Edited version of your written advice

Authorisation Number: 1012763278055

Ruling

Subject: GST and entitlement to input tax credits

Question 1

Are you entitled to an input tax credit in respect of items acquired on your behalf?

Answer

Yes.

Relevant facts and circumstances

• You are registered for goods and services tax (GST).

• You provide care and support services to your clients in their homes.

• You have a client agreement in place with your clients, which outline the services that are supplied to suit the particular care needs of the client.

• You receive a government subsidy and client co-contributions to provide care and other services to your clients.

• In order to provide the services as part of your enterprise, you acquire goods and services.

• You and the client agree the mix of supplies that suit the particular care needs of the client as agreed in the client agreement. In the majority of cases your staff, purchase goods and services, covered to provide such care. Occasionally, clients are approved to purchase:

• Emergency items.

• Specific one off items.

• The approval to purchase the above is provided in advance by your staff e.g. by Case Managers who have been assigned to manage the provision of the specified care to that client.

• There is a strict internal procedure for Case Managers to follow in relation to purchases which is similar to that of agreeing a Purchase Order prior to paying out funds.

• The need for the client to personally purchase those goods and services arises:

• In an emergency;

• The supplier may not wish to sign a contract with you and prefer to deal with the client directly;

• On occasions, clients can purchase the item cheaper from a supplier different to your approved supplier.

• Your policies and procedures of how the funding can be used are quite specific.

• The policy document provides specific guidelines and responsibilities for the appropriate use of client funds.

• You authorise purchases made by your client's and you reimburse them the amount paid for the purchases.

• You authorise your clients to act as your agent, in limited circumstances to purchase goods and services for you to use to fulfil your care obligations as part of your enterprise of providing care to that client.

Relevant legislative provisions

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

Section 195-1

Section 11-5

Section 11-20

Summary

Based on your agreement with your clients where you authorise the clients to make the acquisitions on your behalf, you are making the acquisitions. Therefore as you are making the acquisition you are entitled to an input tax credit where all the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.

Reasons for decision

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

Section 11-5 of the GST Act defines what is a creditable acquisition and 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.

(The asterisks in this ruling indicate terms under section 195-1 of the GST Act and will be explained where appropriate.)

For an entity to make a creditable acquisition there is a requirement that all the paragraphs of section 11-5 of the GST Act are satisfied.

To make an acquisition you have to be the recipient of the supply of the thing you are acquiring. Although the term 'recipient' does not appear in Division 11 of the GST Act, it is defined in section 195-1 of the GST Act to mean 'the entity to which the supply was made'.

Goods and Service Tax Ruling GSTR 2000/37: agency relationships and the application of the law, discusses the meaning of an agent/principal relationship for the purposes of the GST Act.

GSTR 2000/37 provides that an agency relationship occurs when an intermediary (called an agent) is authorised by another party (the principal) to do something on that party's behalf (see paragraph 10 of GSTR 2000/37). There are other factors that indicate an agency relationship, such as whether you act in your own name, although no single factor (by itself) is determinative (see paragraph 28 of GSTR 2000/37).

Paragraph 10 of GSTR 2000/37 states in part:

10. An intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. The party who authorises the agent to act on their behalf is called the principal...'

Furthermore, paragraph 11 of GSTR 2000/37 states:

11. For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.

Paragraph 17 of GSTR 2000/37 states:

Special agents

17. Agents can be classified according to the extent of the authority conferred by the principal. Special agents have authority to act for some special occasion or purpose that is not within the ordinary course of business or a profession. For example, Mike appoints Graeme as his agent for the purposes of obtaining a motor vehicle. The only authority given to Graeme as an agent is to obtain the motor vehicle.

Paragraph 28 of GSTR 2000/37 explains the factors that indicate an agency relationship exists. While each factor is indicative of an agency relationship, no single factor in isolation is determinative. It states:

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

• any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

• any exercise of the authority that you are given to enter into legal relations with a third party;

• whether you bear any significant commercial risk;

• whether you act in your own name;

• whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

• whether you decide the price of things that you might sell to third parties.

Paragraph 20 of GSTR 2000/37 also explains the attribution principles in an agency relationship as follows:

Attribution

20 Where a principal makes a taxable supply or a creditable acquisition through an agent, the GST payable by the principal or the input tax credit to which the principal is entitled would be attributable according to the basic attribution rules set out in sections 29-5 and 29-10 unless a special attribution rule applies. Similarly, the principal would attribute a decreasing adjustment according to the basic attribution rules set out in section 29-20 unless a special attribution rule applies.

21. However, to properly attribute any input tax credits or decreasing adjustments according to those basic rules, a principal may need to know information about when consideration is provided, when an invoice is issued or whether an adjustment is required. If a principal does not obtain this information until after the end of the relevant tax period in which attribution would normally occur, the application of the basic attribution rules may impose an unreasonable burden on the principal. Accordingly, the Commissioner has made a determination under section 29-25 to alter the attribution rules for principals who rely on an agent for information required to account for GST. A copy of that determination is attached to Goods and Services Tax Ruling GSTR 2000/29 as Schedule 4.

22. Also, sections 153-5 and 153-10 provide that either the principal or the agent may hold the relevant tax invoice or adjustment note when the principal gives the Commissioner a GST return for the relevant tax period.

Therefore if an entity acquires something through an agent who was acting on its behalf in making the acquisition, the entity is making that acquisition. The consideration an entity pays through the agent for that acquisition is covered by the general rules about creditable acquisitions, not by Division 111.

Based on your agreement with your clients where you authorise the clients to make the acquisitions on your behalf, you are making the acquisitions. Therefore as you are making the acquisition you are entitled to an input tax credit where all the requirements of section 11-5 of the GST Act are satisfied.

Therefore as explained by GSTR 2000/37 if you make a creditable acquisition through an agent (your clients) the input tax credit to which you are entitled to is attributable in accordance with the basic attribution rules.

However, if your clients make the acquisitions on their own behalf, they would not be considered to be your acquisitions and you would not be entitled to an input tax credit for those acquisitions even if you reimburse them for those expenses, you have not made the acquisition.

Attributing your GST credits for creditable acquisitions

Subsection 29-10(1) of the GST Act provides that where you account for GST on a non cash basis, you attribute the GST credit for a creditable acquisition to the tax period in which you have provided any of the consideration for the acquisition or if before you provide any of the consideration, an invoice is issued relating to the acquisition, the tax period in which the invoice is issued.

However, you must hold a tax invoice before a GST credit can be claimed in relation to any acquisition over $82.50. Under subsection 29-10(3) of the GST Act you need to hold a tax invoice for the acquisition at the time you lodge your activity statement before a GST credit can be attributed to a tax period.

Correcting GST errors:

You can refer to our publication 'Correcting GST errors' which explains how to correct GST errors you made on an earlier activity statement.

If you made a GST error on an earlier activity statement, you can choose to correct that error on a later activity statement. You do not need to amend each individual activity statement.

You can correct a credit error on a later activity statement if all of the following conditions apply for each credit error:

• the credit error is within the credit error time limit

• you are not subject to a compliance activity

• you have not corrected the GST error in another reporting period.

Generally, it is easier to correct a GST error on a later activity statement rather than revising the earlier activity statement.

Credit error time limit

If the GST error occurred on or after 1 July 2012

If you made a credit error on an activity statement for a reporting period that starts on or after 1 July 2012, you can correct the GST error on a later activity statement that starts within the four year period of review of the assessed GST net amount for the earlier reporting period that contains the GST error.

The period of review starts on the day we give you a notice of assessment and ends four years from the day after the notice of assessment is given. An assessment of your GST net amount is generally made on the day you lodge your activity statement. The activity statement is taken to be the notice of assessment given on the same day.

If the GST error occurred before 1 July 2012

If you made a credit error on an activity statement for a reporting period that started before 1 July 2012, you can correct the GST error on a later activity statement if either of the following occurs:

• the GST net amount for the reporting period in which the error was made did not cease to be payable

• you have an entitlement to an outstanding GST refund for that reporting period that has not expired.

The GST net amount for the reporting period generally ceases to be payable four years after it became payable by you.

Your entitlement to a GST refund expires four years from the end of the reporting period to which the refund relates unless either of the following occurs:

• you notify us of the entitlement to the refund during the four year period

• we notify you of your entitlement to the refund during the four year period.

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