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Ruling

Subject: GST, agency and fees and charges

Question 1

Is the commission paid to Entity A, for brokering the sale and purchase of entitlements, consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Does Entity A act as agent, when they broker sales of entitlements for sellers and buyers, under Subdivision 153-A of the GST Act?

Answer

Yes.

Question 3

Does a buyer (registered for GST) make a creditable acquisition under section 11-5 of the GST Act, when they pay a commission to Entity A, for brokering the sale and purchase of entitlements?

Answer

Yes.

Question 4

Will Entity A make a creditable acquisition under section 11-5 of the GST Act, when they acquire an entitlement to be forfeited?

Answer

Yes.

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 a division of a Department. It is the Department that is registered for GST and reports GST liabilities and entitlements regarding the activities of Entity A.

Under legislation, an entitlement is transferable. The transfer must be brokered by Entity A.

The transfer must comply with the requirements prescribed by legislation and regulations.

Under the scheme, the commission is set at one third (33%) to allow one in four entitlements that are traded, to be forfeited.

The cancelled entitlements are surrendered to Entity A.

The owner of the entitlement agrees that Entity A will broker and execute the trade on their behalf.

Assumptions

The sellers and buyers that participate in the sale and purchase of entitlements are registered for GST or required to be 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 11-5,

A New Tax System (Goods and Services Tax) Act 1999 section 81-10,

A New Tax System (Goods and Services Tax) Act 1999 section 153 and

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision

Question 1

Summary

The commission paid to Entity A for brokering services for the sale and purchase of entitlements is consideration for a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

GST is payable on taxable supplies you make. Section 9-5 of the GST Act provides you make a taxable supply if you make a supply for consideration, the supply is made in the course or furtherance of an enterprise that you carry on, the supply is connected with Australia, and you are 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.

Entity A makes a supply of brokerage and contract execution services for which it charges a commission to purchasers of entitlements.

It needs to be determined if the commission is consideration for a supply under section 9-5 of the GST Act taking into account Division 81 of the GST Act.

Division 81 of the GST Act was amended from 2 July 11 so that Australian taxes, fees and charges that fall within the scope of the Division are not consideration. As a transitional measure those Australian taxes, fees and charges currently not subject to GST under the A New Tax System (Goods and Services Tax) (Exempt taxes, fees and charges) Determination 2011 (N0.1) (Treasurer's Determination) will remain not subject to GST until 1 July 2012 and thereafter will be assessed under the changes made.

The GST treatment of all new Australian taxes or Australian fees and charges that are not currently listed on the Treasurer's Determination will be self assessed under the changes made with effect from 1 July 2011. Those Australian taxes or Australian fees and charges that are not covered by the changes made and meet the requirements of section 9-5 of the GST Act will be consideration for taxable supplies.

Under the amendments, the payment of an Australian tax of a kind to which subsection 81-5(1) applies will not be treated as the provision of consideration (for a supply) and also will not attract GST. For a payment to be an Australian tax it must be a tax imposed under an Australian law.

It is clear that Entity A as part of its functions can charge the commission and that this is provided for under an Australian law, however, it does not amount to a tax. Hence, subsection 81-5(1) of the GST Act will not be satisfied.

Subsection 81-10(1) of the GST Act provides that a payment or the discharging of a liability to make a payment, is not the provision of consideration to the extent the payment is an Australian fee or charge that is of a kind covered by subsection (4) or (5).

Subsection 81-10(4) of the GST Act covers a fee or charge if the fee or charge relates to or relates to an application for the provision, retention, or amendment, under an Australian law, of a permission, exemption, authority, or licence.

Subsection 81-10(5) of the GST Act relates to fees or charges paid to an Australian government agency for copying information, modifying information, allowing access to information, receiving information, processing information and searching for information.

Section 195-1 of the GST Act defines Australian fee or charge to mean a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency.

Furthermore, section 995-1 of the Income Tax Assessment Act 1997 defines an Australian government agency to mean the Commonwealth, a State or a Territory; or an authority of the Commonwealth or of a State or a Territory.

Entity A is an Australian government agency as it is an administrative unit of a department and, therefore, the State.

In this circumstance, the commission received by Entity A is not a fee or charge that relates to the provision, retention or amendment under an Australian law of a permission, exemption, authority or licence. Neither is the commission a fee or charge provided under an Australian law for copying, modifying, accessing, receiving, processing or searching information. Hence, subsections 81-10(4) and (5) of the GST Act will not apply.

Therefore, subsection 81-10(1) of the GST Act will not be satisfied as the commission is not an Australian fee or charge that is of a kind covered by subsection (4) or (5).

Consequently, the supply of brokering for the sale and purchase of entitlements will be a taxable supply, as Entity A makes the supply for consideration, the supply is made in the course or furtherance of an enterprise that Entity A carries on, the supply is connected to Australia as it is done in Australia and Entity A is registered for GST as it is a division of a department that is registered for GST.

Question 2

Summary

Entity A acts as agent when they broker sales of entitlements for sellers and buyers.

Detailed reasoning

Many intermediaries in commercial transactions are often described as 'agents', 'distributing agents', 'selling agents', 'marketing agents', 'sole agents' or 'exclusive agents'. Depending upon the terms of the arrangements the intermediary has with its suppliers, the intermediary could be acting as a buyer and a reseller rather than as an agent.

Division 153 applies when a principal makes a relevant transaction through an agent. The word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent (paragraph 45 of Goods and Services Tax Ruling GSTR 2000/37 (GSTR 2000/37)).

Paragraph of 28 GSTR 2000/37 provides for the factors that indicate an agency relationship as follows:

In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

· any exercise of the authority that you are given to enter into legal relations with a third party;

· whether you bear any significant commercial risk;

· whether you act in your own name;

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

· whether you decide the price of things that you might sell to third parties.

Paragraph 38 of GSTR 2000/37 provides an example of an agency relationship that is similar to the situation with the brokering services that Entity A provides to sellers and buyers as follows:

An auctioneer acts for a vendor to sell goods at an auction by providing auction services to the vendor and charging a commission. The vendor is the principal and the auctioneer is the agent. The auctioneer, on behalf of the vendor, is making a supply of goods to the purchaser. The auctioneer also is making a supply of auction services to the vendor.

In this circumstance, Entity A has authority to act for the seller and buyer to broker and execute the trade of the entitlements on their behalf which means that Entity A has the authority to enter into legal relations on behalf of the seller and buyer. Entity A does not bear any significant commercial risk acting on behalf of the seller and buyer, Entity A is renumerated by a commission for their services and the price of the sale is set by the seller to the extent of the amount that would be acceptable to them. Hence, Entity A acts as an agent for the seller and buyer when brokering the sale of entitlements and Subdivision 153-A of the GST Act, will apply.

Question 3

Summary

A buyer (registered for GST) makes a creditable acquisition, when they pay a commission to Entity A, for brokering the sale and purchase of entitlements.

Detailed reasoning

You are entitled to input tax credits for your creditable acquisitions. Under section 11-5 of the GST Act you make a creditable acquisition if:

· you acquire anything 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 for GST.

Furthermore, under subsection 11-15 of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

In this circumstance, a buyer pays a commission for brokering services from Entity A for the purchase of entitlements for use in their business, the supply is taxable from Entity A, they pay the consideration as a commission for the supply and are registered or required to be registered for GST, it will be for a creditable purpose and they will be entitled to input tax credits.

The buyer can claim their input tax credit when they hold a tax invoice.

Question 4

Summary

Entity A will make a creditable acquisition, when they acquire an entitlement to be forfeited, under section 11-5 of the GST Act.

Detailed reasoning

You are entitled to input tax credits for your creditable acquisitions. Under section 11-5 of the GST Act you make a creditable acquisition if:

· you acquire anything 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 for GST.

Furthermore, under subsection 11-15 of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

Under the system a buyer pays a commission of 33% to Entity A for each entitlement purchased. Where three entitlements are sold an additional one is forfeited. Entity A pays a seller for the surrender of an entitlement using the commission they have received from the buyer on three of the entitlements sold.

In this situation, Entity A makes a creditable acquisition as acceptance of a surrender of a right of the entitlement is an acquisition that Entity A has acquired for use in their business, the supply would be taxable to Entity A, Entity A provides consideration, and is registered for GST. Entity A will be entitled to claim input tax credits provided they hold a tax invoice.