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Ruling

Subject: GST and payments of subsidies to rural general practitioners

Question

Is the entity making a creditable acquisition when it reimburses rural general practitioners (GPs) and/or their spouses, from funding it receives, for expenses incurred by the GPs and/or their spouses where they meet the eligibility criteria?

Answer

No, the entity is not making a creditable acquisition when it reimburses rural GPs and/or their spouses, from funding it receives, for expenses incurred by the GPs and/or their spouses where they meet the eligibility criteria.

Relevant facts and circumstances

The entity is registered for the goods and services tax (GST).

The entity is not a government related entity. It administers numerous funding programs through which it provides financial assistance to rural GPs and/or their spouses.

Under the programs it administers, the entity pays the GPs and/or their spouses for particular expenses they incur if they make a claim and meet the eligibility criteria. In all cases, it is merely reimbursing the GPs and their spouses for expenses that they have already incurred as they can only make a claim after they have incurred the expenses. In some cases, all the expenses are paid and in others, only a component of the expenses is paid.

The entity provided examples of the claim forms that the GPs and their spouses use to make their claim.

All claim forms submitted require evidence/proof of expenses incurred. Original receipts are required to be attached to the claim forms. The entity assesses the eligibility before making any payment.

There are no formal agreements between the entity and the GPs and/or their spouses in relation to the payments that it makes. There are no conditions attached to the payments and no obligations imposed on the GPs or their spouses for the payments.

The GPs are not employed by the entity.

In the majority of cases, the GPs and/or their spouses are registered for GST.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

Reasons for decision

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:

· it acquires anything solely or partly for a creditable purpose

· the supply of the thing to the entity is a taxable supply

· it provides, or is liable to provide, consideration for the supply, and

· it is registered or required to be registered for GST.

To be entitled to claim input tax credits, all of the above requirements must be satisfied. One of these requirements is that the supply of the thing to the entity is a taxable supply.

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

· it makes the supply for consideration

· the supply is made in the course or furtherance of an enterprise that it carries on

· the supply is connected with Australia, and

· it is registered or required to be registered for GST.

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

In this case, the entity administers numerous programs whereby it provides financial assistance to rural GPs and/or their spouses from funding it receives. The entity reimburses the GPs and/or their spouses for expenses they incur if they make a claim and meet the eligibility criteria.

Goods and Services Tax Ruling GSTR 2000/11 provides guidance on the application of GST to grants of financial assistance.

As explained in paragraph 6 of GSTR 2000/11, one entity may provide financial assistance to another by means of direct grants, contributions, subsidies, co-payments and similar means.

Following on from this, paragraph 9 of GSTR 2000/11 provides that the GST treatment of grants depends primarily on whether the grant represents consideration that has the relevant connection with a taxable supply.

In this case, it is the GPs and/or their spouses who will be liable for GST on receipt of the payment from the entity if that payment represents consideration for a supply which is a taxable supply.

Where the GPs and/or their spouses are liable for GST in respect of the payment, the entity may be entitled to claim an input tax credit for that GST if it makes a creditable acquisition.

Therefore, in order for the entity to be able to claim an input tax credit, it is first necessary to determine if the GPs and/or their spouses are making a taxable supply in respect of the payments they receive.

To be a taxable supply, all of the requirements in section 9-5 of the GST Act must be satisfied. The first requirement to be satisfied is that there is a 'supply for consideration'.

As outlined in paragraph 14 of GSTR 2000/11, the following three questions are relevant to determining if there is a supply for consideration:

· is there a supply

· is there consideration, and

· does the necessary relationship exist between the supply and the consideration?

The term 'supply' is defined in section 9-10 of the GST Act as 'any form of supply whatsoever' and includes:

· a supply of goods

· a supply of services

· a provision of advice or information

· the creation, grant, transfer, assignment or surrender of any right, and

· and entry into, or release from an obligation:

· to do anything

· to refrain from an act, or

· to tolerate an act or situation.

However, the definition of supply excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money.

Therefore, a supply is essentially something that passes from one entity to another. The supply may be one of particular goods, services or something else that is reflected in an agreement by one party to do something for another.

This view is contained in Goods and Services Tax Ruling GSTR 2006/9 which sets out a number of propositions for characterising and analysing supplies. Of relevance to this case is proposition 5 that explains that to make a supply an entity must do something.

In the present case, there are no goods, services or anything else passing between the GPs and/or their spouses and the entity. That is, the GPs and/or their spouses do not give to or do anything for the entity to receive the payments. There are no formal agreements between the entity and the GPs and/or their spouses in relation to the payments.

All that is required is for the GPs and/or their spouses to submit the relevant claim form after the expenses have been incurred together with proof of the expenses and the original receipts. The entity will make the payment if the applicants meet the eligibility criteria.

It may be argued that the GPs and/or their spouses are making a supply of information in the claim form when they make their application for the payments. GSTR 2000/11 provides guidance on the supply of information and other peripheral things. It states:

89. Things will often be supplied by the grantee to the grantor which do not go to the purpose for which the funds were granted, but which are merely part of the mechanism of making or accounting for the grant.

90. For example, paragraph 9-10(2)(c) specifically includes a provision of advice or information in the meaning of 'supply'. However, a grant will not be consideration for such a supply unless the grantor derives some benefit from the information or the grant is made for the purpose of obtaining such information.

91. Grants are not normally made for the purpose of the grantee accounting for the expenditure of the grant. A requirement to account for the grant is merely incidental to the making of the grant. The grantor uses this information to maintain accountability over the funds disbursed, and to assist in evaluating the effectiveness of the program in meeting its objectives.

As explained in the above paragraphs, a grant will not be consideration for a supply of advice or information unless the grantor derives some benefit from the information or the grant is made for the purpose of obtaining such information. A requirement to account for the expenditure of the grant is merely incidental to the making of the grant.

GSTR 2000/11 further explains:

98. It is common for a grantee to submit an application for the grant to the grantor, and for the application to contain information which the grantor will use to determine whether or not to make a grant. The provision of information in such an application is a supply to the grantor. However, the grant will not be consideration for the supply, as the grant is not made for the purpose of receiving applications for grants. The submission of the application, together with the information required to consider it, is merely a mechanism to establish whether a grant will be made.

99. It will not matter whether the entitlement is automatic where the grantee establishes the conditions, or the grantor has some discretion over whether to approve the application.

100. This will be a common situation in the case of a reimbursement grant, being a grant made to reimburse particular expenses of the grantee. The dealing between the grantee and grantor will be a separate GST transaction to any dealings between the grantee and third parties. It is common for the grantee to make an application for such a grant after it has incurred the relevant expenses. The grant will not be consideration for the supply of information in the application.

An example of a reimbursement grant is outlined in paragraphs 108 and 109 of GSTR 2000/11. They state:

108. Vacuum Australia administers a scheme to encourage the use of vacuum cleaners to keep Australia's footpaths clean. It provides subsidies for the costs of vacuum cleaners acquired by businesses. The Agency has discretion as to whether it approves claims. Alana, who operates a greengrocery, acquires a vacuum cleaner for use in the business and makes an application for reimbursement. The application contains information about how she will use the vacuum cleaner. The grant is approved after the grantor considers the application for reimbursement.

109. The reimbursement grant is not subject to GST. There is nothing given up by Alana in exchange for the grant. The information in the application for reimbursement merely establishes Alana's entitlement to claim the reimbursement, and the grant is not consideration that is sufficiently connected with the supply of information by Alana to Vacuum Australia.

The facts in this case indicate that the payments made by the entity to the GPs and/or spouses are reimbursement grants. The entity administers various programs through which it provides financial assistance to rural GPs. The GPs and/or spouses incur particular expenses first and then when making a claim, they provide information relating to the expenditure in the claim forms. They are not giving up anything in exchange for the payment. The information they provide in the claim forms merely establishes their entitlement to claim the reimbursement.

As explained earlier, in order for the entity to be able to claim an input tax credit, one of the requirements in section 11-5 of the GST Act is that the GPs and/or their spouses are making a taxable supply in respect of the payments they receive from the entity.

The first requirement for a taxable supply in section 9-5 of the GST Act is there needs to be a supply for consideration. The payments that the GPs and/or their spouses receive from the entity are to reimburse particular expenses that they incur. The payments are not consideration for the supply of information that the GPs and/or their spouses provide in their applications as the entity does not derive any benefit from the information provided nor are the payments made for the purpose of obtaining such information. As such, they will not satisfy all the requirements of a taxable supply in section 9-5 of the GST Act.

Consequently, the requirement in section 11-5 of the GST Act that there needs to be a taxable supply for a creditable acquisition will not be satisfied in this case.

Therefore, the entity is not making a creditable acquisition when it reimburses rural GPs and/or their spouses from funding it receives, for expenses incurred by them and/or their spouses.