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Edited version of your written advice
Authorisation Number: 1012813904213
Ruling
Subject: Third party payer
Question
Are you entitled to claim GST credits on your payment to the supplier?
Answer
Yes
Relevant facts and circumstances
• You are registered for the goods and services tax (GST).
• You are an endorsed charity for GST purposes
• You enter into an agreement (Agreement) with a supplier to provide services to a third party.
• You refer the third party to your suppliers for the services.
• The supplier supplies the services to the third party under the terms and conditions in the Agreement.
• The Agreement requires you to pay the supplier for their services.
• The third party is not liable to pay for the services
• The supplier is registered or required to be registered for GST.
• The supply of the services is not GST-free nor input taxed.
Reasons for decision
Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides:
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.
For GST purposes, the meaning of acquisition is outlined in section 11-10 of the GST Act. It includes an acquisition of services.
You enter into the Agreement with the supplier to provide services to a third party. That is the supplier is providing services in the context of a tripartite arrangement - the supplier provides services to a third party and you pay for the services.
Supply in the context of a tripartite arrangement
For supplies made in the context of a tripartite arrangement, it is necessary to determine whether the supplier is providing the services to you and the third party for GST purposes.
The Australian Taxation Office view on "Supplies made in a tripartite arrangement" is outlined in Goods and Services Tax Ruling GSTR 2006/9. The ruling provides an explanation on supplies made in tripartite arrangements.
We consider that Proposition 15 in GSTR 2006/9 (Proposition 15) is relevant to the arrangement set out in the Agreement. Under Proposition 15, one set of activities could result in a supplier making two or more supplies. This is explained in paragraph 217A of GSTR 2006/9 which states:
This proposition [15] is illustrated by Federal Commissioner of Taxation v. Secretary to the Department of Transport (Vic) (Department of Transport), where the activity undertaken by the taxi operator of transporting the eligible passenger resulted in two supplies being made:
(i) the supply of transport to the passenger; and
(ii) the supply to the Department of the service of transporting the eligible passenger.
The Commissioner considers that the factors listed in paragraph 221B of GSTR 2006/9, in combination, may point to a supply being made by the supplier to the payer and the third party under a tripartite arrangement. The factors are:
• There is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies that are to be provided by the supplier to particular third parties or a class of third parties.
• The pre-existing framework or agreement identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies provided to them come within the scope of the framework.
• The pre-existing framework or agreement specifies that the payer is under an obligation to pay the supplier if the supplier provides a relevant supply to a third party and also sets out a mechanism by which such payment is authorised.
• The framework or agreement and the mechanism for authorising the payment are in existence before the supplier provides the supply to the third party (ie the supplier knows in advance that the payer is obliged to pay some or all of the consideration where that supply is provided to the third party)
• The supplier provides the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and
• The obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the customer) to the supplier in the event that the supplier provides the relevant supply to the third party.
Therefore in a tripartite arrangement under Proposition 15, where the pre-existing framework or agreement satisfy the above factors, we consider that there could be two supplies being made by the supplier. The recipients of the supply could be the payer and the third party.
The Agreement
In your case, you have entered into the Agreement for the supplier to provide services to the third party. You refer the third party to the supplier and the supplier provides the services according to the terms and conditions of the Agreement. The Agreement requires you to pay the supplier for their services. The third party is not liable to pay for the services.
Therefore the arrangements outlined in the Agreement satisfy all the factors listed in paragraph 221B of GSTR 2006/9. We consider that the supplier has made a supply of services to you (a recipient of the supply) and the third party. The next issue is to consider whether the supply of the services to you is a taxable supply.
Is the supply of services (to you) a taxable supply?
The supplier is registered or required to be registered for GST. They are supplying services to you in Australia under the Agreement as part of their enterprise. You provide consideration for these services. The supply of the services is neither GST-free nor input taxed. Therefore, the supplier is making a taxable supply to you.
Where you provide consideration for a taxable supply to carry on your enterprise, you have made a creditable acquisition under section 11-5 of the GST Act. You are entitled to claim the GST credits if you hold a tax invoice.
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