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Edited version of your private ruling
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Ruling
Subject: GST and supplies
Question 1
Does the supply from Entity A to Entity C constitute a 'supply' for GST purposes under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No, the supply from Entity A to Entity C does not constitute a 'supply' for GST purposes under the GST Act. As Entity A has contracted with Entity B to provide the supply to Entity C the supply is between Entity A and Entity B.
Question 2
If a 'supply' is deemed to exist, will the supply be classified as a taxable supply?
Answer
Please refer to question 1.
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.
Entity A is Government Corporation. Entity B is a group of entities.
As part of that arrangement, Entity A agreed to provide supplies to Entity C that where made from Entity B.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.
Reasons for decision
Question 1
Summary
The supply from Entity A to Entity C does not constitute a 'supply' for GST purposes under the GST Act. The supply is from Entity A to Entity B for the provision of the supply.
Detailed reasoning
Entity A is liable for GST on any taxable supply that it makes.
Under section 9-5 of the GST Act it provides that 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 the entity carries on,
· the supply is connected with Australia, and
· the entity 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.
For Entity A to make a taxable supply there must first be a 'supply' made by them.
A supply is defined in section 9-10 of the GST Act as any form of supply whatsoever, without limiting but including a supply of goods, a supply of services, the provision of advice or information, a grant assignment or surrender of real property, a creation grant, transfer, assignment or surrender of any right, a financial supply, an entry into, or release from an obligation to do anything, to refrain from an act or to tolerate an act or situation, or any combination of these. The term refers to things passing from one party to another.
Goods and Services Tax Ruling GSTR 2006/9 explains the meaning of the term 'supply' in the GST Act. As you have stated, this ruling identifies 16 propositions and that under proposition 11 the agreement is the logical starting point when working out the entity making the supply and the recipient of the supply.
As such, examining the agreement of other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.
Proposition 13 in GSTR 2006/9 provides that where Entity A has an agreement with Entity B for B to provide a supply to Entity C, there is a 'supply' made by Entity B to Entity A (contractual flow) that Entity B 'provides' to Entity C (actual flow).
As stated in paragraph 132 of GSTR 2006/9 'provide' is used to contrast with 'made' - it distinguishes between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).
In this circumstance, where Entity A provides electricity by transmitting it to Entity C, this is the actual flow of the supply, and Entity A does so under contract with Entity B in that they make the supply to them, this being the contractual flow.
As such, there is no supply being made from Entity A to Entity C.
Question 2
As previously mentioned, the provision of the supply by Entity A to Entity C under contract with Entity B is not a supply from Entity A to Entity C but a supply from Entity B to Entity C. Entity A receives payment from Entity B. This supply would be a taxable as all the conditions of section 9-5 of the GST Act would be satisfied.