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Ruling

Subject: entitlement to input tax credits - training program

Question

Are you entitled to input tax credits for payments made to training providers (who are registered or required to be registered for GST) for the purposes of subsidising training for eligible persons?

Answer

Yes.

Relevant facts and circumstances

· You are registered for GST.

· You are responsible for administering a training program which provides financial assistance to students by way of a subsidy.

· Students have certain competencies that must be achieved during training.

· Students must use a registered trainer for their lessons. Students may select a trainer from a list of registered trainers maintained by you.

· Trainers must be registered with you by completing an application for registration. Once registered, all trainers are issued a registered trainer identification card.

· Students receive vouchers that provide a subsidy amount per training session with a registered trainer.

· The student is responsible for payment of the balance of the training session fee. If there is to be a fee over and above the voucher amount this must be negotiated and paid prior to the commencement of the session. You will not under any circumstances agree to pay an additional cost for any session whatsoever.

· Vouchers are valid for a number of months, although students may apply for an extension if they are unable to complete the program within the specified number of months. Only X vouchers can be used per week by a student.

· At the end of each training session, the student must enter their details and session information on the voucher and endorse this information as true and correct.

· The trainer also endorses the information, and submits the voucher to you for payment.

· You have released a document outlining the conditions for registration of trainers. These conditions provide that all trainers must follow the conditions in their capacity as a trainer and provide for various penalties should a trainer breach these conditions. These penalties include removal of the trainer's name from the list of registered trainers.

· Trainers are bound by a number of conditions of registration. These include accurately completing the vouchers, submitting vouchers to you for payment within X days along with a 'tax compliant invoice', ensuring that a valid voucher is used, and no more than X vouchers a week are used by students.

· Any voucher submitted for payment not complying with the conditions or procedures will be disputed by you, and whether payment will be made or any further action is necessary will be determined at your discretion.

· A trainer may or may not be registered for GST.

Reasons for decision

You have made creditable acquisitions in respect of the payments to registered trainers and are entitled to input tax credits.

You make a creditable acquisition if you acquire something solely or partly for a creditable purpose, the supply of the thing to you is a taxable supply, you provide or are liable to provide consideration for the supply, and you are registered or required to be registered (section 11-5 of the GST Act).

It is first necessary to determine whether the trainers have made taxable supplies to you.

You have advised that the trainers may or may not be registered. To make a taxable supply, an entity must be registered or required to be registered. Unregistered trainers do not make taxable supplies and therefore any supplies by unregistered trainers cannot give rise to creditable acquisitions. The following considerations apply where the trainers are registered or required to be registered.

As stated in the draft addendum GSTR 2006/9DA, the Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer in a tripartite arrangement that involves a supplier providing a service or goods to the customer, and where there is no binding obligation between the payer and the supplier for the supplier to provide the service or goods to the customer (student):

· There is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies that are to be provided by the supplier to particular third parties or a class of third parties.

· The pre-existing framework or agreement identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies provided to them come within the scope of the framework.

· The pre-existing framework or agreement specifies that the payer is under an obligation to pay the supplier if the supplier provides a relevant supply to a third party and also sets out a mechanism by which such payment is authorised.

· The framework or agreement and the mechanism for authorising the payment are in existence before the supplier provides the supply to the third party (ie the supplier knows in advance that the payer is obliged to pay some or all of the consideration where that supply is provided to the third party).

· The supplier provides the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and

· The obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the third party) to the supplier in the event that the supplier provides the relevant supply to the third party.

Where the above conditions are met there may be two supplies. These are the supply of the service to the student and the supply to you of the service to the student.

Pre-existing framework for the supplier to act in a particular manner

There is a pre-existing framework between you and the trainers which provides the framework for the scheme. All supplies must take place in accordance with the framework established between you and the trainers at the time that the trainers become registered trainers with you. The penalties for failure by the trainers to follow the conditions include the removal of their name from the list of registered trainers.

The framework sets out the terms and conditions governing the parties and requires the trainers to act in a particular manner in respect of supplies provided to students. In particular, the agreement requires trainers to confirm with students in advance if the voucher will not cover the full cost of the session.

Mechanism for identifying eligible recipients

Eligible students receive a list of competencies and vouchers to present to the service provider.

Requirement to pay the supplier and an established mechanism for making payment

The voucher method is the agreed means for the trainers to be paid for their services. All trainers are paid by vouchers. There are requirements in the framework regarding the completion and submission of vouchers before payment will be made to the trainers. Once this is satisfied the voucher amounts are paid to trainers by you.

Supplier knows that where the supply is made to the eligible student that you will pay

All trainers accept the conditions of the scheme which provides requirements that must be met before you will make payment to honour the vouchers.

Where a supply has been made in accordance with the requirements of the scheme you have an obligation to make payment. This is a liability owed by you and established by the terms of the agreement.

Liability is owed by you

This is not an arrangement to pay on behalf of the student for a liability that is already owed by the student. All students must present a voucher to a trainer before the commencement of a lesson. The liability is owed by you from the commencement of the lesson assuming that the trainer acts within the requirements of the scheme.

A supply would not have been made to you if there was merely an arrangement to pay on behalf of the third party (a student) for a liability already owed by the third party.

Supplier provides the supply in accordance with the pre-existing framework or agreement

Where the requirements of the framework between you and the trainers are followed there will be a supply to you.

Conclusion

The supply by the trainer is a taxable supply, where they are registered (or required to be registered) for GST, because they have provided a supply for consideration in the course of their enterprise. Therefore the supply to you is a taxable supply, you have provided consideration and you are registered for GST. This meets all the requirements of section 11-5 of the GST Act.

You have made creditable acquisitions as you have acquired the service in carrying out your enterprise and it is not in relation to making supplies that are input taxed or private or domestic (section 11-15 of the GST Act). An enterprise includes an activity or series of activities done by the Commonwealth, a State or a Territory (section 9-20 of the GST Act).

Therefore, you are entitled to input tax credits.