Edited version of private ruling

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Ruling

Subject: GST and supply of services

Questions

Will your entire supply under the contract constitute a taxable supply?

Will the goods and services tax (GST) payable on the taxable supply made by you under the contract be attributed under Division 156 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answers

Yes, your entire supply under the contract will constitute a taxable supply.

Yes, the GST payable on the taxable supply made by you under the contract will be attributed under Division 156 of the GST Act.

Relevant facts and circumstances

You are registered for GST.

You will enter into a contract to provide services to another entity (the recipient).

Under the contract, you will design, construct and finance facilities for accommodation (the facilities).

Once the facilities are completed, you will provide various services including concierge, maintenance, housekeeping, and accommodation management services.

You will provide the services for the period stipulated in the contract.

The contract will not give you any interest or estate in the facilities; nor will it create

a relationship of landlord and tenant between you and the recipient or any other person;

The recipient will pay you for your services each month.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 156-5(1).

Reasons for decisions

Section 9-5 of the 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 supply of your services will be made for consideration and in the course of carrying on your enterprise. The supply will be connected with Australia as the services will be performed in Australia. Furthermore, you are registered for GST. As such, the requirements in paragraphs 9-5(a), (b), (c) and (d) will be satisfied. The supply of your services under the contract will be a taxable supply unless it is GST-free or input taxed.

Your supply under the contract will not be GST-free under any provision of the GST Act.

Although you will design, construct and finance the facilities which will provide accommodation, you will not have any interest or estate in the facilities to be able to supply them as a supply of residential premises. Furthermore, the contract will not create the relationship of landlord and tenant between you and the recipient or any other person. Therefore, you will not make an input taxed supply of residential premises by way of lease, hire or licence under the contract.

There are various services that you will supply in relation to the facilities. There is no provision in the GST Act that will make the supply of those services input taxed supplies.

Accordingly, the entire supply that you will make under the contract will constitute a taxable supply.

Under the contract, you will design, construct and finance the facilities and provide services for those facilities. As such, it is necessary to determine if the supplies should be treated as one supply of services or as a number of separately identifiable supplies.

Goods and Services Tax Ruling GSTR 2001/8 describes the characteristics of a supply that appears to have more than one part but that is essentially a supply of one thing. A supply of this nature is referred to as a composite supply.

A composite supply contains a dominant part and something that is integral, ancillary or incidental to that part. A composite supply is treated as a supply of a single thing.

Paragraphs 55 to 63 of GSTR 2001/8 explain what are integral, ancillary or incidental parts. Paragraphs 55 and 56 state:

55. Some supplies include parts that do not need to be separately recognised for GST purposes. We refer to these parts of a supply as being integral, ancillary or incidental. In a composite supply, the dominant part of the supply has subordinate parts that complement the dominant part. If such a supply is analysed in a commonsense way, it can be seen that the supply is essentially the provision of one thing. It need not be broken down, unbundled or dissected any further. For this reason, a composite supply may appear, at first, to have more than one part, but is treated as if it is the supply of one thing.

56. In Customs and Excise Commissioners v. Madgett and Anor (t/a Howden Court Hotel), the European Court of Justice described the term 'ancillary' in terms of scale and connection:

'…a service is ancillary if, first, it contributes to the proper performance of the principal service and second, it takes up a marginal proportion of the package price compared to the principal service. It does not constitute an object for customers or a service sought for its own sake, but a means of better enjoying the principal service.

The contract provides that you will design and construct facilities so that you can provide services. The supply of the services will be provided over the term specified in the contract. Therefore, we consider that the supply of the services is the dominant part of the supply and the design and construction of the facilities are integral to the supply of the services. Accordingly, the supplies that you will make under the contract will be treated as one supply of the services.

Attributing the GST payable on the supply of the services

According to subsection 156-5(1) of the GST Act, the GST payable on a taxable supply that is made:

· for a period or on a progressive basis, and

· for consideration that is to be provided on a progressive or periodic basis;

· is attributable as if each progressive or periodic component of the supply were a separate supply.

Goods and Services Tax Ruling GSTR 2000/35 'Goods and services tax: Division 156 - supplies and acquisitions made on a progressive or periodic basis' provides guidance on when a supply or acquisition is made for a period or on a progressive basis and when consideration is provided on progressive or periodic basis.

Supply made for a period or on a progressive basis

According to paragraph 25 of GSTR 2000/35, a supply or acquisition is made for a period when it is made over a specified length of time or for a time with an identifiable end point which may be stated in the contract, agreement or similar document. A supply for a period will be one which is made on a continuous basis until the stipulated end point occurs, or the period occurs.

In your case, the supply of the services will be provided on a continuous basis for a period as stipulated in the contract. As such, the supply of the services will be a supply for a period.

Consideration provided on a periodic or progressive basis

Paragraphs 28 and 29 of GSTR 2000/35 provide that consideration is provided on a progressive basis when it is paid by instalments that reflect stages of a supply or acquisition. Consideration is provided on a periodic basis when it is made in equal or unequal instalments provided upon expirations of specified periods.

The contract provides that the recipient will pay you for the supply of the services each month. As such, the consideration will be provided on a periodic basis.

Therefore, the GST payable on the supply of the services will be attributed as if each periodic component of the supply were a separate supply in accordance with subsection 156-5(1) of the GST Act.

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