Edited version of private ruling

Authorisation Number: 1011672289541

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Ruling

Subject: GST and consideration from a third party

Question 1

Is the payment you receive from a third party part of the consideration for the taxable supply you make when you install insulation into houses within Australia?

Answer

Yes, the payment you receive from a third party is part of the consideration for the taxable supply you make, when you install insulation into houses within Australia.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for GST.

Your main business activity is the installation of insulation in houses within Australia.

Throughout the financial year ended 30 June 2010, you prepared your activity statements on the basis that the payments received from your customers (householders) and a third party included GST.

The householder and the installer are responsible for entering into a contractual arrangement for the installation of ceiling insulation.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services) Act 1999 Section 9-70

A New Tax System (Goods and Services) Act 1999 Section 9-75

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a) you make the supply for consideration,

(b) you make the supply in the course of an enterprise that you carry on,

(c) the supply is connected with Australia, and

(d) you are registered or required to be registered for GST.

However, a supply will not be a taxable supply to the extent that it is GST-free or input taxed.

In your case, you are registered for GST, and whilst conducting your enterprise you supplied services in the form of installation of insulation products to householders in Australia, and you received consideration from the householder for those supplies. Furthermore there are no provisions in the GST Act which would make these supplies GST-free or input taxed. Therefore you made taxable supplies to the householder.

However you received payments from both the householder and the Australian government upon completion of the insulation work. We need to examine whether the payments you received from the Australian government were part of the consideration for these supplies.

Subsection 9-15 (1) of the GST Act provides that consideration includes any payment, or any act or forbearance in:

· connection with a supply of anything

· response to or for inducement of a supply of anything.

Subsection 9-15 (2) of the GST Act provides that it does not matter whether the payment, act or forbearance was made by the recipient of the supply.

Goods and Services Tax Ruling GSTR 2006/9 (GSTR 2006/9) is a public ruling about supplies which states a number of propositions for characterising supplies and analysing more complex transactions. The ruling includes discussion on supplies involving three or more parties and is relevant to the arrangements here. In particular, Proposition 14 provides that a third party may pay for a supply but not be the recipient of the supply.

This is further discussed in paragraphs 177A and 179 of GSTR 2006/9:

177A. This point was confirmed in the Federal Court decision of TT-Line Company Pty Ltd v. Federal Commissioner of Taxation [2009] FCA 658; 2009 ATC 20-110. This case considered an arrangement under which a government entity made payments to a ferry operator to subsidise the transport of eligible passengers. The arrangement was administered by Ministerial Direction. The ferry operator was not obligated under the arrangement to make the supplies of transport to eligible passengers at a discounted fare. However, if it did provide the discounted fare under the terms of the arrangement it was entitled to be paid an amount by the government entity. In finding that the payments made by the government entity formed part of the consideration for the supply of transport made by the ferry operator to the eligible passengers, Stone J stated at paragraph 28:

It was clearly a payment 'in connection with' the supply of the travel services to Mr Egan and might also be described as having been made 'in response to or for the inducement of' the supply of travel services to Mr Egan. That being so, the fact the consideration for the supply of services to Mr Egan flowed in part from the third party (the Commonwealth) and that Mr Egan was never under any obligation to pay the full (unrebated) amount is not to the point.

And

179. It makes no difference to the GST liability of the supplier which entity provides the consideration, though there are clear ramifications for the recipient of the supply in determining whether they have made a creditable acquisition.

The ferry operator, in the above case, received consideration from passengers, and also was entitled in certain circumstances to receive payments from a government entity. The court ruled that the second payment from the Government entity also formed part of the consideration for the supply.

Likewise, in your case you received consideration from both the householder and a third party, for the single supply of installation of insulation into the homes of householders. Your GST liability for a taxable supply you make remains 10% of the value of the taxable supply, regardless which entity provides the consideration.

Section 9-75 provides that the value of a taxable supply is Price x 10/11. In your case the price is the combined amount of money you receive from both the householder and a third party and the amount of GST payable is 1/11^th of that amount.