Edited version of your written advice

Authorisation Number: 1051424631911

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This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

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Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 23 October 2018

Ruling

Subject: GST treatment of supplies you make of specific services

Question 1

Does ABC for the purpose of section 9-10 of the GST Act, make a supply to both XYZ and Members when providing specific services?

Answer

Yes, for the purpose of section 9-10 of the GST Act, ABC makes a supply to both XYZ and XYZ Members when providing specific services.

Question 2

If the answer to question 1 is ‘Yes’ - is the consideration referable to the supplies made to XYZ and Members the relevant portion of the total fee paid by each party?

Answer

Yes - when XYZ pays the relevant portion of the service fee, that relevant portion is the consideration being provided for the supply.

The scheme commences on

1 March 2014

Relevant facts and circumstances

A summary of the facts describing the circumstances and arrangements relevant to this private ruling application is provided below:

● XYZ is registered for GST.

● ABC is registered for GST.

● ABC is a 100% subsidiary of XYZ, owned through another company, XYZ Limited.

● XYZ is currently registered for GST on a monthly basis and is the representative member of a GST group comprised of a number of 100% owned subsidiaries, including ABC.

● ABC is contracted by XYZ to provide Members with services.

● ABC also provides more services to other clients.

● The terms under which ABC is engaged by XYZ to provide advice services to Members are set out in the Deed.

● Under the Deed, Members may be levied a fee for all or some of the Services.

● Pursuant to the Deed, ABC is paid a fee by XYZ.

● However, the Deed provides that where a Member frequently accesses the Service and exceeds the allowed limits, ABC may charge the Member a Member Amount.

● Where ABC does not charge XYZ, the service will only be provided to the Member where the Member agrees to pay ABC for the supply.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

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

Reasons for Decision

Taxable supply

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.

A taxable supply is made by one entity (the supplier) to another entity (the recipient) if all of the requirements in section 9-5 are satisfied. Paragraph 9-5(a) imposes on the supplier the fundamental requirement that it must make a ‘supply’ (within the meaning of section 9-10) for ‘consideration’ (within the meaning of section 9-15).

Subsection 9-15(1) states that the ‘consideration’ for a supply includes any payment ‘in connection with’, ‘in response to’ or ’for the inducement of’ a supply. Subsection 9-15(2) further establishes that the payment does not have to be made by the recipient of the supply.

In determining whether a payment is consideration under section 9-15 and whether there is a supply made for consideration’, paragraph 180 of Goods and Services Tax Ruling: GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) states that:

● the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

● regard needs to be had to the true character of the transaction; and

● an arrangement between the parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Paragraph 180B of GSTR 2006/9 states:

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.

The principles set out in proposition 16 in GSTR 2006/9 provide that in this case the true nature of a transaction involving the payment of fees to ABC (in terms of answering the statutory questions of ‘who is making a supply to whom’ and ‘what is being supplied’) depends upon an examination of the total fact situation.

To determine who is making a supply to whom in relation to the payment of the relevant fees, paragraphs 222 to 223 of GSTR 2006/9 provides the following guidance:

222. Where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purposes.

223. Australian courts have held that an arrangement between the parties will be characterised not merely by the description the parties give to the arrangements, but by looking at the transactions entered into and the circumstances in which the transactions are made […]

Relevant to your circumstances, the correct approach to the characterisation of a tri-partite arrangement is also informed by the observations of Edmonds J in the Full Federal Court case ATS Pacific Ltd v Commissioner of Taxation [2014] FCAFC 33 who noted that in determining the character of a supply pursuant to an executory contract:

…a court is not to be “handcuffed” by the terms embodied in the four corners of the contract, the more so if those terms and conditions do not represent all the terms and conditions of the contract, or where the contract is but one link in the chain of contracts, the performance of each being related to, if not dependent on, performance of the immediately preceding contract: or where, by reference to the factual matrix of the entirety of the arrangements, the commercial or practical reality points to the conferral or provision of a supply which goes beyond the conclusion that might otherwise be drawn from a confined analysis of the terms and conditions of one contract in the chain.

Further, in identifying whether the entry into, or things done in the performance of these obligations, constitutes a ‘supply’ for GST purposes, the High Court in Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 at 33 and 35 relevantly observed that:

33. Federal Commissioner of Taxation v Qantas Airways Ltd shows that it is wrong to consider that one transaction must always involve the making of just one supply. It is similarly wrong to consider that the making of a supply must always involve the taking of some action on the part of the supplier.

….

35. A transaction which involves a supplier entering into and performing an executory contract will in general involve the supplier making at least two supplies: a supply which occurs at the time of entering into the contract, in the form of a contractual obligation to perform: and a supply which occurs at the time of contractual performance, even if contractual performance involves nothing more than the supplier observing a contractual obligation to refrain from taking some action or to tolerate some situation during a contractually defined period.

The Commissioner agrees that there is a supply made by ABC to XYZ under the arrangement.

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