1051544791703 | Legal database

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Edited version of private advice

Authorisation Number: 1051544791703

Date of advice: 1 August 2019

Ruling

Subject: GST and payments by one government related entity to another

Question

Are the funds paid by a government related entity (you) to other government related entities (other GREs) not the provision of consideration under subsection 9-17(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the payment of the funds is not consideration under section 9-15 of the GST Act. As such subsection 9-17(3) of the GST Act does not apply to the payment of funds by you to other GRE suppliers.

Relevant facts and circumstances

You are registered for GST and come within the definition of a government related entity (GRE) for the purposes of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-17(3)

A New Tax System (Goods and Services Tax) regulations 2019 subsections 40-5.09(1) and (3)

Reasons for decision

The funds paid by you to other GREs are not the provision of consideration in making a supply and subsection 9-17(3) of the GST Act has no role.

The term 'consideration' for a supply or acquisition is defined in section 195-1 of the GST Act as any consideration within the meaning given by section 9-15 of the GST Act in connection with the supply or acquisition.

Subsection 9-15(1) of the GST Act provides that consideration includes any payment, or any act or forbearance, in connection with, in response to or for the inducement of a supply of anything.

Subsection 9-17(3) of the GST Act provides an exception that overrides section 9-15 of the GST Act (see 9-17(5) of the GST Act) in that, a payment is not the provision of consideration where the payment:

· is made by a government related entity (GRE) to another GRE for making a supply

· is covered by an appropriation under an Australian law, and

· satisfies a non-commercial test.

Subsection 9-17(3) of the GST Act presupposes that but for the operation of subsection 9-17(3) of the GST Act, the payment referred to in that subsection would be consideration for making a supply. By precluding a payment that would otherwise be consideration from being consideration the first requirement of a taxable supply (paragraph 9-5(a) of the GST Act) that there is a supply for consideration is not satisfied (unless there is consideration other than this payment).

If the exception to the definition of consideration in subsection 9-17(3) of the GST Act is to apply, the payment needs to be for a supply and as such that payment would otherwise satisfy section 9-15(1) of the GST Act.

You enter into agreements with all the other GREs who obtain funding from you.

It is in this context that the application of subsection 9-17(3) of the GST Act in relation to the funds paid by you to the other GREs is to be considered

Financial supplies

Under Subdivision 40-A a 'financial supply' is input taxed. The term 'financial supply' has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations).

GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) explains and clarifies what is and what is not a financial supply under Division 40 of the GST Act. The GST Regulations identify those supplies that are financial supplies by inclusion and exclusion. Something is a financial supply if it is mentioned as a financial supply in section 40-5.09 of the GST Regulations or is an incidental financial supply under section 40-5.10 of the GST Regulations. Section 40-5.12 of the GST Regulations has the effect of excluding things that might otherwise have been included as a financial supply by section 40-5.09 of the GST Regulations (paragraph 20 of GSTR 2012/2).

Further, paragraph 28 of GSTR 2002/2 explains that the provision, acquisition or disposal of an interest mentioned in subsection 40-5.09(3) of the GST Regulations is a financial supply where it satisfies the requirements of subsection 40-5.09(1) of the GST Regulations. An interest in or under a debt and an interest in or under a credit arrangement are included in item 2 in subsection 40-5.09(3) of the GST Regulations. The glossary of terms contained in Schedule 1 of GSTR 2002/2 describes a 'loan' as a credit arrangement under which the lender provides the use of its funds on specified terms under a business contract.

When an entity borrows money from a lender on terms that include payment of interest, it creates an interest in a debt that includes but is not limited to the payment of interest. The lender creates and supplies an interest in a credit arrangement. Aside from the operation of subsection 9-10(4) of the GST Act each entity would make a supply of a financial interest (under item 2 of subsection 40-5.09(3) of the GST Regulations) to the other, and each supply would be consideration for the other.

Whatever is supplied as payment by way of creation of a debt is money as defined in section 195-1 of the GST Act, and by operation of subsection 9-10(4) of the GST Act is not a supply unless supplied as consideration for a supply that is money. The supply of an interest in a credit arrangement is not money nor is it a supply of money.

The table in Schedule 2 of GSTR 2002/2 summarises the GST status of the fees and services in respect of loans. Relevantly item B27 and B28 respectively confirm that the advancement of principal and the repayment of principal are not the provision of consideration of an interest under subsection 40-5.09(3) of the GST Regulations.

On the other hand, item B21 confirms that the payment of interest forms part of the consideration for a financial supply (items 1&2) of subsection 40-5.09(3) of the GST Regulations.

The funds paid by you to the other GREs are an advancement of principal of a loan to the other GREs and as such those funds are not the provision of consideration for the provision, acquisition or disposal of an interest under subsection 40-5.09(3) of the GST Regulations.

Subsection 9-17(3) of the GST Act precludes a payment that would otherwise be consideration for making a supply from being the provision of consideration. Where, as is the case here, the funds paid by you to the other GREs are an advancement of principal and not consideration under section 9-15 of the GST Act, subsection 9-17(3) of the GST Act has no role to play in precluding the payment from being consideration. The requirement under paragraph 9-17(3)(a) of the GST Act that the funds paid by you to the other GREs are a 'payment for making a supply' is not satisfied. The payment is not for a supply and is not the payment for your supply of an interest in a credit arrangement. As such subsection 9-17(3) of the GST Act does not apply.

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