Edited version of private ruling

Authorisation Number: 1011732825347

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Ruling

Subject: Goods and services tax and subdivision 153-B arrangements

Question

Can entity B claim input tax credits under subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for acquisitions it makes on behalf of entity A?

Answer

Yes, provided that all the requirements of subdivision 153-B of the GST Act are met.

Relevant facts and circumstances

You, Entity A, provide your staff members with salary packaging arrangements and are registered for the goods and services tax (GST).

Salary packaging occurs if an employee chooses to receive part of their salary as a non-cash benefit or as a pre-tax deduction. The cost of each salary packaging item is drawn directly from the employee's pre tax salary.

Employees are required to pay any fringe benefits tax (FBT) liability and any administrative costs incurred in providing each of the salary packaging items.

Salary sacrifice is made out of staff pre-tax salary which is entity A's expense. The full cost of providing a fringe benefit, including any GST, will be recovered from an employee's salary package. If the employer provides a fringe benefit to an employee that attracts GST, the employer is able to claim an input tax credit. The employer will return to the employee's account any input tax credit that it claims on fringe benefits incorporated as part of a salary package.

You rely on entity B to provide benefits to employees who have salary-sacrificed. You do not directly handle salary packaging for employees.

You have a number of employees who have entered into salary packaging agreements with salary packaging providers on their motor vehicle packages.

You do not pay any commission to salary packaging providers for their services.

You allow novated vehicle leases to be salary packaged through entity B.

You have provided copies of the relevant documents to this office:

Entity B is registered for GST.

Entity B currently hold tax invoices for acquisitions made on your behalf.

Based on the relevant agreement between staff and the employer, you transfer staff salary sacrifice fund to entity B on a fortnightly basis. The transfer is a pre-tax salary component.

Current agreement between entity A and its employees in relation to salary packaging and salary sacrifice

The employees directly approach entity B who calculates their package and establish a precise amount of the salary sacrifice.

Entity B notifies the employer of the details of the salary sacrifice package so that entity A can adjust staff fortnightly payments accordingly.

Entity B packages GST exclusive benefits to employees and finance the GST component.

Entity B issues monthly statements to entity A, requesting a reimbursement of the GST component. Entity B holds all tax invoices on various expenses of individual vehicles where employee name and vehicle registration are displayed against the expense which is GST inclusive.

Current agreement between entity A's employees and entity B

Entity B does not act as agents for entity A's employees. Entity B acquires goods and services for their operations (providing salary packaging) and assign the benefits (goods and services) to entity A's employees.

Current agreement between entity A and entity B

Entity A has provided a copy of the relevant agreement. Entity A has advised that, entity B acts as agent for entity A in providing benefits to entity A's staff under salary sacrifice arrangements. Under the relevant agreements, entity B does not make any supplies and acquisitions as principals, in its own right.

The monthly GST payments summary report and funds transfer request document which entity B issues to entity A provides that entity B has paid GST on expenses made on behalf of entity A.

Entity A has advised that the agency relationship and the relevant transactions involved under the agency arrangement for GST purposes will be more clearly stated when the parties enter into a written subdivision 153-B agreement.

Entity B does not charge a commission or other payment for their agency services to the entity A. Entity B charges the employees an administration fee for services (such as account keeping and recordkeeping) that they provide to entity A's staff. This is separate from the services provided to the entity A.

Entity B acquires goods and services on behalf of entity A and uses the relevant staff salary sacrifice component to pay for these.

Entity A actually provides or reimburses the whole cost of staff benefits to entity B. As entity B packages GST exclusive benefits to the employees, they issue a statement to entity A for the GST component to be reimbursed. Entity A refers to this statement and reimburses the GST component to entity B. Entity A transfers the cost of the benefit (GST exclusive) to entity B at the time that the employee receives their fortnightly pay.

Proposed subdivision 153-B arrangement

In order to simplify the process under the current arrangement, entity A wishes to sign an agreement with entity B to apply the arrangements provided under subdivision 153-B of the GST Act to their agency relationship.

Entity A will draft a subdivision 153-B Agreement with entity B stating that entity B is treated for GST purposes as a principal in relation to the things that entity B acquires for the provision of the benefits to entity A's employees. Entity B will be taken to have made the acquisitions in their own right and will be entitled to claim input tax credits on those acquisitions. Entity B holds the relevant tax invoices and retains all records for their input tax credit claim.

The agreement will clearly state that entity B claims input tax credits on their creditable acquisitions and distribute the GST component to entity A's employees. Entity A will only provide the salary sacrifice component (net of GST) to entity B.

Entity B will collect employee contribution and remit the relevant GST component to the ATO.

Both supply and acquisition will appear on entity B's activity statement.

Consequently, entity A does not claim or remit GST that relates to salary packaging on entity A's activity statement.

Reasons for decision

Summary

Entity B can claim input tax credits under subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for acquisitions they make on behalf of entity A, provided, all the requirements of that subdivision are met.

Detailed reasoning

Subdivision 153-B of the GST Act provides special rules with respect to the GST treatment of supplies and acquisitions made under an arrangement between principals and intermediaries.

Section 153-50 of the GST Act provides that an entity (the principal) may enter into an arrangement with another entity (the intermediary) for the making or facilitation of supplies and/or acquisitions through the intermediary.

An intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. The party who authorises the agent or intermediary to act on their behalf is the principal. However, subsection 153-50(2) of the GST Act provides that an entity can be an intermediary whether or not the entity is the agent of the principal, for the purposes of subsection 153-50(1) of the GST Act.

Section 153-50 of the GST Act states:

(1) An entity (the principal) may, in writing, enter into an arrangement with another entity (the intermediary) under which:

 (a) the intermediary will, on the principal's behalf, do any or all of the following:

(i) make supplies to third parties;

(ii) facilitate supplies to third parties (including by issuing *invoices relating to, or receiving *consideration for, such supplies);

(iii) make acquisitions from third parties;

(iv) facilitate acquisitions from third parties (including by providing consideration for such acquisitions); and

(b) the kinds of supplies or acquisitions, or the kinds of supplies and acquisitions, to which the arrangement applies are specified; and

(c) for the purposes of the GST law:

(i) the intermediary will be treated as making the supplies to the third parties, or acquisitions from the third parties, or both; and

(ii) the principal will be treated as making corresponding supplies to the intermediary, or corresponding acquisitions from the intermediary, or both; and

(d) in the case of supplies to third parties:

(i) the intermediary will issue to the third parties, in the intermediary's own name, all the *tax invoices and *adjustment notes relating to those supplies; and

(ii) the principal will not issue to the third parties any tax invoices and adjustment notes relating to those supplies; and

(e) the arrangement ceases to have effect if the principal or the intermediary, or both of them, cease to be *registered.

(2) For the purposes of subsection (1), an entity can be an intermediary whether or not the entity is the agent of the principal.

(Please note an asterisk denotes a term defined in section 195-1 of the GST Act).

Section 153-50 of the GST Act stipulates that an agreement which satisfies Subdivision 153-B must be in writing that the intermediary will facilitate supplies to third parties, acquisitions from third parties or both, on behalf of the principal. The agreement must also satisfy the other requirements in section 153-50 of the GST Act.

You have advised that entity B is registered for GST. This means that entity A may enter into a subdivision 153-B arrangement with entity B where:

the written agreement specifies the kinds of supplies and acquisitions to which the agreement will apply for the purposes of the GST law;

entity B makes and facilitates those supplies and acquisitions on behalf of entity A; and

entity A and entity B agree that, for the purposes of the GST law, entity B (intermediary) uses the simplified accounting procedures in subdivision 153-B of the GST Act, in relation to the transactions specified in the agreement.

Prior to entering into such an arrangement a principal and agent or intermediary relationship must exist between the parties to the arrangement. Thus, it is a requirement that an agency or intermediary relationship exists between entity A and entity B, for the purpose of making the specified supplies and acquisitions before the parties can enter into an arrangement that satisfies the requirements of subdivision 153-B of the GST Act.

You have advised that entity B does act as agent for entity A, although there is no agency relationship between the parties that can be evidenced in the copy of the agreements that you have provided to the ATO. However, the monthly GST payments summary report and funds transfer request document which entity B issues to entity A states that entity B has paid GST on expenses on behalf of entity A.

You have advised that the relationship between entity B and entity A in relation to the relevant supplies and acquisitions will be clearly and specifically stated when the parties enter into the written agreement to apply subdivision 153-B of the GST Act for GST purposes.

For the purposes of the GST Act, under a common law agency relationship, the principal has all of the GST obligations and entitlements, not the agent or intermediary. Subdivision 153-B of the GST Act simplifies the way entities can account for GST by allowing an option for entities to enter into an arrangement under which an agent or intermediary is treated as a separate supplier and/or acquirer in relation to the supplies and acquisitions covered by the agreement. The general effect of entering into these arrangements in respect of both supplies and acquisitions is that the principal and its intermediary are treated as acting between a principal and another principal.

These arrangements do not impact on other taxation laws except where specifically noted. Nor do the arrangements have an impact upon other laws or contractual arrangements between parties. The option exists for GST purposes only and allows an alternative way for principals and intermediaries to account for GST.

Section 153-60 of the GST Act provides for the effect of these arrangements on acquisitions and states:

(1) An acquisition that the principal makes from a third party through the intermediary is taken to be a *creditable acquisition made by the intermediary from the third party, and not the principal, if:

(a) the acquisition is of a kind to which the arrangement applies; and

(b) the acquisition is made in accordance with the arrangement; and

(c) both the principal and the intermediary are *registered.

(2) In addition, the intermediary is taken to make a supply that is a *taxable supply to the principal. This supply is taken:

(a) to be a supply of the same thing as is acquired in the *creditable acquisition (the intermediary's acquisition) that the intermediary is taken to make; and

(b) to have a *value equal to 10/11 of the amount that is payable to the intermediary by the principal in respect of the intermediary's acquisition.

The principal is taken to make a corresponding acquisition from the intermediary, and the acquisition is taken to be a creditable acquisition if, apart from this section, the principal's acquisition from the third party would have been a creditable acquisition.

….

In relation to the acquisitions covered by an agreement under subdivision 153-B of the GST Act, the effect is that the principal and the intermediary will treat acquisitions that the principal makes from a third party through the intermediary as two separate acquisitions and they are treated as acting between themselves as principal to principal for GST purposes.

Therefore, where the principal makes an acquisition that is covered by the agreement from a third party and the intermediary pays an amount on behalf of the principal to the third party supplier, the intermediary will be taken to have made a creditable acquisition in its own right. The intermediary is entitled to claim an input tax credit on the acquisition.

Additionally, the intermediary will be taken to have made a taxable supply of the same thing to the principal. This acquisition by the principal from the intermediary will be a creditable acquisition by the principal if the acquisition of the goods and services by the principal directly from the third party would have been a creditable acquisition.

Section 153-60 of the GST Act only applies if the acquisitions are creditable acquisition of the principal (refer to paragraph 74A of GSTR 2000/37A). In your circumstances, the acquisition made by entity A in relation to its activities is a creditable acquisition.

Where section 153-60 of the GST Act applies, entity A (as principal) and entity B (as intermediary) will treat the creditable acquisition that entity A makes from third parties through entity B as two separate acquisitions. Both parties are treated as acting between themselves as principal to principal for GST purposes.

When entity B makes a creditable acquisition from third parties on behalf of entity A, entity B would be taken to have made a creditable acquisition in its own right. Entity B would be entitled to claim a full input tax credit on that acquisition. Entity B is also taken to have made a taxable supply to entity A of the same thing that it is taken to have acquired.

Note that the provision under subdivision 153-B of the GST Act would only apply where entity A and entity B have entered into an arrangement that satisfies all the requirements of section 153-50 of the GST Act and the relationship between entity A and entity B is that of principal and intermediary, for the making and facilitating of the specified supplies and acquisitions.

Sections 153-55 and 153-60 of the GST Act provide for the effect of an arrangement under subdivision 153-B of the GST Act on supplies and acquisitions that the principal makes through the intermediary. Therefore, the parties will need to be aware of their respective GST obligations upon entering into a subdivision 153-B arrangement.

In conclusion, entity B would be entitled to claim input tax credits under subdivision 153-B of the GST Act, for the acquisitions they make on behalf of entity A, in relation to the individual salary packages, provided, all the requirements of that subdivision are met when the parties enter into the relevant written agreement.