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Authorisation Number: 1012758797389

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Ruling

Subject: Payment of home ownership program bonus

Question 1

Does the State Government Department (Department) make a creditable acquisition where:

• an eligible tenant successfully applies to purchase the home occupied by the tenant under the State's Home Ownership Program (HOP) and therefore qualifies for the $XX HOP Bonus;

• the Department pays the HOP Bonus directly to the suppliers of goods and services chosen by the tenant in accordance with the expenditure priorities prescribed by the Department; and

• the supply of the home by the Department to the tenant is a sale of 'new residential premises' as defined in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1:

No, the Department does not make a creditable acquisition where:

• an eligible tenant successfully applies to purchase the home occupied by the tenant under the HOP and therefore qualifies for the $XX HOP Bonus;

• the Department pays the HOP Bonus directly to the suppliers of goods and services chosen by the tenant in accordance with the expenditure priorities prescribed by the Department; and

• the supply of the home by the Department to the tenant is a sale of 'new residential premises' as defined in the GST Act.

Question 2:

Alternatively, is there an adjustment event in relation to the sale by the Department to an eligible tenant pursuant to the HOP of the home occupied by that tenant where:

• the tenant successfully applies to purchase the home occupied by the tenant under the HOP and therefore qualifies for the $XX HOP Bonus;

• the Department pays the HOP Bonus directly to the suppliers of goods and services chosen by the tenant in accordance with the expenditure priorities prescribed by the Department; and

• the supply of the home by the Department to the tenant is a sale of 'new residential premises' as defined in the GST Act.

Answer 2:

Yes, there is an adjustment event in relation to the sale by the Department to an eligible tenant pursuant to the HOP of the home occupied by that tenant where:

• the tenant successfully applies to purchase the home occupied by the tenant under the HOP and therefore qualifies for the $XX HOP Bonus;

• the Department pays the HOP Bonus directly to the suppliers of goods and services chosen by the tenant in accordance with the expenditure priorities prescribed by the Department; and

• the supply of the home by the Department to the tenant is a sale of 'new residential premises' as defined in the GST Act.

Relevant facts and circumstances:

Applicant:

The State is registered for GST and the Business Names of that GST registration include the Department.

Home Ownership Program (HOP):

The Department is offering an existing public housing tenants an opportunity to purchase the homes currently occupied by those tenants. The Department's guide to the HOP states that in order to be eligible a tenant must:

• live in the home;

• have a good rent payment history; and

• have finance, if required.

The guide also states that the HOP Bonus can be used for repairs or improvements to the home after the eligible tenant purchases the home.

It was stated in the ruling request that, where an eligible tenant successfully applies to purchase a home under the HOP, the Department will sell the home to the tenant as a taxable supply of 'new residential premises' as defined in section 40-75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the home is less than five years old and has not previously been sold as residential premises. In all other cases the Department will sell the home to the eligible tenant as an input taxed supply of 'residential premises' as defined in section 195-1 of the GST Act.

The Department pays the HOP Bonus directly to the suppliers of the goods or services chosen by the eligible tenant in accordance with a number of expenditure priorities prescribed by the Department such as ongoing repairs, improvements, whitegoods and furnishings, mortgage reduction etc.

It was stated in the ruling request that the tenant will notify the Department as to the priorities on which the tenant wishes to spend the HOP Bonus and the Department will then either organise for the maintenance or improvement works to be undertaken by relevant contractors, for the furnishings or whitegoods to be purchased, or for the mortgage to be repaid as requested. In doing so the Department will contract directly with the relevant supplier and (except in the case of a mortgage reduction) seek a tax invoice from the relevant supplier which is addressed to the Department as recipient of the supply.

The ruling request advanced two views:

The first view was that acquisitions made using the HOP Bonus are creditable acquisitions by the Department which satisfy the requirements of section 11-5 of the GST Act. It was submitted that the Department makes the relevant acquisitions in carrying on the Department's enterprise because the sale of the home to an eligible tenant by the Department pursuant to the HOP is part of the Department's enterprise and those acquisitions would not be made if the home is not sold. It was submitted that acquisitions made using the HOP Bonus are made for a creditable purpose to the extent that they relate to a taxable supply of 'new residential premises' but not to the extent that they relate to an input taxed supply of 'residential premises' or are of a private or domestic nature.

The alternative view advanced by the Department was that the HOP Bonus was provided by the Department as an inducement or incentive to encourage an eligible tenant to purchase a home and is essentially the offer of a discount in relation to the supply of the home by the Department to the eligible tenant. It was submitted that where the sale of a home to an eligible tenant is a taxable supply of 'new residential premises' payment of the HOP Bonus is an adjustment event, i.e. changing the consideration for the supply of the home by the Department to the eligible tenant, which gives rise to a decreasing adjustment for the Department.

Relevant legislative provisions:

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

A New Tax System (Goods and Services Tax) Act 1999 Division 19

Reasons for decision:

Question 1

Summary

Although the Department provides consideration for a supply of goods or services made by the relevant supplier, the Department's guides to the HOP and HOP Bonus indicate that the Department is a third party payer and is not the recipient of that supply. Consequently the Department does not make a creditable acquisition.

Detailed reasoning

Section 11-5 of the GST Act states:

You make a creditable acquisition if:

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

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

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

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

In the present case the Department satisfies paragraph 11-5(c) as the Department provides consideration for the supply of goods or services made by the relevant supplier under the HOP Bonus scheme.

Paragraphs 177 to 216 of Goods and Services Tax Ruling GSTR 2006/9 discuss Proposition 14, i.e. a third party may pay for a supply but not be the recipient of the supply. Paragraph 177 of GSTR 2006/9 refers to subsections 9-15(1) and 9-15(2) of the GST Act:

177. Subsection 9-15(1) provides that the consideration for a supply includes any payment 'in connection with', 'in response to' or 'for the inducement of' a supply of anything. Subsection 9-15(2) provides that the payment does not have to come from the recipient of the supply.

and paragraph 177A of GSTR 2006/9 refers to the Full Federal Court's decision in TT-Line Company Pty Ltd v. Federal Commissioner of Taxation [2009] FCAFC 178 as an example of a payment made by a government entity which form part of the consideration for a supply of transport made by a ferry operator which is supplied to the eligible passenger rather than to the government entity.

Paragraph 180 of GSTR 2006/9 states that the test for determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' is an objective test. Paragraph 182 of GSTR 2006/9 states that application of that objective test may determine that may determine that a payment an entity makes is either:

• consideration for a supply made to the payer and the payer is the recipient of that supply;

• not consideration for a supply; or

• consideration for a supply but the payer is not the recipient of that supply (in which case GSTR 2006/9 refers to the payer as a 'third party payer').

Paragraph 183 of GSTR 2006/9 states:

183. If you provide or are liable to provide consideration for a supply, but you are not the recipient of the supply, you are referred to in this Ruling as a 'third party payer'. As a third party payer you do not make a creditable acquisition in relation to your payment because the supply is not made to you as required by section 11-5. Making a payment for a supply that is made to another entity is not sufficient to make you the recipient of that supply.

The Department's guides to the HOP and HOP Bonus indicate that the Department is a third party payer in relation to the goods and services acquired using the HOP Bonus. Consequently a supply of those goods and services by the relevant supplier is not made to the Department and the Department does not make a creditable acquisition.

The guide to the HOP indicates that an eligible tenant who successfully applies to purchase a home under the HOP is entitled to receive the HOP Bonus. This view is supported by the guide to the HOP Bonus which repeatedly refers to the HOP Bonus as 'my bonus', i.e. the eligible tenant's bonus.

The guide to the HOP Bonus indicates that, although the eligible tenant is entitled to receive the HOP Bonus, the eligible tenant agrees that the Department may discharge the obligation to pay the HOP Bonus to the eligible tenant by paying the HOP Bonus to the supplier(s) of goods and services chosen by the tenant in accordance with the expenditure priorities set out in the guide to the HOP Bonus.

GSTR 2006/9 sets out the following example of the 'third party payer' proposition:

Example 10A: A subsidy payment that a member of the public is entitled to receive, that is assigned to and paid to an entity that makes a relevant supply to the member of the public.

212A A subsidy program is managed by a Government Department. The subsidy program provides that individuals are entitled to a subsidy payment when certain criteria are satisfied. Under the program, the amount of the subsidy is payable to the individual. Where a supply is made to the individual, the individual provides the consideration to the supplier for that supply and then claims the subsidy payment from the Department.

212B Alternatively, under the program, an individual, the Department and a supplier may enter into an arrangement under which the subsidy entitlement of the individual is paid by the Department directly to the supplier rather than to the individual, on authorisation by the individual. Where this occurs, the subsidy entitlement of the individual is assigned by that individual to the supplier, with the payment being applied by the supplier in satisfaction of the liability owed by the individual to the supplier.

212C Under this arrangement which involves payments being made directly to the supplier under the subsidy program, the supplier is required to comply with certain rules in respect of its supplies to individuals. These rules include a requirement to accept the amount of the subsidy as full payment for the supply to the individual, which may be less than the amount that the individual would otherwise pay to the supplier if this arrangement was not used. The rules also include a requirement to provide information in relation to the supply to determine the amount that is payable by the Department and to be potentially subject to audit or investigation in respect of payments under these arrangements .

212D While there is a pre-existing framework which requires the supplier and the Department to act in a particular way under the arrangement, the payment by the Department to the supplier is merely an administrative arrangement to pay on behalf of the individual for a liability owed by the individual to the supplier. That is, the subsidy payment is an entitlement of the individual which is then assigned to the supplier, rather than being a liability owed by the Department to the supplier. Accordingly, the supplier is not making a supply to the Department for which the subsidy payment is consideration.

In our view the HOP Bonus is similar to the alternative arrangement described in paragraph 212B of GSTR 2006/9 except that in the present case the arrangement is between the Department and the eligible tenant under which the subsidy entitlement (i.e. the HOP Bonus) is paid by the Department directly to the supplier of goods or services rather than to the eligible tenant. Notwithstanding that in the case of the HOP Bonus the arrangement is between the Department and the eligible tenant, we consider that the outcome is as described in paragraph 212D of GSTR 2006/9, i.e. the payment of the HOP Bonus by the Department to the supplier is merely an administrative arrangement to pay on behalf of the eligible tenant for a liability owed by the eligible tenant to the supplier and the supplier is not making a supply to the Department for which the HOP Bonus is consideration.

Question 2

Summary

Where:

• the Department sells a home to an eligible tenant during a tax period;

• the sale of that home is a taxable supply; and

• the Department pays the HOP Bonus in accordance with the expenditure priorities selected by the eligible tenant during a subsequent tax period

an adjustment event in relation to the supply of the home by the Department is attributable to that subsequent period. As a result the previously attributed GST amount for that taxable supply no longer correctly reflects the amount of GST on that taxable supply and an adjustment arises for the Department in relation to that supply.

Detailed reasoning

Adjustments for supplies:

Subdivision 19B of the GST Act deals with adjustments for supplies. Section 19-40 of the GST Act sets out the circumstances where adjustments for supplies arise:

You have an adjustment for a supply for which you are liable to pay GST (or would be liable to pay GST if it were a taxable supply) if:

(a) in relation to the supply, one or more adjustment events occur during a tax period; and

(b) GST on the supply was attributable to an earlier tax period (or, if the supply was not a taxable supply, would have been attributable to an earlier tax period had the supply been a taxable supply); and

(c) as a result of those adjustment events, the previously attributed GST amount for the supply (if any) no longer correctly reflects the amount of GST (if any) on the supply (the corrected GST amount), taking into account any change of circumstances that has given rise to an adjustment for the supply under this Subdivision or Division 21 or 134.

Paragraph 19-40(a) - adjustment event in relation to a supply:

Paragraph 19-40(a) requires that an adjustment event occurs during a tax period in relation to a supply.

Subsection 19-10(1) of the GST Act states:

An adjustment event is any event which has the effect of:

(a) cancelling a supply or acquisition; or

(b) changing the consideration for a supply or acquisition; or

(c) causing a supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.

Subsection 19-10(2) states that, without limiting subsection 19-10(1), a change to the previously agreed consideration for a supply or acquisition, whether due to the offer of a discount or otherwise, is an adjustment event.

Paragraphs 18 to 71 of Goods and Services Tax Ruling GSTR 2000/19 consider payments and other amounts which may or may not change the consideration for a supply. Paragraph 18 of GSTR 2000/19 states that whether a payment or allowance changes the consideration for a supply will depend on the circumstances and that the substance of the arrangement or event will determine whether it is an adjustment event. Paragraph 20 of GSTR 2000/19 deals with a discount granted after a supply occurs which is considered to be a change in consideration. Paragraph 21 contrasts that situation with a 'discount offered' during the negotiating the price for an acquisition and which is used to arrive at the consideration for the supply at the time the invoice is issued, in which case there is no change to the consideration and no adjustment event.

In the present case the guide to the HOP states that the HOP Bonus is available to successful applicants and can be used for repairs and improvements to the home after the eligible tenant buys it. We therefore consider that the HOP Bonus is paid after the supply of the home by the Department to the eligible tenant occurs and is a change in consideration.

Paragraph 19 of GSTR 2000/19 states that a single payment or amount may be for more than one purpose, i.e. part of the amount may have the effect of changing the consideration and part of the amount may be consideration for a separate supply. We do not consider that to be the case with the HOP Bonus. An eligible tenant who successfully applies to purchase a home under the HOP is entitled to receive the HOP Bonus. Paragraphs 132 and 133 of Goods and Services Tax Ruling GSTR 2012/2 which deals with financial assistance payments, state that actions such as submitting an application for financial assistance to the payer is merely a mechanism to establish whether a financial assistance payment will be made and is not a supply for which the financial assistance payment is made.

For the reasons set out above we consider that the entire HOP Bonus does not have to be apportioned and is a change in the consideration and therefore an adjustment event in relation to the supply of the home by the Department to an eligible tenant.

Paragraph 19-40(b) - GST on the supply was attributable to an earlier tax period:

GST on the supply of a home by the Department to an eligible tenant will be attributable to an earlier tax period where that supply is a taxable supply.

A home sold by the Department falls within the definition of 'residential premises' in section 195 of the GST Act:

'Residential premises' means land or a building that:

(a) is occupied as a residence or for residential accommodation; or

(b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

regardless of the term of the occupation or intended occupation) and includes a floating home.

Paragraph 6 of Goods and Services Tax Ruling GSTR 2012/5 states that the actual use of the premises as a residence or for residential accommodation is relevant to satisfying paragraph (a) of the 'residential premises' definition.

Section 40-65 of the GST Act states:

(1) A sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

(2) However, the sale is not input taxed to the extent that the residential premises are:

(a) commercial residential premises; or

(b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Paragraphs 9 and 10 of GSTR 2012/5 state that the requirement in section 40-65 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation and does not require an examination of the subjective intention of, or use by, any particular person.

Given that a home sold by the Department under the HOP is to be sold to the existing eligible tenant, we consider that the home would satisfy paragraph (a) of the 'residential premises' definition and the requirement in subsection 40-65(1) that the residential premises 'to be used predominantly for residential accommodation'. On that basis the sale of a home by the Department to an eligible tenant will be input taxed under subsection 40-65(1) except to the extent that the sale of the home falls within subsection 40-65(2)(b), i.e. a sale of residential premises which:

• are 'new residential premises' as defined in section 40-75; and

• were not used for residential accommodation before 2 December 1998.

The meaning of 'new residential premises' is set out in section 40-75 of the GST Act. Paragraph 24 of Goods and Services Tax Ruling GSTR 2003/3 states that residential premises are 'new residential premises' as defined in subsection 40-75(1) if they:

• have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or

• have been created through substantial renovations of a building; or

• have been built, or contain a building that has been built, to replace demolished premises on the same land

Subsection 40-75(2) states that residential premises are not 'new residential premises' if, for a period of at least 5 years since the premises either first became residential premises, were last substantially renovated or were last built the premises have only been used for making supplies that are input taxed because of section 40-35(1)(a) of the GST Act, i.e. a supply of residential premises by way of lease, hire or licence. Paragraph 91 of GSTR 2003/3 states that the 5 year period must be a continuous period, but a continuous period is not broken by short intervals between tenancies where the premises are actively marketed for rent following the departure of the previous tenant.

It was stated in the ruling request that the Department would treat the sale of a home to an eligible tenant as a sale of new residential premises (i.e. a taxable supply) where the home was less than 5 years old and had not been the subject of a prior sale and as a sale of residential premises (i.e. an input taxed supply) in all other cases. This appears to meet the requirements of subsections 40-75(1)(a) and (2).

Paragraph 19-40(c) - previously attributed GST amount does not match corrected GST amount:

Section 19-45 defines 'previously attributed GST amount':

The previously attributed GST amount for a supply is:

(a) the amount of any GST that was attributable to a tax period in respect of the supply; plus

Where the Department sells a home that satisfies the requirements of subsections 40-75(1)(a) and 40-75(2) to an eligible tenant the sale of the home will be a taxable supply and the Department will have a 'previously attributed GST amount' attributable to a tax period in relation to that supply within the meaning of section 19-45(a) of the GST Act.

Section 195-1 of the GST Act states that 'corrected GST amount' has the meaning given by paragraph 19-40(c), i.e. the amount of GST on the supply of the home by the Department to the eligible tenant taking into account any change in circumstances that has given rise to an adjustment for the supply under Subdivision 19. Paragraph 77 of GSTR 2000/19 states that the 'corrected GST amount' reflects the GST for the supply as at the end of the current tax period (presumably the tax period during which the adjustment event occurs in relation to the supply of the home).

In our view at the end of the tax period in which the Department pays the HOP Bonus in accordance with the Priorities selected by the eligible tenant the previously attributed GST amount in respect of a taxable supply of a home by the Department to an eligible tenant will no longer reflect the corrected GST amount in relation to that supply and paragraph 19-40(c) will be satisfied.

Decreasing adjustment for a supply:

Section 19-55 of the GST Act sets out the circumstances where an entity has a decreasing adjustment in respect of a supply:

If the corrected GST amount is less than the previously attributed GST amount, you have a decreasing adjustment equal to the difference between the previously attributed GST amount and the corrected GST amount.

In the present case the 'corrected GST amount' will be calculated by reference to the price for which a home that is 'new residential premises' is sold to the eligible tenant reduced by the amount of the HOP Bonus and will be less than the 'previously attributed GST amount' in respect of that home, giving rise to a decreasing adjustment for the Department.

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