Edited version of private ruling

Authorisation Number: 1011661983609

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Ruling

Subject: GST and employee's expenses and allowances

Questions

Issue 1

Are you entitled to claim input tax credit (ITC) for the acquisitions of accommodation and air travel that are associated to the players who came to Australia for the tour and for the allowances (meal and laundry) provided to them while in Australia?

Answer

You are entitled to claim ITC for the acquisitions of accommodation and air travel that are associated to the players who came to Australia for the tour where the supplies of the accommodation and air travel are taxable supplies under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

You are not entitled to claim ITC for the daily allowances paid to the players in relation to the tour in Australia as these allowances are not considered to be a reimbursement for GST purposes.

Issue 2

Is the remuneration (match fee, tour fee and prize money) awarded to the players in relation to the tour in Australia subject to GST?

Answer

No, the remuneration (match fee, tour fee and prize money) awarded to the players as your employees, in relation to the tour in Australia is not subject to GST.

Issue 3

Is the supply of the broadcast licence in relation to the coverage of the tour in Australia by you to the Australian entity a taxable supply?

Answer

No, the supply of the broadcast licence in relation to the coverage of the tour in Australia by you to the Australian entity is not a taxable supply.

Relevant facts and circumstances

You are an overseas entity which is registered for GST.

Your main object is custodianship of certain sports activities which ultimately advance amateur and professional players from overseas. You will have a contract with each player you employ to be part of the team.

You have a policy that you will only pay reasonable accommodation, meals and travel which are necessary for the purpose of the tours.

You have Broadcast License Agreements with Australian companies where you supply broadcast licence in relation to the coverage of certain tour.

Memorandum of Understanding between Australian entity and you

You have a Memorandum of Understanding (MOU) with an Australian entity in relation to the tour held in Australia.

Under the MOU, you will be responsible for the following costs and expenses:

§ international travel for outward journey and homeward journey (Note: homeward journey may include domestic flight solely within Australia)

§ all daily allowance, accommodation and internal costs of tour party members.

You advised that:

· One of your employees has paid for the accommodation, airfares and daily allowances for the players on your behalf, not in their own personal capacity. You do not receive any consideration from the players for these expenses.

· Most of the tax invoices for the accommodation, travel and meals are issued under your name. Some invoices are issued to the employee, who has then passed the expense on to you.

· Other invoices are issued to the players, team management, the chief executive officer, executive members and other employees of you and then you either pay the invoices directly or reimburse the relevant member of the touring party.

Contract between you and players

You have agreements with professional players, who wish to represent and play for the overseas country. You employ the player and player agrees to be employed by you, subject to the terms and conditions set out in the agreement.

Under the agreement, the players will receive match fee and win bonus. The match fee is only payable for matches physically played, not when rested or injured.

You have provided the following information:

· The players are your employees pursuant to the contracts in place.

· Match fees are paid to players for taking part in matches. Tour fees are paid to players for taking part in the tour.

· Prize money is paid to players as a prize for the team winning (or placing in) certain matches or competitions. You pay the prize money to the player and other members of the team in the proportion from time to time.

· You pay match fees, tour fees and prize money as specified in Memorandum and Articles of Association, your business includes the promotion, advancement and administration of the sport.

· Any fees payable to the players (match fee, tour fee and prize money) are paid to you and the player then get paid through your payroll where tax is deducted.

· Players' contracts are for the whole season and not per tour, so do not specifically relate to tours of Australia.

· You are not aware of any of the players being registered for Australian GST.

Broadcast License Agreement between you and an Australian company

You (licensor) have a broadcast licence agreement (licence agreement) with an Australian company (licensee),

Under the licence agreement, the licensee has been granted a licence to transmit the programmes and exercise any other rights granted under the agreement within the Territory during the licence period. All rights not expressly licensed in the schedule are hereby reserved for the licensor, which shall be entitled to exploit or authorise third parties to exploit such rights in its discretion.

You advised that the licence agreement was executed with the authorised officer first signing the agreement on behalf of the licensee and the agreement was sent to overseas where your employee signed the agreement on behalf of you.

Reasons for decisions

Issue 1

Under section 11-20 of the GST Act, an entity is entitled to claim an ITC for any creditable acquisition that it makes.

An entity makes a creditable acquisition under section 11-5 of the GST Act if:

(a) the entity acquires anything solely or partly for a creditable purpose;

(b) the supply of the thing to the entity is a taxable supply;

(c) the entity provides, or is liable to provide, consideration for the supply; and

(d) the entity is registered or required to be registered.

Under subsection 11-15(1) of the GST Act, an entity acquires a thing for a creditable purpose to the extent that the entity acquires it in carrying on its enterprise.

However, under subsection 11-15(2) of the GST Act, an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies, or is of a private or domestic nature.

Further, Division 111 of the GST Act provides that an acquisition made by an employer may be a creditable acquisition subject to certain conditions.

Under section 111-1 of the GST Act, if you are an employer who is registered for GST, you may be entitled to ITCs for payments you make to reimburse your employees (and their associates) for their expenses.

Under section 111-5 of the GST Act, you are entitled to an ITC for an employee-reimbursed expense if you meet all of the following criteria:

· your employee's expense is directly related to their activities as your employee or the reimbursement is an expense payment benefit;

· the sale of the item purchased by your employee was taxable; and

· your employee is not entitled to a GST credit for the expense.

You make a reimbursement where you pay your employee for the price or part of the price, of a particular purchase they make. You also make a reimbursement if:

· you pay your employee for a particular expenses they have not paid, providing they become liable for the expense;

· you repay your employee an advance for an expense they have not yet incurred, providing they have to repay any unspent amount to the advance to you;

· you pay an expense on behalf of an employee, for example, to the business that has made a sale to the employee.

You can receive an expense payment benefit when:

· you make a payment to another person, in whole or in part, of an amount of money spent by your employee as part of their employment with you;

· you reimburse another person, in whole or in part, an amount of money spent by your employee as part of their employment with you.

If you are entitled to an ITC, you can claim it in your activity statement once your employee gives you the tax invoice or receipt of the expense.

However, if you pay your employee for an estimated expense, and they do not have to repay any amount not spent, you are paying an allowance. An allowance is not a reimbursement and therefore you are not entitled to any ITCs on these payments.

From the information received, the players for whom you incurred the expenses are your employees. Relevant to whether you are entitled to claim the GST paid on the expenses associated to these employees is Division 111 of the GST Act. We will now consider whether you can claim ITC for the accommodation, air travel and the allowance they gave to the players while in Australia.

Accommodation

Where the supply of accommodation is a taxable supply, you will be entitled to claim the GST paid on the supply.

You need to hold valid tax invoices or relevant documents that were issued to the employees when claiming the ITC in their activity statement.

Air travel

A supply of air travel is a taxable supply to the extent that it is not GST-free or input taxed.

There is no provision under the GST Act that makes a supply of air travel input taxed. The GST Act does have a provision to make a supply of air travel GST-free if all the requirements in that provision is satisfied.

GST-free

Section 38-355 of the GST Act specifies when supplies of transport and related matters are GST-free.

Relevant to the supply of air travel is items 1, 2 and 3 in the table in section 38-355 of the GST Act which appear as follows.

Where the supply of air travel satisfies the requirements of item 1 or 2 or 3 of section 38-355 of the GST Act, the supply of the air travel will be GST-free. In this circumstance, the supply of air travel to you will not be a taxable supply and you will not be entitled to claim ITC for this acquisition. 

Where the supply of air travel does not satisfy the requirements of item 1 or 2 or 3 of section

38-355 of the GST Act, the supply of air travel will not be GST-free. In this circumstance, the supply will be a taxable supply and you will be entitled to claim ITC for this acquisition.

You need to hold valid tax invoices or relevant documents that were issued to the employees when claiming the ITC in their activity statement.

Daily allowances to cover meal and laundry

From the facts given, you pay an estimated amount to the employees to cover for their meals and laundries while in Australia.

If the employees do not have to repay any amount not spent to you, you are not entitled to claim ITC on these payments as you are paying an allowance which is not considered to be a reimbursement for GST purposes.

Further, the provisions of the meal and laundry services paid from the allowances are for the purposes of the employees. You will therefore not be considered to have made a creditable acquisition under section 11-5 of the GST Act as the acquisitions of the meal and laundry services by the players that were paid from these allowances are not for a creditable purpose to you.

When you provide the allowance, you are considered to have made a supply of money to the employees. A supply of money which is not provided for consideration is not a supply under subsection 9-10(4) of the GST Act. Further, an 'enterprise' does not include activities done by a person as an employee. The allowance is therefore not subject to GST when paid to the employees.

For more information on employer's payments associated with employee's expenses, please refer to the fact sheet' Employee reimbursements and GST'.

Issue 2

GST is payable on a taxable supply. Under section 9-5 of the GST Act you make a supply if:

(a) you make the supply for consideration;

(b) the supply is made in the course or furtherance of an enterprise that you carry on;

(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.

All the above conditions need to be satisfied for a supply to be a taxable supply.

Based on the facts provided, the players are performing the playing services (services) as your employees and receive match fee, tour fee and prize money as remuneration from you. We therefore need to determine whether the services performed by the employees amount to carrying on an enterprise when they receive the remuneration (match fee, tour fee and prize money) from you.

Are the players carrying on an enterprise when receiving the remuneration?

'Enterprise' is defined as an activity or series of activities done in a certain manner or by certain entities under section 9-20 of the GST Act. The activities covered include those done in the form of a business or an adventure or concern in the nature of trade, leasing on a regular or continuous basis, activities done by charitable or religious institutions, superannuation funds, and activities done by the Commonwealth, a State, a Territory, or local government.

Paragraph 9-20(2)(a) of the GST Act provides that an enterprise does not include an activity, or series of activities done by a person as an employee or in connection with earning withholding payments covered by subsection 9-20(4) of the GST Act (unless the activity or series is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection 9-20 (1) of the GST Act.

As such, if the activities are done as an employee, then the employee is not carrying on an enterprise for GST purposes, and paragraph 9-5(b) of the GST Act is not satisfied.

In this case, the employees' services do not amount to carrying on an enterprise as the services done by the player are done as your employees. Accordingly, the payments made by you (remuneration) to the employees are not for a supply made in the course or furtherance of an enterprise carried on by the employees.

The services performed are not subject to the Australian GST since all the requirements in section 9-5 of the GST Act will not be satisfied. GST is therefore not included in the remuneration (match fee, tour fee and prize money) made to the employees.

Issue 3

As discussed in issue 2, an entity makes a taxable supply if all the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied, and to the extent that the supply is not GST-free or input taxed.

Based on the information provided, the supply of the broadcast licence by you to the licensee satisfies paragraph 9-5(a), 9-5(b) and 9-5(d) of the GST Act as:

· you receive consideration for the supply of the licence, and

· the supply is made in the course of your enterprise (business), and

· you are registered for GST in Australia.

What remains to consider is whether the supply of the broadcast licence by you is connected with Australia under paragraph 9-5(c) of the GST Act.

Connected with Australia

Section 9-25 of the GST Act provides for supplies connected with Australia.

Subsection 9-25(5) of the GST provides that a supply of anything other than goods or real property is connected with Australia if:

(a) the thing is done in Australia; or

(b) the supplier makes the supply through an enterprise that the supplier carries on in Australia; or

(c) all of the following apply:

(i) neither paragraph (a) nor (b) applies in respect of the thing;

(ii) the thing is a right or option to acquire another thing;

(iii) the supply of the other thing would be connected with Australia.

The supply of the broadcast licence is a supply of right for GST purposes.

Goods and Services Tax Ruling GSTR 2000/31 provides guidance when a supply of right is connected with Australia. Paragraphs 74 to 77 of GSTR 2000/31 state:

The creation, grant, transfer, assignment or surrender of a right

74. If the supply is the creation, grant, transfer, assignment or surrender of a right, the creation of that right in another, the granting, transfer or assignment of that right to another, or the surrender of that right, is done where the right is created in that other person, granted, transferred or assigned to that other person or surrendered respectively.

75. The act that creates that right in another or grants, transfers or assigns that right to another, or surrenders the right, will depend on the facts of each individual case.

76. If, for example, a right is granted under an agreement to another to use certain intellectual property, the granting of that right to another is done where the agreement is made. If the agreement is made in Australia, the supply of that right is connected with Australia. If the agreement is made outside Australia, the supply is not connected with Australia under paragraph 9-25(5)(a). However, even if the agreement is made outside Australia the supply is connected with Australia under paragraph 9-25(5)(b) if the supplier makes the supply through an enterprise that the supplier carries on in Australia (refer paragraphs 78 to 89 below).

Entry into, or release from, an obligation

77. If the supply is the entry into, or release from, an obligation to do anything, or to refrain from an act, or to tolerate an act or situation, the entering into that obligation or the release from that obligation is done where the obligation is entered into or the release is effected.

Based on the facts provided, the supply of the broadcast licence is not connected with Australia as all the requirements in subsection 9-25(5) of the GST Act are not satisfied as:

(a) the supply of the right was not done in Australia as the last act necessary to create the binding broadcast licence agreement between you and the licensee was performed outside Australia.

(b) you do not carry an enterprise in Australia. The supply is therefore not made through an enterprise that you carry on in Australia; and

(c) paragraph 9-25(5)(c) is not applicable as the supply of the licence is not a right or option to acquire another thing what will be connected with Australia.

To summarise, the supply of the broadcast licence in relation to the coverage of tour in Australia by you to the licensee is not a taxable supply because all the requirements in section 9-5 of the GST Act are not satisfied. The supply is therefore not subject to GST.