Edited version of private ruling

Authorisation Number: 1011494710243

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Ruling

Subject: GST and social housing

Questions:

Do the Organisations (Os) make a taxable supply under the Assistance Agreements (AA)?

Does the State represented by the State Department (Department) make a taxable supply when it provides non-monetary consideration to the Os?

What is the value of the consideration for the supplies provided under the AA?

Advice/Answers:

The Os make a taxable supply under the AA.

The State represented by the Department makes a taxable supply when it provides non-monetary consideration to the Os.

The value of the consideration for the supplies provided under the AA will be the GST-market value of the Assistance detailed in the AA.

Relevant facts:

The Commonwealth Government (Commonwealth) and the State have agreed that:

The State will have the primary responsibility for managing the funding of housing in the State; and

The direct funding of the Os will be managed by the State.

The Commonwealth has provided the State with funding for the investment in houses owned by the Os. This funding will be distributed by the State under the Arrangement, administered by the Department.

It is proposed that the State and the individual O (or the Provider) enter into the agreements to recognise their mutual involvement in the delivery of funded services to ensure consistent and sustainable housing outcomes for people within the State (Project).

The Act, Regulation and AA govern the arrangements under which the State is to provide the Assistance. The Provider must only use the Assistance in accordance with the requirements of the Act, Regulation and the provisions of the AA and the program specifications (Program).

However, participation in these arrangements is voluntary.

For the ruling request purposes, the AA between the Department and Provider, the AA Standard Terms and the Project are attached for perusal.

Question 1

GST is payable on taxable supplies. A supply is a taxable supply if all the conditions under section 9-5 of the GST Act are satisfied. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that you *carry on; and

· the supply is *connected with Australia; and

· 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.

(The asterisks in this ruling indicate terms defined under section 195-1 of the GST Act.)

In the current case the requirements in paragraphs (b), (c) and (d) of section 9-5 of the GST Act are satisfied and assuming that any supply made will not be GST-free or input taxed, the relevant criterion to be resolved is the requirement in paragraph (a).

To satisfy the requirement of paragraph 9-5(a) of the GST Act there must be a supply and consideration, and there must be a sufficient connection between the two.

Subsection 9-10(1) of the GST Act defines supply as any form of supply whatsoever.

The intended scope of subsection 9-10(1) of the GST Act is more fully illustrated in subsection 9-10(2) of the GST which states that without limiting subsection 9-10(1) of the GST Act, supply includes any of these:

· a supply of goods;

· a supply of services;

· a provision of advice or information;

· a grant, assignment or surrender of *real property;

· a creation, grant, transfer, assignment or surrender of any right;

· a *financial supply;

· an entry into, or release from, an obligation:

· to do anything;

· to refrain from an act; or

· to tolerate an act or situation;

· any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

Therefore, 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. This view is contained in Goods and Services Tax Ruling GSTR 2006/9 titled 'supplies' which sets out a number of propositions for characterising and analysing supplies.

In examining the Department's situation that involves grant funding and other assistance, it is necessary to consider that aim of the agreements entered into with an O (or the Provider) is that the O will deliver the Project for people within the State in return for funding or other assistance. The obligation to carry out this aspect of the Project for the State is regarded as a supply and is what the consideration is provided for.

Paragraph 82 of Goods and Services Tax Ruling GSTR 2000/11 'Goods and services tax: grants of financial assistance' states:

Where the grant involves a supply of only a right or obligation, there needs to be some binding commitment supplied by the grantee which goes to the substance of the grant transaction. In determining what the substance of the transaction is where the transaction is an exchange of a grant for a right or obligation, the key consideration will be the object or purpose which the grant is intended to achieve. Things supplied as part of such a grant agreement that are merely incidental to the purpose for which the grant is made will not be supplies for which the grant is consideration.

The GST treatment of funding and whether the funding represents consideration that has the relevant connection with a taxable supply is discussed in GSTR 2000/11. Paragraph 44 states:

A supply is a taxable supply, if, among other things, the supply is made for consideration. Thus, there must be some nexus or connection between a particular supply and particular consideration which is provided for that supply.

Paragraph 32 of GSTR 2000/11 explains that an agreement between the parties to a funding arrangement may establish rights or obligations between the parties.

It is common for a grantor and grantee to enter into a grant agreement which establishes rights and obligations between the parties. Often the grant agreement will provide for the grantee to be obliged to make supplies to third parties, rather than the grantor. That obligation to make supplies to others may itself be a supply to the grantor.

However, paragraph 33 of GSTR 2000/11 states that the creation of expectations among the parties does not establish a supply.

For there to be a supply of rights or obligations, such rights or obligations must be binding on the parties. The creation of expectations among the parties does not establish a supply. An agreement that does not bind the parties in some way would not be sufficient to establish a supply by one party to the other unless there is something else, such as goods or some other benefit, passing between the parties.

Further, paragraphs 85 and 86 of GSTR 2000/11 discuss the nexus where the grantee supplies obligations and states:

Many grants are paid in exchange for the grantee's entry into an obligation to the grantor to do something with the grant. The grant is sufficiently connected with the supply of such an obligation if the obligation is something which goes to the purpose for which the grant is made.

Conditions that a grantee may enter into include a requirement to use the granted funds in a particular manner, such as to deliver specified services to the community in furtherance of an objective of the grants program. Provided that the grant is made for the purpose of those services being delivered, the acceptance by the grantee of an obligation to fulfil such conditions will establish a supply to the grantor in connection with the grant.

In this case, the O will be making a number of supplies to the Department pursuant to the AA. A list of what these supplies include, amongst other things, has been provided.

Taking all the above facts into consideration, it is agreed that the various items agreed to by the O represent 'binding obligations' rather than 'mere expectations'. The AA provides for specific remedies in the case of default, with particular reference to the Security granted to the State, and the State's associated rights in respect of the Property in the case of default. Consequently, they are supplies under section 9-10 of the GST Act.

'Consideration' is defined under section 9-15 of the GST Act. The definition extends beyond payments to include such things as acts and forbearances to act. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of the supply.

Goods and Services Tax Ruling GSTR 2001/6 'Goods and services tax: non-monetary consideration' provides clarification on a payment when it is in a non-monetary or in an 'in kind' form. Paragraph 12 of GSTR 2001/6 states:

A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as:

· providing goods;

· granting a right or performing a service (an act); and

· entering into an obligation, for example to refrain from selling a particular product (a forbearance).

Throughout this Ruling, unless otherwise stated, a payment includes an act or forbearance.

It is clear that the Department will be providing some form of consideration to the O pursuant to the AA. On the information given, the Assistance (being the entering into of the obligation to 'cause the Project to be constructed'), which is defined to be non-monetary assistance, is the consideration.

This clearly establishes sufficient nexus between the provision of the Department's Assistance and the obligations entered into by the O (or the Provider) for there to be a supply for consideration.

Hence, paragraph 9-5(a) of the GST Act is also satisfied and the O will make a taxable supply under the AA.

Question 2

In respect of a provision of a non-monetary consideration by a recipient, paragraph 16 of GSTR 2001/6 states:

By providing non-monetary consideration for a supply, you are in turn making a supply. Where this happens, you need to determine the GST consequences of the supply you make. If it is a taxable supply, you need to determine the GST inclusive market value of the consideration you receive for this supply to account for the GST payable. You may also be entitled to claim input tax credits for the supply made to you.

As indicated above, the Department will be providing a non-monetary consideration (being the entering into of the obligation to 'cause the Project to be constructed') to the O pursuant to the AA. Hence, the Department is essentially agreeing to provide the project works to the O. The entering into this obligation by the Department constitutes a supply made by the Department to the O, pursuant to paragraph 16 of GSTR 2001/6. The supply will be a taxable supply if the Department makes it for consideration.

Clearly, the O will also be providing some form of non-monetary consideration to the Department pursuant to the AA. This will be the agreeing to enter into the obligations under the AA.

This clearly establishes sufficient nexus between the provision of the O's non-monetary consideration and the obligation entered into by the Department for there to be a supply for consideration.

As paragraph 9-5(a) of the GST Act is also satisfied, the DC will make a taxable supply when it provides a non-monetary consideration to the O.

Question 3

For GST purposes, consideration must be expressed as an amount of money.

Pursuant to paragraph 9-75(1)(b) of the GST Act, where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply.

Paragraphs 138 and 139 of GSTR 2001/6 provide guidance on reasonable valuation of non-monetary consideration. They state:

Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply. In most circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value.

As the GST inclusive market value of consideration will be shown as the price on any tax invoice that the supplier issues, the onus for determining the GST inclusive market value of the consideration rests with the supplier.

Since both parties will be dealing with each other at arm's length, it is expected that the GST inclusive market value of the supplies exchanged by them would be of equal value (i.e. equal to the GST-market value of the Assistance detailed in the AA).