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Ruling

Subject: GST and entitlement to input tax credits

Question 1

Can you claim an input tax credit for payments made to operators under certain subsidy schemes?

Answer

Yes.

Question 2

Can you claim an input tax credit for payments transferred to suppliers under certain grant programs?

Answer

No. However, you may claim input tax credits in relation to the grant amount paid to the operator.

Question 3

Will the Commissioner exercise his discretion to treat the documentation already held as valid tax invoices under section 29-70(1B) of the GST Act?

Answer

Yes. The documentation already received is considered sufficient to substantiate the supplies for which you are entitled to an input tax credit.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You make payments under a number of schemes considered in this ruling.

Subsidy schemes

You provide a discounted service for people with a permanent disability.

Members of the scheme are issued with a membership card and vouchers allowing them access the services at a discount.

The member presents their membership card at the start of the service, and provides the operator with a voucher in order to obtain the discount.

Certain conditions are imposed on the operators. One of the conditions provides that the operators must accept the vouchers and accept the discounted payment from the members.

The operator or their representative presents the voucher to your cashing agent who makes payment of the subsidised amount on your behalf. You then reimburse the cashing agent upon the presentation of appropriate documentation.

Grants

You also offer a grant to operators who elect to use equipment that can be modified.

To be eligible, the equipment must meet a number of requirements you stipulate.

An operator wishing to apply for the grant must complete an application form and forward it to you.

If you accept the application, a letter is forwarded to the applicant and their chosen equipment supplier notifying them of the acceptance.

Once the equipment supplier and the purchaser complete the transaction, the purchaser pays for the equipment less the grant amount. The equipment supplier then invoices you directly for the grant amount.

You also provide a grant amount to operators towards the costs of other modifications.

Potential applicants obtain a quote from an entity for the modification. After receiving the written quote, the operator is required to complete an application form.

Once the installation is completed the operator pays for the supply, less the grant amount which you provide directly to the supplier.

Relevant legislative provisions

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

Division 9

Division 11

Division 144

Division 195

Subdivision 29-C

Reasons for decision

Question 1

Summary

You are the recipient of supplies in relation to the subsidy schemes (the schemes). You are entitled to claim input tax credits for amounts paid to suppliers under these schemes.

Detailed reasoning

To determine whether you are entitled to an input tax credit in relation to these subsidies it is necessary to consider whether you are the recipient of a supply when you make a payment to an operator under the schemes.

Goods and Services Tax Ruling 2006/9 (GSTR 2006/9) examines the meaning of 'supply' in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The meaning of 'acquisition' in section 11-10 is the corollary of the meaning of supply in section 9-10. An acquisition can be of goods, services or a right. To make an acquisition you have to be the 'recipient' of the supply of the thing you are acquiring. Although the term 'recipient' does not appear in Division 11, it is defined in section 195-1 to mean the entity to which the supply was made.

If you make an acquisition and the other requirements of section 11-5 of the GST Act are met, then the acquisition is a creditable acquisition. However, if you are not the recipient of the supply you will not have made a creditable acquisition, even if you provide consideration for the supply (paragraph 56, GSTR 2006/9).

If a supply is made to you under this scheme it will be a taxable supply as all of the requirements under section 9-5 of the GST act are met (the supply is for consideration, the supply is in the course of their enterprise, it is connected with Australia and they are registered).

In this case, a supply is made by the operator to the eligible member for the reduced amount of the fare. It is necessary to consider whether a further supply is made to you, with the subsidy amount paid by you being consideration for this supply. If no supply is made to you in return for the payment, you only make a third party payment and the payment is not made for any acquisition by you.

As stated in paragraph 221B of GSTR 2006/9, the Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer under a tripartite arrangement that involves the supplier providing a service or good to the customer and where there is no binding obligation between the payer and the supplier to provide the services or goods to the customer:

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 (i.e. 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.

Ultimately, it is a question of fact and degree whether a supply to the payer can be identified (and for which the payment is consideration). The factors listed at paragraph 221B of this Ruling provide a guide, but are not conclusive or prescriptive. It is conceivable that despite all of the listed factors being present, there may be some other relevant factor that points to the payment not being consideration for a supply to the payer. Conversely, if one of the listed factors is not fully met, this does not necessarily preclude identifying the payment as being consideration for a supply to the payer (paragraph 221G, GSTR 2006/9).

Pre existing framework

We consider that there is a framework in place that sets out the terms and conditions governing the parties (you and the operator) and requires those entities to act in a particular manner with respect to the supplies provided to the third party.

Under the scheme framework the operators must accept the voucher and accept payment from the scheme member being the difference between the total fare and the subsidised amount. The operators understand that they must collect the discounted amount from the eligible member, and that they will then receive the subsidy payments from you.

Therefore there is an administrative framework in place governing the operation of the scheme. Once the membership card has been presented the administrative obligations of the scheme must be carried out by both the operator and you. These obligations require that operators act in a particular manner in respect of supplies made to members, and specifically the framework requires that the operator charge a lower amount to members.

Mechanism for identifying eligible recipients

Members of the schemes are issued with a membership card and vouchers that allow them access to services at discount. Members must present their membership card at the commencement of the service, and surrender a voucher (or vouchers) to the operator as part-payment at the end of the service.

Presentation of the membership card and vouchers to the operator prior to the supply of services authorises these services as a supply under the schemes. The operator obtains advance authorisation in the form of the membership card before providing the service. The card itself is authorisation from you that the member is entitled to benefits under the schemes.

Supplier knows that if the supply is made to the third party that the agency will pay

The operator knows that where the procedures are followed, you will make the payment to them when the supply is made under the arrangement. The supplier (the operator) accepts that they receive the payment for the supply of the services from two payers, the customer and you. There are established arrangements for obtaining the amounts from you, via the cashing agent.

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

Accepting the membership card and vouchers means that the supplier is acting in accordance with the pre-existing arrangement, and has provided the relevant services. In these circumstances the supply is in accordance with the agreement arranged between you and the industry.

Where the requirements under the arrangement are followed, the operator makes supplies of services to the customers and to you. As well as the supply to the customer of services there is another supply to you, being the service to the member. This is for consideration, being the subsidy amount.

This supply to you forms part of your objectives of developing and delivering sustainable programs, including assistance for people in certain situation. It is therefore in the course of your enterprise.

Not an arrangement to pay on behalf of the third party for a liability already owed by the third party.

When the membership card is presented the supply becomes a supply of services under the schemes and you assume liability to make payments under the schemes. You owe the amount of the subsidy to the operator under the schemes in your own right.

The arrangement is not an arrangement for you to pay the member's liability. Only the reduced amount is the liability of the customer. Rather, under the arrangement you are liable in your own right for the subsidised component of the service.

For the avoidance of doubt, if the subsidy can be claimed retrospectively by the member we do not consider that the operator has made a supply to you in those circumstances.

Conclusion

In considering the above factors in combination, we accept that a supply has been made to you as well as to the member.

The supplies by the operator are taxable supplies as they have provided a supply for consideration in the course of their enterprise, the supply is connected with Australia and they are registered for GST (section 9-5 GST Act).

Under section 11-5 of the GST Act 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 it is registered or required to be registered.

You have made creditable acquisitions as you have acquired the services in carrying out your enterprise and they are not in relation to making supplies that are input taxed or private or domestic (section 11-15 GST Act). You have acquired the service as part of your enterprise. The supply to you is a taxable supply in Australia, you have provided consideration and you are registered for GST. This meets all the requirements of section 11-5 of the GST Act.

Therefore, you are entitled to input tax credits.

Question 2

Summary

Using the framework and reasoning discussed above, it is considered that there is not a supply made to you by the suppliers to the operator in respect of the grant amounts. The supply in those instances is made and provided to the operator.

However, we consider that the operator makes a supply to you in exchange for the grant amount.

Detailed reasoning

In these circumstances we consider that you do not enter into a binding obligation with the supplier in relation to the supply. The operator obtains the supply from the suppliers. You merely agree to pay on their behalf once the supply has been made.

Where there is no binding obligation, there may still be a supply where the factors considered above (from paragraph 221B of GSTR 2006/9) indicate that a supply is being made to you as well as to the operator.

In these circumstances we consider that there is no pre-existing framework between you and the supplier. You do not engage them in any way in advance to provide services to particular people. There is nothing to identify supplies to these customers as any different to any other customer to whom they provide services. They are not aware that they have any obligations to you, and we do not consider that there is a framework in place that means they have any obligations to you.

The supplier does not have a pre-existing mechanism for determining that the operators may be entitled to any special benefits, or that you are under an obligation to pay the supplier if the supplier provides the supply to the third party. It is only once the operator's initial entitlement to the grant has been confirmed, after they have already arranged for the supply, that you make the supplier aware that you will pay on behalf of the operator.

We consider that the grant is an entitlement of the operator in their own right. However, for administrative efficiency this entitlement is assigned to the supplier on their behalf. Therefore, this is an arrangement to pay on behalf of the operator for a liability already owed by the operator.

This is highlighted in the information for applicants for the modification grant, which provides that failure on the part of the operator to supply all the necessary documents (including an inspection certificate) will result in the grant being withheld from supplier, meaning that the operator may be liable to pay the full costs of modifying their equipment. This indicates that you do not assume responsibility to the suppliers in your own right for the supply but rather you agree to assign the grant when all the requirements of the grant are met.

Therefore the factors that may point to a supply being made to a payer (you) where a supply is provided to a third party are not present in your case. Rather, a single supply is made and provided to the operator.

As you are not the recipient of a supply by the suppliers you have not made a creditable acquisition in relation to that supply, even though you provide consideration for the supply (paragraph 56, GSTR 2006/9). Rather, you are considered to be a third party payer in relation to the supply made to the operator. It is the recipient of the supply, being the operator, who is entitled to the full amount of input tax credits in relation to this supply (where all the other requirements for a creditable acquisition are met).

However, we consider that when you provide funds to the operator, this is in exchange for the operator's entry into an obligation to obtain the relevant modification services. The entry into an obligation is a supply. The financial assistance that you provide by way of the grant is consideration for that supply. A payment has a sufficient nexus with the supply of the entry into the obligation where the payee is obligated to do or not do something, and taking into account the terms of the agreement and the surrounding circumstances, it is the obligation for which the financial assistance payment is made (see paragraph 24 GSTR 2011/D4).

In your circumstances you do not merely expect or anticipate that the operator will do something with, or for, the financial assistance payment. All of the documentation on the schemes requires that you be satisfied that the relevant services have been obtained by the grantee before you will forward the grant amount to their suppliers on the grantee's behalf. Therefore the grantees enter into an obligation for which the payment is consideration. The financial assistance payment has a sufficient nexus with the obligation, and therefore the payment is consideration for the supply of the obligation.

In these circumstances the operator therefore makes a taxable supply in return for the grant amount (consideration), and you make a corresponding creditable acquisition. You are entitled to input tax credits in relation to this transaction, and the operator is liable for GST.

The issue of tax invoices in relation to these transactions is considered in Question 3.

As discussed above, only the operator is entitled to the input tax credits on their creditable acquisition of the goods or services from the suppliers. This includes the amount of the operator's grant that you pay directly to their supplier as consideration on their behalf. In other words, the grant to the operator is paid to the suppliers as consideration for the suppliers supply to the operator.

Question 3

Will the Commissioner exercise his discretion to treat the invoice and associated transaction listing required by the cashing agent as a valid tax invoice under section 29-70(1B) of the GST Act?

Summary

The documentation already received is considered sufficient to substantiate those supplies for which you are entitled to an input tax credit.

Detailed reasoning

Under section 29-10 of the GST Act, you are required to hold a valid tax invoice to claim input tax credits relating to its creditable acquisitions.

The subsidy schemes

You have advised that a cashing agent is used to administer the subsidy schemes. The agent reconciles the vouchers presented under the scheme, collates data and issues an invoice to you for the amount payable, including a detailed schedule listing for each individual operator. Neither you nor the cashing agent receives tax invoices from the operators in relation to each service, but the cashing agent does receive the original completed voucher.

The value of the individual supplies by the operators to you under the schemes are less than $75. Under section 29-80 of the GST Act, a recipient is not required to hold a tax invoice for a creditable acquisition that relates to a taxable supply where the value is $75 or less. Therefore, you are not required to hold a tax invoice to claim an input tax credit on the payment.

Although a tax invoice is not required to claim an input tax credit, you must still be able to show records to substantiate the input tax credit claim. It is considered that the completed vouchers received from the operators for each individual supply are sufficient to substantiate the input tax credit claim in these circumstances.

A third party (a performance monitoring company) compiles the jobs and enters them into a system. You verify this data before making payments to the cashing agent. All operators (or their representatives) must sign a statutory declaration confirming the details of the services to which the subsidy payment relates.

It is considered that the payment procedures, records collated by the performance monitoring company and the statutory declaration together are sufficient to substantiate an input tax credits claim by you.

The grants

You have requested that suppliers that make a supply to an operator invoice you directly for the payment of the grant amount. However, for the reasons described above we do not consider that there is a supply between the suppliers and you. Rather, we consider that there is a supply of the same amount from the operator to you.

As the amounts are the same for all parties the status quo should be maintained in relation to past transactions. We therefore will exercise the discretion in section 29-70(1B) of the GST Act to treat the document from the suppliers as being reflective of the supply from the operator to you in relation to the grant amount. Therefore, where you have not already claimed amounts you may claim the input tax credits in relation to those amounts based on the invoices you have received from the suppliers.

In future, it will be necessary for you to receive tax invoices from the operators in relation to their supply to you. The operators should receive the only tax invoice from the suppliers, and claim the input tax credits on the total amount.