Edited version of your written advice

Authorisation Number: 1051306827822

Date of advice: 10 November 2017

Ruling

Subject: GST and employer contributions

Questions

1. Are the monthly contributions made to the Fund by employer members pursuant to their obligation under a Deed between the Fund and other entities consideration for taxable supplies for the purposes of section 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Does an obligation arise for the agent of the Fund to provide a tax invoice to the employer under section 153-15 of the GST Act?

3. Are the monthly contributions made to the Fund by employer members pursuant to their obligation under the Deed consideration for input taxed supplies for the purposes of Division 40 of the GST Act?

4. Do the terms of the Agreement between the Fund and the agent satisfy section153-50 and section 153-55 of the Act, thereby resulting in the agent being treated as making a taxable supply to the employer, the consideration for which is the contribution by the employer to the Fund?

5. Is there any other taxable supply by the Fund or the agent relating to the employer contributions made to the Fund (excluding the service fee charged by the agent to the Fund which is accepted is a taxable supply)?

Answers

1. No, the monthly contributions made to the Fund by employer members pursuant to their obligation under the Deed between the Fund and other entities is not consideration for taxable supplies for the purposes of section 9 of the GST Act.

2. No, an obligation does not arise for the agent to provide a tax invoice to the member employers under section 153-15 of the GST Act in regards to the employer contributions.

3. No, the monthly contributions made to the Fund by employer members pursuant to their obligation under the Deed is not consideration for input taxed supplies for the purposes of Division 40 of the GST Act.

4. It is not necessary to consider whether the terms of the Arrangement in the Agreement between the Fund and the agent satisfies section153-50 and section 153-55 of the GST Act. Please read reasons for decision below.

5. No, there are no other taxable supplies being made by the agent or the Fund relating to the employer contributions made to the Fund (excluding the service fee charged by the agent to the Fund which is accepted is a taxable supply).

Relevant facts and circumstances

The Fund was established by Industry under a Deed of Trust (the Deed).

The purpose of the Fund is to facilitate training to provide other benefits to the beneficiaries of the Fund.

Operation of the Fund

Under the Deed an employer can become a “Member” when certain conditions are satisfied. Such employer members of the Fund have an obligation under the Deed to make contributions to the Fund based on a set rate per employee. These contributions form part of the trust Fund.

The use of the trust Fund (including employer Member contributions) is governed by the Deed, which provides for payment of the administration costs of running the Fund and for any other activities authorised by the Deed, including Training Powers.

Under the Deed the Trustee can establish policies and rules relating to the application of the Trust Fund. Some policies and rules currently relate specifically to the exercise of the Trustee’s Training Powers (including providing grants to the eligible employers).

Invoices to employer members are administered by the agent on behalf of the Fund under the terms of the Agreement.

Relevant legislative provisions

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 153-15 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

1. Are the monthly contributions made to the Fund by employer members pursuant to their obligation under clause 4 of the Deed consideration for taxable supplies for the purposes of section 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

A taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows:

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 the indirect tax zone; 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.

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

In order to meet the requirement in paragraph 9-5(a) of the GST Act, three things must be satisfied. That is:

1. there must be a supply,

2. there must be consideration.

3. there must be a nexus between the supply and consideration. In other words, the supply must be made for consideration.

Supply

Supply is defined under section 9-10 of the GST Act as ‘any form of supply whatsoever’. The definition is very broad and includes an entry into, or release from, an obligation to do anything; or to refrain from an act; or to tolerate an act or situation but excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money.

Subsection 9-10(2) of the GST Act refers to two aspects of a supply: the thing which passes, such as goods, services, a right or obligation; and the means by which it passes, such as its provision, creation, grant, assignment surrender or release.

Essentially, a supply is something that passes from one entity to another. The supply may be one of particular goods, services or something else that is reflected in an agreement by one party to do something for another.

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

Proposition 12 in goods and services tax ruling, Goods and services tax: Supplies (GSTR 2006/9) states that transactions that are neither based in an agreement that binds the parties in some way nor involve a supply of goods, services, or some other thing, do not establish a supply.

An agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other unless there is something else, such as goods, services, or some other thing, passing between the parties.

Consideration

Consideration is defined in section 195-1 of the GST Act to mean 'any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply'.

The definition of consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearances. It may include payments made voluntarily, and payments made by persons other than the recipient of a supply.

Section 9-15 of the GST Act further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply of anything. Thus, there must be a sufficient nexus between a particular supply and a particular payment, which is provided for that supply, for there to be a supply for consideration.

Sufficient nexus

The Commissioner considers that, in the context of the GST Act, the expression 'you make the supply for consideration' has a similar meaning to 'there is consideration for the supply that you make'.

The references in the GST Act to 'supply for consideration' and to 'consideration for a supply' underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply.

For a payment to be consideration for a supply there must be a sufficient nexus between the payment made by the payer and a supply made by the payee. Therefore, the existence of a particular supply and a given payment will not necessarily mean that a sufficient nexus exists between that supply and the payment made.

The payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The test is an objective one.

In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Further, in identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

Application to the current case

For the member Employers contributions made to the Fund to be consideration for a supply, there must be a sufficient nexus between the payment made by the participating employer and a supply made by the Fund.

Pursuant to the Deed, member Employers are required to pay regular specified amounts to the Fund.

The Deed is between the Fund and Industry Participants. The employer has not entered into any kind of agreement with the Fund that would impose any binding obligation on the Fund in return for the employer contributions made into the Fund. The contribution is collected by the agent and paid to the Fund in accordance with the agreement between the agent and the Fund.

The Fund uses the employer contributions for the purpose of the delivery of training programs and to provide grants to employers where necessary.

Although the Fund may make supplies pursuant to its company constitution and employer contributions may be considered as consideration when considered independently, we are of the view that there is insufficient nexus between a supply made by the Fund and the contributions made by the employers. Accordingly, based on the facts provided, we consider that the contributions made by the employers pursuant to the Deed are not consideration for a supply made by the Fund.

Therefore, the Fund is not making a supply for when a member employer makes contributions to the Fund.

2. Does an obligation arise for the RPCF to provide a tax invoice to the employer under section 153-15 of the Act?

3. Section 153-15 of the GST Act states:

(1) If you make a *taxable supply through an agent, an obligation to issue a *tax invoice relating to the supply:

(a) arises whether the *recipient makes a request for a tax invoice to you or the agent; and

(b) is complied with if either you or the agent gives the recipient a tax invoice within 28 days after the request.

(2) However, you and the agent must not both issue separate *tax invoices relating to the supply.

(3) This section has effect despite section 29-70 (which is about tax invoices).

Given that we have determined that the Fund is not making a taxable supply in relation to the contributions made under the Deed, a tax invoice is not required to be issued by the Fund (and/or by an agent for this contribution). Therefore, we have not considered whether the agent is required to issue a tax invoice as this will only be necessary if a taxable supply was made by the Fund in regards to the employer contributions in the first place.

4. Are the monthly contributions made to the Fund by employer members pursuant to their obligation under the Deed, consideration for input taxed supplies for the purposes of Division 40 of the GST Act?

The contributions do not come within any of the input taxed provisions listed under Division 40 of the GST Act.

5. Do the terms of the collection arrangement in the Management Agreement satisfy section

6. 153-50 and section 153-55 of the Act, thereby resulting in the agent being treated as making a taxable supply to the employer, the consideration for which is the contribution by the employer to the Fund?

The Commissioner of Taxations’ views in regards to section 153-50 are provided in goods and services tax ruling, Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) which states as follows:

Principals and intermediaries as separate suppliers and/or acquirers under Subdivision 153-B

74. Section 153-50 provides that entities may enter into an arrangement under which an intermediary is treated as a separate supplier and/or acquirer. That is, the intermediary is treated as a principal in its own right. Further, nothing in this section prohibits supplies that are not taxable supplies and acquisitions that are not creditable acquisitions from being included in such an arrangement. This includes supplies and acquisitions that are GST-free, input taxed or certain payments of an Australian tax or Australian fee or charge. Also, the nature of these supplies and acquisitions, as between the principal and the third party, is not changed by entering into a Subdivision 153-B arrangement. For example, an acquisition by a principal from a third party that is not a creditable acquisition will not be deemed to be a creditable acquisition because of the arrangement.

74A. Even though supplies that are not taxable supplies may be included in a Subdivision 153-B arrangement, section 153-55, which is about the effect of these arrangements on supplies, only applies to the taxable supplies covered by the arrangement. Similarly, section 153-60, which is about the effect of these arrangements on acquisitions, only applies to the creditable acquisitions covered by the arrangement. For supplies other than taxable supplies and acquisitions other than creditable acquisitions, the parties account for them as being from principal to principal for GST purposes. As sections 153-55 and 153-60 do not apply in this circumstance, the parties need to account for those supplies and/or acquisitions in the arrangement separately from the supply of intermediary services. These consequences are explained in this Ruling at paragraphs 83A to 83M for supplies and paragraphs 91A to 91L for acquisitions.

75. There is a view that subsection 153-60(1) operates to change an acquisition that is not a creditable acquisition of the principal from a third party into a creditable acquisition of the intermediary from the third party. It is suggested that this provision can be interpreted that way because the word ‘creditable’ was not used to describe the type of acquisition at the beginning of the subsection. While we recognise in the previous paragraph that an arrangement under section 153-50, that specifies kinds of acquisitions, may happen to cover acquisitions by a principal that are not creditable acquisitions, the clear objective of Subdivision 153-B is to facilitate the effective payment of GST liabilities and the effective claiming of GST credit entitlements where intermediary relationships exist. Accordingly, we consider that subsection 153-60(1), when read with the provisions of section 153-55 about taxable supplies, should be interpreted as only applying to creditable acquisitions…

The effects of the arrangements on supplies that are not taxable supplies

83A. Where supplies that are not taxable supplies are the only things included in an arrangement under Subdivision 153-B, the effect is that the principal makes a supply to the intermediary that is not a taxable supply and the intermediary makes a supply to the third party that is not a taxable supply. The calculation in section 153-55, which reduces the payment the intermediary makes or is liable to make to the principal for taxable supplies, is not applicable. This section only applies to arrangements where the principal makes a taxable supply to a third party through an intermediary. As the supplies are not taxable supplies, the acquisitions by the intermediary and the third party are not creditable acquisitions.

83B. The intermediary makes a taxable supply of intermediary services to the principal if the requirements of section 9-5 are met. The intermediary is liable for the GST on its supply of intermediary services and the principal is entitled to an input tax credit for its creditable acquisition of intermediary services.

Accordingly, given that it has been established that the Fund is not making a taxable supply in relation to the contributions made by the employers, even in the event there was an arrangement that falls with section 153-B of the GST Act between the Fund and RPCF, the nature of the treatment of the contribution will not change.

Accordingly we have not determined in the Private Ruling whether or not the arrangement between the Fund and RPCF is one that falls within section 153-B of the GST Act.

7. Is there any other taxable supply by the Fund or the RPCF relating to the employer contributions made to the Fund (excluding the service fee charged by the RPCF to the Fund which is accepted is a taxable supply)?

The Commissioner is not of the view that the Fund is making any taxable supplies in regards to the contributions made to the Fund by the Member employers.

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