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Subject: GST and the payment to your state or local association

Question

Are you entitled to claim input tax credits (GST credits) for the payments you make to associations?

Answer

You are only entitled to claim GST credits where the associations are registered for goods and services tax (GST).

Relevant facts and circumstances

· You are registered for GST.

· You are a parent body for a particular activity.

· All your membership fees are collected from members and paid to you. Part of this money is then paid by you to the associations.

· Some of the associations are not all registered for GST.

· There are written agreements between yourself and the associations in relation to your payments made to them.

· The terms of the agreements require that the associations perform certain tasks for the payments.

· The agreements also allow for the repayment of the money if the tasks are not performed.

Relevant legislative provisions

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

Section 9-5

Section 9-10

Section 9-15

Section 9-25

Section 11-5

Section 11-15

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 you are entitled to a GST credit for any creditable acquisition you make.

The definition of a creditable acquisition is provided in section 11-5 of the GST Act and requires that the following four criteria must be met for your acquisition to be treated as creditable:

(a) you acquire anything solely or partly for a creditable purpose

(b) the supply of the thing to you is a taxable supply

(c) you provide, or are liable to provide, consideration for the supply, and

(d) you are registered or required to be registered for GST.

Creditable purpose and taxable supply

The above legislative provision introduces the terms creditable purpose and taxable supply. Creditable purpose is defined in section 11-15 of the GST Act to include those acquisitions used in carrying on your enterprise. Taxable supply is defined in section 9-5 of the GST Act and requires that the following four criteria be met for a supply to be treated as taxable:

(a) the supply is made for consideration

(b) the entity making the supply makes it in the course or furtherance of its enterprise

(c) the supply is connected with Australia, and

(d) the entity making the supply is registered (or is required to be registered) for GST.

Note that a supply is not taxable if it is input taxed or GST-free. However in your case, if there is an identifiable supply made by the state or local association, it could not be treated as being input taxed or GST-free under the GST Act or any other Act.

Where the association is not registered for GST

We only have to consider criterion (b) of section 11-5 of the GST Act. Where an association is not registered for GST, they cannot be making a taxable supply to you under the criteria of section 9-5 of the GST Act. Consequently, you are not making a payment for a creditable acquisition under section 11-5 of the GST Act and therefore, you are not entitled to claim a GST credit on money paid to the unregistered body.

Where the association is registered for GST

In this situation, it becomes necessary to consider all the criteria of sections 9-5, 11-5 and 11-15 of the GST Act to determine if a creditable acquisition has been made. The first thing that must be considered is section 9-5 of the GST Act and whether the association has made a supply and if they have received consideration for that supply.

Supply and consideration

The term supply is defined in section 9-10 of the GST Act as any form of supply whatsoever. A supply includes amongst other things an entry into an obligation to do anything.

Note that for there to be a supply of an obligation, the performance of the obligation must be binding on the parties. Where there is only a mere expectation among the parties that the payee will do something for the payment does not establish a supply to the payer for which the payment is consideration. Consequently, where there is no agreement between the parties that does not bind the parties in some way, would not be sufficient to establish a supply of an obligation. Examples of such agreements could include written contracts and purchaser-provider agreements.

Consideration is defined in section 9-15 of the GST Act as including any payment, act or forbearance in connection with, in response to, or for the inducement of a supply of anything.

Given the definitions of supply and consideration, it is not enough to simply identify that a supply and a payment exists. The two must also be linked to each other, that is, the payment is something that the supplier receives for making the supply.

In your case, it is documented in the written agreements you have with the associations that these bodies are entering into an obligation with you to do certain tasks. Therefore, it is clear that the associations are making a supply as per section 9-10 of the GST Act.

The agreements also make it clear that the payment is being made as a result of the association carrying out the specific tasks as detailed in the agreements. There is also more than an expectation that the associations will carry out these specific tasks with the agreements allowing for the repayment of money if the specific tasks are not carried out.

Given this, a payment made to an association is consideration for that body to make a supply to you in the form of an obligation, that obligation being the performance of the specific tasks as listed in the agreements.

The other criteria

The performance of the specific tasks by a GST registered association is in the course of its enterprise and this supply is connected with Australia as it is made in Australia (section 9-25 of the GST Act). Hence, the association is making a taxable supply to you under section 9-5 of the GST Act.

Further to this, the performance of the specific tasks will allow you to carry on your enterprise and hence, the payment you make to a body is for a creditable purpose under section 11-15 of the GST Act.

Given this, you satisfy the requirements of section 11-5 of the GST Act and would be entitled to claim a GST credit.