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Ruling

Subject: GST implications on of payments to directors nominated by appointing bodies.

Question 1

Are there any goods and services tax (GST) obligations in the difference scenarios (scenarios B, C and D) where the payments are made to an appointing body for the services provided by their nominee? Specifically, are those bodies making a taxable supply to you?

Answer

The appointing bodies are making taxable supplies to you in relation to services by their nominee and are liable for GST on those services.

You are not entitled to any input credit on the acquisition of those services.

Question 2

If GST is applicable, are you able to issue Recipient Created Tax Invoices (RCTI) to the organisations that are receiving the payment?

Answer

Yes

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.

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

Your board of directors is formed with a requirement for representation of appointing bodies A and B.

The appointing bodies regard the appointment of their employees to your board as holding the appointment in the course of their employment with them. When the directors receive payments from you they are required to pass it on to their employers.

Payments are made for the services of each board member comprising a regular fortnightly fee plus a sitting fee for the meetings attended (Director's fees).

A part of the payments to A are made to C under an agreement between A and C.

A part of the payments to B are made to D under an agreement between B and D.

There are 4 main payment scenarios:

A. The Directors' fees are paid directly to the board member. No ruling is sought on this scenario.

B. A part of the payments to A are made to C under an agreement between A and C.

In payment scenario B the director is A's employee and the appointment is in the course of their employment with A. There is a requirement for the employee to direct the payment to the employer.

A part of the payment is made to A, with the remaining salary sacrificed under a written agreement to their nominated superannuation fund. The sitting fee is paid in full to the appointing bodies. In payment scenario C the director is A's employee with the payment requirements of scenario B for A.

The Director's fees for B employee are paid back to either B or D depending upon their employment arrangements. In scenario D the current director is B's employee and also has the same payments requirements as scenario B.

In response to a further information request you have provided that:

Your annual turnover is less than $20 million if Input tax supplies are not included and is more than $ 20 millions when input tax supplies are included in the calculation.

Where the supplies of the services from the directors nominated by the appointing bodies are taxable supplies, you believe that you are acquiring those services to make input taxed supplies.

You do not believe the services provided by the directors would be eligible for reduced input tax supplies under Division 70 of the GST Act.

Relevant legislative provisions

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

Sections 9-5, 9-10, 9-15, 9-20, 9-25

Sections 11-5, 11-15

Subsection 29-70(3)

Division 70

Regulation 70.05.02

A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoices Determinations

Taxation Administration Act 1953(TAA 1953)

Section 12-40 of Schedule 1 to the TAA 1953

Superannuation Guarantee (Administration) Act 1992

Section 12

Reasons for decision

Detailed reasoning

For a recipient of a supply the GST implications will arise when a recipient acquires a thing for creditable purposes in accordance with paragraph 7-1(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Under this paragraph, entitlement arises for a creditable acquisition. The term 'creditable acquisition' is defined in section 11-5 of the GST Act as follows:

You make a creditable acquisition if:

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

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

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

(d) you are *registered, or *required to be registered.

Therefore all of the following must be met for an acquisition to become a creditable acquisition:

· There must be an acquisition for GST purposes

· The thing you acquired is a creditable acquisition

· The thing supplied to you is a taxable supply

· You provide consideration provided for the acquisition, and

· You are registered for GST.

It is considered that:

· The directors are appointed to your board as a result of their employment with their employer. The director is acting in their capacity as an employee of another entity in accepting and engaging in the appointment.

· The appointment of the director to the board is considered to be another service provided by their employer and an extension of the regular business activities of their employer.

· The payments made do not constitute the remuneration of the individual appointees as the payments are more akin to a payment made by you to their employer for services provided to you rather than remuneration.

Acquisition

The term 'acquisition' is defined in section 9-10 of the GST Act to include an acquisition of services.

As discussed above, you have acquired services from the appointing bodies that appoint their staff to the board of directors.

Taxable Supply

Section 9-5 of the GST Act sets out four criteria that must be met for a supply to be a taxable supply. This section states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

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

Note: The asterisks denote a defined term in section 195-1 of the GST Act

Consideration

The payment to the employer of the director is the consideration of services provided by the appointing bodies through their staff to you.

Supplier's enterprise

As discussed above that the appointment of the director to the board is considered to be another service provided by their employer and an extension of the regular business activities of the appointing bodies. Therefore, the supply of services to you by the appointing bodies is made in the course of carrying on their enterprise.

Connected with Australia

The services from the appointing bodies are connected with Australia because the services are provided in Australia.

GST registration

The employer/union is registered for GST.

GST-free or input taxed

The services from the appointing bodies to you are not GST-free or input taxed under the GST Act or any other Acts

Therefore, the supply of services to you by the appointing bodies (through their employees appointed to the board of directors) is subject to GST.

Under section 9-40 of the GST Act, the individual employer/union is liable for GST payable on any taxable supplies that it makes.

Under scenario B, although a part of the payments are made to the payment to C, the individual body who appoints a director to the board is the entity that is liable for the total amount.

It is noted that C is not a party to the payment arrangement in relation to the appointment of a director to the board. It is a separate arrangement between A and C.

In scenario C. a part of payments are made to C the remaining salary sacrificed under a written agreement to their nominated superannuation fund. Instead of paying the remaining of the payments of the director's fee to A, you follow A's instruction to pay that amount of director's fee to a third party. Similar to the reasoning above, A that appoints the director is liable for GST on the total amount.

In scenario D the Director's fees are paid B or D depending upon employment arrangement similar to scenario B. As discussed above, the B is liable for GST on the service they provide to you (through the appointment of their staff to the board). D is not a party to the appointment of the director (B is). You were instructed to forward a payment to D following an arrangement between B and D.

Creditable Purposes

Meaning of creditable purpose

1. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

2. However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.

3. An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be input taxed to the extent that the supply is made through an enterprise, or a part of an enterprise, that you carry on outside Australia.

4. An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be input taxed if:

(a) the only reason it would (apart from this subsection) be so treated is because it relates to making financial supplies; and

(b) you do not exceed the financial acquisitions threshold.

5. An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be input taxed to the extent that:

(a) the acquisition relates to making a financial supply consisting of a borrowing (other than through a deposit account you make available); and

(b) you do not exceed the financial acquisitions threshold.

Acquired in carrying on an enterprise

Under the GST Act, your activities are considered to be made in carrying on an enterprise. Therefore, the acquisition of services by the nominee directors is made in carrying on your enterprise.

Making supplies that are input taxed

A review of your Business activities statements found that you do not make taxable or GST-free supplies, only financial supplies that are classified as input taxed for GST purposes. This is confirmed in your response to our further information request that you are acquiring the services to make input taxed supplies.

You have also provided that you are not eligible for a reduced input tax credit in relation to the acquisition of those services.

It is considered that you have not acquired those services for a creditable purpose. It follows that you are ineligible for an input tax credit for the acquisition of those services.

Question 2

Summary

You are able to issue RCTI to the organisations that are receiving the payments because your circumstances meet the requirements under paragraph 29-70(3)(c) of the GST Act.

Detailed reasoning

Under subsection 29-70(3) of the GST Act, the Commissioner has determined that three classes of tax invoices can be issued by the recipient of a taxable supply. These classes are:

(a) tax invoices for taxable supplies of agricultural products made to registered recipients who:

(i) satisfy the requirements for issuing RCTIs, and

(ii) determine the value of the agricultural products (and any by-products) subsequent to, and dependent upon, quantitative or qualitative analysis of the supply being undertaken

(b) tax invoices for taxable supplies made to registered government related entities that satisfy the requirements for issuing RCTIs; and

(c) tax invoices for taxable supplies made to registered recipients that satisfy the requirements for issuing RCTIs and that:

(i) have a GST turnover (including input taxed supplies) of at least $20 million annually; or

(ii) are members of a group of companies, partnerships or trusts, or a joint venture operator, in which one or more other members of that group or participants in that joint venture have such a GST turnover.

Your GST turnover is less than $20 millions calculated under paragraphs 188-15(1)(a) and 188-20(1)(a). However for the purposes of the eligibility to issue RCTI, your GST turnover would meet the $20million GST turnover threshold as under subparagraph 29-70(3)(c)(i) of the GST Act input tax supplies are also included in the calculation of GST turnover for RCTI purposes.

Therefore you can issue a RCTI for the payments. Tax invoices that come within any of these three classes can be issued by recipients without notifying or applying to the Commissioner.

Conditions

Tax invoices that come within any of these three classes can be issued by recipients without notifying or applying to the Commissioner.

However, the eligibility to issue RCTI is also subject the conditions stated under clause 4 of the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient created tax invoices Determination (No 1) 2000. Clause 4 of the Determination states:

Requirements that must be satisfied by a recipient of a taxable supply

4. A recipient must satisfy the following requirements:

(a) the recipient must be registered for GST;

(b) the recipient must set out in the tax invoice the ABN of the supplier;

(c) the recipient must issue the original or a copy of the tax invoice to the supplier within 28 days of making, or determining, the value of a taxable supply and must retain the original or the copy;

(d) the recipient must issue the original or a copy of an adjustment note to the supplier within 28 days of the adjustment and must retain the original or the copy;

(e) the recipient must reasonably comply with its obligations under the taxation laws;

(f) the recipient must issue the tax invoice pursuant to a written agreement that the recipient has with the supplier which specifies the supplies to which it relates and contains the following terms:

(i) the recipient may issue tax invoices in respect of the specified supplies;

(ii) the supplier will not issue tax invoices in respect of those supplies;

(iii) the supplier acknowledges that it is registered when it enters the agreement and that it will notify the recipient if it ceases to be registered;

(iv) the recipient acknowledges that it is registered when it enters into the agreement and that it will notify the supplier if it ceases to be registered;

(g) the recipient must not issue a document that would otherwise be a recipient created tax invoice, on or after the date when the recipient or the supplier has failed to comply with any of the requirements of this determination.

What information must an RCTI contain

An RCTI must contain all the information required for a tax invoice by subsections 29-70(1) and (if applicable) 54-50 and regulation 29-70.02. The words 'recipient created tax invoice' and the ABN of the supplier and the recipient must also be prominently stated