under this or any other Act to be paid into the Fund.

In addition, a section of the relevant Act provides that payments from the YYYY Fund include all payments made on account of Entity A or otherwise required to meet expenditure incurred in relation to the functions of Entity A, and all other payments required by or under this or any other Act to be paid from the Fund.

A section of a certain Act provides that money is not to be drawn from an account within the Special Deposits Account, except for the purposes of the account and under such authority as may be applicable to the constitution of the account.

This indicates that money's held in the YYYY Fund can only be used for the legislated functions of Entity A. Prior to the restructure, Entity A was responsible for the operation of all particular services in the State but from a specified date some of these responsibilities and functions have been transferred to Entity B, Entity C and Entity D as documented in the specified Regulations.

In particular, certain regulations of the specified Regulations provide that Entity B and Entity C have the functions of Entity A under certain sections of the relevant Act and that a section of the relevant Act applies to Entity B and Entity C in the same way that it applies to Entity A.

In addition, certain regulations of the specified Regulations provides that the financial provisions in certain Divisions of the relevant Act apply to and in respect of Entity B and Entity C as if a reference in those provisions to Entity A or to an Authority included a reference to Entity B and Entity C

There are also similar provisions for Entity D. That is, a regulation of the specified Regulations provides that Entity D has all the functions of Entity A with respect to certain specified goods, assets and facilities and that a section of the relevant Act applies to Entity D in the same way that it applies to Entity A.

Futhermore, a regulation of the specified Regulations provides that the financial provisions in certain Divisions of the relevant Act apply to and in respect of Entity D as if a reference in those provisions to Entity A or to an Authority included a reference to Entity D.

The effect of the specified Regulations is that Entity A, Entity B, Entity C and Entity D are to be treated as if they are Entity A.

In addition, the Appropriation Acts provide authority for expenditure for the purpose specified therein during the financial year including for the recurrent services and capital works and services of the Government department. As well, the section of the other Act supports the drawing of money from the Special Deposit Accounts through certain sections of the relevant Act and in effect appropriates funds for expenditure from both the Government department and Entity A Special Deposit Accounts for the purposes for which they were created including funds required to meet expenditure incurred in relation to the functions of the Government department or funds required to meet the expenditure incurred in relation to the functions of Entity A.

Therefore, on the facts provided, the payments between the associated parties (Entity A, Entity B, Entity C and Entity D) are also covered by an appropriation under an Australian law. As such, the payments between Entity B and Entity C satisfy the criteria of section 9-17(3)(b) of the GST Act.

Non-commercial test

The third requirement of subsection 9-17(3) of the GST Act to consider (referred to as the non-commercial test) is whether the payment was calculated on the basis that the sum of:

· the payment (including the amounts of any other such payments) relating to the supply, and

· anything (including any payments for any act or forbearance) that the other government related entity receives from another entity in connection with, or in response to, or for the inducement of, the supply, or for any other related supply

does not exceed the supplier's anticipated or actual costs of making those supplies.

In this case, we have been advised that it has been agreed that the payments received by Entity A, Entity B, Entity C and Entity D for services provided between the entities will be calculated on a cost basis and equal to the cost of providing those services. In respect of the payments made by Entity C to Entity B, a clause of the Services Contract confirms that Entity C is only required to pay Entity B the cost that it incurs in performing the services under the Services Contract which can include an allowance for overheads but not an allowance for profit.

As the payments between Entity B and Entity C are calculated on the basis to not exceed Entity B's anticipated or actual costs of providing the maintenance services to Entity C, the third requirement of subsection 9-17(3) of the GST Act is satisfied.

As all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments received by Entity B from Entity C for the provision of services are not the provision of consideration.

Consequently, the supplies of maintenance services made by Entity C to Entity B are not taxable supplies made for consideration under section 9-5 of the GST Act. It follows that no GST is payable by Entity B on those services under section 9-40 of the GST Act.

Question 3

Summary

For the reasons outlined in Questions 1 and 2 above, as all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments received by Entity B from Entity A for the provision of services are not the provision of consideration.

Consequently, the provision of services by Entity B to Entity A are not taxable supplies under section 9-5 of the GST Act. It follows that no GST is payable by Entity B on those services under section 9-40 of the GST Act.

Detailed Reasoning

In the present case, the supplies in question are the supplies by Entity B of certain services to Entity A for which Entity B receives payments.

Under the terms of the Entity B SC, Entity B is required to deliver a range of services which are referred to in the contract as the Entity B Services. While most of these services are to be paid for by the Government department, a clause to the Entity B SC provides that Entity A will fund Entity B for certain Entity B Services that Entity B carries out on Entity A's behalf.

Therefore, unless the exception in subsection 9-17(3) of the GST Act applies, the payments made by Entity A would fall within the statutory definition of consideration under subsection 9-15(1) of the GST Act and would have the relevant connection with the supplies of capital works and finance/treasury services to satisfy the requirement of paragraph 9-5(a) of the GST Act.

Government related entity

As determined in Question 1, both Entity B and Entity A are government related entities for the purposes of subsection 9-17(3) of the GST Act.

Accordingly, the first requirement of subsection 9-17(3) of the GST Act is satisfied.

Appropriation under an Australian law

As discussed in Questions 1 and 2, the payments (fund contributions) from the Government department to Entity A, Entity B, Entity C and Entity D and the payments made between Entity A, Entity B, Entity C and Entity D are covered by an appropriation under an Australian law. In particular payments by Entity A to Entity B would be covered by a section of the relevant Act being the conditions under which payments can be drawn from the YYYY Special Deposit Fund.

Therefore, on the facts provided, the payments between Entity B and Entity A satisfy the requirements of paragraph 9-17(3)(b) of the GST Act.

Non-commercial test

With regard to the payments from Entity A for the services supplied by Entity B we have been advised that the payments are calculated on a cost basis and are equal to the costs incurred in providing the relevant supplies.

As the payments between Entity B and Entity A are calculated on the basis to not exceed Entity B's anticipated or actual costs of providing the services to Entity A, the third requirement of subsection 9-17(3) of the GST Act is satisfied.

As all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments received by Entity B from Entity A for the provision of services are not the provision of consideration.

Consequently, the supplies of services made by Entity B to Entity A are not taxable supplies made for consideration under section 9-5 of the GST Act. It follows that no GST is payable by Entity B on those services under section 9-40 of the GST Act.

Question 4

Summary

For the reasons outlined in Questions 1 and 2 above, as all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments received by Entity D from Entity B for the provision of services is not the provision of consideration.

Consequently, the provision of services by Entity D to Entity B is not a taxable supply under section 9-5 of the GST Act. It follows that no GST is payable by Entity D on those services under section

9-40 of the GST Act.

Detailed Reasoning

In the present case, the supplies in question are the supplies by Entity D of services to Entity B for payment.

The MoU between Entity B, Entity D and Entity A describes how Entity D is to carry out and be paid for the services. In particular, a clause of the MoU sets out the nature of the services to be carried out by Entity D for which it will receive the fee.

Therefore, unless the exception in subsection 9-17(3) of the GST Act applies, the payments made by Entity B will fall within the statutory definition of consideration under subsection 9-15(1) of the GST Act and would have the relevant connection with the supplies of cleaning services to satisfy the requirement of paragraph 9-5(a) of the GST Act.

Government related entity

As determined in Question 1, both Entity B and Entity D are government related entities for the purposes of subsection 9-17(3) of the GST Act.

Accordingly, the first requirement of subsection 9-17(3) of the GST Act is satisfied.

Appropriation under an Australian law

As discussed in Questions 1 and 2, the payments (fund contributions) from the Government department to Entity A, Entity B, Entity C and Entity D and the payments made between Entity A, Entity B, Entity C and Entity D are covered by an appropriation under an Australian law.

In particular a section of the relevant Act allows for payments out of the YYYY Fund to meet expenditure incurred in relation to the functions of Entity A. A particular regulation of the specified Regulations provides that the certain provisions of specified Divisions of the relevant Act applies to and in respect of Entity B as if a reference in those provisions are to Entity A.

Also under a particular regulation of the specified Regulations Entity D has all the functions of Entity A with respect to certain specified goods, assets and facilities and a section of the relevant Act applies to and in respect of Entity D in the same way as it applies to and in respect of Entity A.

Entity B is appropriated under a section of the relevant Act as if it was Entity A. The payment by Entity B to Entity D for the supply of (a function of Entity A) is covered by an appropriation under an Australian law.

Therefore, on the facts provided, the payments between Entity B and Entity D satisfy the requirements of paragraph 9-17(3)(b) of the GST Act.

Non-commercial test

With regard to the payments from Entity B for the services supplied by Entity D we have been advised that the payments are calculated on a cost basis and are equal to the cost of providing those services.

In respect of the payments, a schedule to the MoU provides that the fee is intended to enable Entity D to meet its financial obligations under the MoU including the actual costs incurred by Entity D in providing the services.

As the payments between Entity D and Entity B are calculated on the basis to not exceed Entity D's anticipated or actual costs of providing the cleaning services to Entity B, the third requirement of subsection 9-17(3) of the GST Act is satisfied.

As all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments received by Entity D from Entity B for the provision of services are not the provision of consideration.

Consequently, the supply of services made by Entity D to Entity B is not a taxable supply under section 9-5 of the GST Act. It follows that no GST is payable by Entity D on those services under section 9-40 of the GST Act.

Question 5

Summary

For the reasons outlined in Question 1 and 2 above, as all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments received by Entity A from Entity B, Entity C and Entity D for the provision of staff is not the provision of consideration.

Consequently, the provision of staff by Entity A to Entity D, Entity B and Entity C is not a taxable supply under section 9-5 of the GST Act. It follows that no GST is payable by Entity A on that supply under section 9-40 of the GST Act.

Detailed Reasoning

In the present case, the supply in question is the supply by Entity A of staff to Entity D, Entity B and Entity C for payment.

The various contracts between Entity A and Entity D, Entity B and Entity C outline the arrangements for the provision of staff. In particular, the MoU provides that the staff provided by Entity A to Entity D will be responsible for aspects of the cleaning services.

Therefore, unless the exception in subsection 9-17(3) of the GST Act applies, the payments received by Entity A will fall within the statutory definition of consideration under subsection 9-15(1) of the GST Act and would have the relevant connection with the supply of staff to satisfy the requirement of paragraph 9-5(a) of the GST Act.

Government related entity

As determined in Question 1, Entity A, Entity D, Entity B and Entity C are all government related entities for the purposes of subsection 9-17(3) of the GST Act.

Accordingly, the first requirement of subsection 9-17(3) of the GST Act is satisfied.

Appropriation under an Australian law

As discussed in Questions 1 and 2, the payments (fund contributions) from the Government department to Entity A, Entity B, Entity C and Entity D and the payments made between Entity A, Entity B, Entity C and Entity D are covered by an appropriation under an Australian law.

Therefore, on the facts provided, the payments received by Entity A from Entity D, Entity B and Entity C will satisfy the requirements of paragraph 9-17(3)(b) of the GST Act.

Non-commercial test

With regard to the payments from Entity D, Entity B and Entity C for the staff provided by Entity A we have been advised that the payments will be calculated on a cost basis and charged on a cost recovery basis.

As the payments received by Entity A are calculated on the basis to not exceed Entity A's anticipated or actual costs of providing the staff to Entity D, Entity B and Entity C, the third requirement of subsection 9-17(3) of the GST Act is satisfied.

As all three of the requirements of subsection 9-17(3) of the GST Act are satisfied the payments received by Entity A from Entity D, Entity B and Entity C for the provision of staff is not the provision of consideration.

Consequently, the supply of staff by Entity A to Entity D, Entity B and Entity C is not a taxable supply under section 9-5 of the GST Act. It follows that no GST is payable by Entity A on that supply section 9-40 of the GST Act.

Question 6

Summary

Based on the information provided, Division 72 of the GST Act does not have effect and as such, the requirement of consideration for the supply in paragraph 9-5(a) of the GST Act is maintained. As the supply is for no consideration the supply does not meet all of the criteria in section 9-5 of the GST Act and therefore, the supply of the licence to Entity B and Entity C by Entity A in respect of their use of assets and infrastructure without consideration is not a taxable supply.

Detailed reasoning

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the 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.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies states in part at paragraph 108:

For the supply to be a taxable supply there must also be consideration and a sufficient nexus between the supply and the consideration,

If the supply of the licence is made without consideration, then part (a) of section 9-5 of the GST Act is not satisfied and a taxable supply would not be made.

However, Division 72 of the GST Act provides that supplies to, and acquisitions from, your associates without consideration are brought into the GST system.

Subsection 72-5 of the GST Act says:

(1) The fact that a supply to your *associate is without *consideration, does not stop the supply being a *taxable supply if:

(a) your associate is not *registered or *required to be registered; or

(b) your associate acquires the thing supplied otherwise than solely for a *creditable purpose

(2) This section has effect despite paragraph 9-5(a) (which would otherwise require a taxable supply to be for consideration).

(3) .

This means that if Entity B and Entity C are an associate of Entity A and they are neither registered nor required to be registered, or do not acquire the supply for a creditable purpose, then the supply may be a taxable supply.

Therefore, we need to determine whether Entity A, Entity B and Entity C are associates.

Goods and Services Tax Ruling GSTR 2006/5 Goods and services tax: meaning of Commonwealth, a State or a Territory states at paragraph 6:

The Commissioner considers that the Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1.

Section 72-100 of the GST Act applies to government entities and also provides that an organisation established by a State to carry on an enterprise or is established for a public purpose by an Australian law may be an associate of a Department of State of that State.

In this situation, Entity A, Entity B and Entity C were established by a State of Australia and are regarded as associates under section 72-100 of the GST Act.

As Entity A, Entity B and Entity C are associates, the supply of the grant of a licence to use assets and infrastructure by Entity A to Entity B and Entity C could be a taxable supply if either paragraph 72-5(1)(a) or (b) of the GST Act is satisfied:

§ paragraph 72-5(1)(a) of the GST Act does not apply as Entity B and Entity C are registered for GST,.

§ paragraph 72-5(1)(b) of the GST Act would also not apply since Entity B and Entity C would be acquiring the licence solely for a creditable purpose, that is they would be acquiring the licence in carrying on their respective enterprises of supplying specified services.

To summarise, Division 72 of the GST Act does not have effect and the requirement of consideration for the supply in paragraph 9-5(a) of the GST Act is maintained. Therefore, the supply of the licence without consideration is not a taxable supply.

Question 7

Summary

As all the provisions of section 9-5 of the GST Act are not met the supplies are not taxable supplies.

Detailed reasoning

Refer to the reasons contained in Questions 1 to 6 above.

Additional Information

Machinery of government changes (MOG)

The Australian Taxation Office (ATO) publication 'GST and machinery of government (MOG) changes' provides some guidelines on MOG changes. It explains that where the losing agency has not taken any action to cause the assets and liabilities to be transferred to the gaining agency, there are no GST consequences if those assets or liabilities are transferred as a result of MOG changes.

These transfers can be given effect by:

· gazettal of a notice

· specific legislation abolishing a losing agency

· proclamation such as in the case of local authorities

A MOG change at a Commonwealth, state, territory and local government level may occur at any time and may include:

· an abolition of a government department by transferring its functions to other government departments; or

· the creation of a government department; or

· movement of functions in to, or out of, government departments.

For GST purposes, MOG changes apply to both government entities and government-related entities.

An example of a common MOG change is when functions from one government organisation (the losing agency) are transferred to another government organisation (the gaining agency).

Generally, in these circumstances, both agencies are registered for GST. The losing agency may continue to exist or be abolished. The gaining agency may be an existing government organisation or a newly created one.

The transfer of the functions under the MOG change may be effected by:

· an administrative arrangements order (AAO) made for government entities

· a proclamation declared for government related entities such as local governing bodies

· an Australian law establishing a government related entity that is a body corporate..

At the time the MOG change takes effect, the AAO, proclamation or Australian law would operate (in relation to the transferred functions) to, among other things:

· transfer any property, assets, rights, debts, liabilities and obligations held by the losing agency to the gaining agency

· treat a reference to the losing agency in any document or arrangement as a reference to the gaining agency.

Where the losing agency has not taken any action to cause the assets and liabilities to be transferred to the gaining agency, there are no GST consequences if those assets or liabilities are transferred as a result of MOG changes.

In this case, it is considered that the transfer of assets and liabilities by Entity A to any or all of the three new public subsidiary corporations may not be covered under the machinery of government changes as Entity A through the act of receiving payments for its goods and services and by entering into the various contracts may have taken action to cause the transfers.

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