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Ruling

Subject: Fees and charges paid by wholesalers

Question 1:

Is the payment of fees, made up of components, by the participants to the entity consideration for a taxable supply by the entity, on which goods and service tax (GST) is payable?

Answer 1:

The payment of a component of the fee by the participants to the entity is consideration for a taxable supply, made by the entity, up to and including 30 June 2012. From 1 July 2012, the payment of that component does not constitute consideration under either paragraphs
81-15.01(1)(c) or (f) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

The payment of the other components of the fee is not consideration for any supply made by the entity to the participants. That payment relate to supplies of services made by other entities.

Question 2:

Is the entity making a creditable acquisition from the authority when it pays to the authority a component of the fees?

Answer 2:

No, the entity is not making a creditable acquisition from the authority when it pays to the authority a component of the fees. As such, the entity is not entitled to GST credits for any period.

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.

Background

Entity

The entity is a body corporate and is registered for GST.

The entity comes within the definition of an Australian government agency in section 995-1 of the Income Tax Assessment Act 1997 (ITAA).

Authority

The authority is a body corporate. The authority is an agent of the State and has the status, immunities and privileges of the State.

The authority is registered for GST and comes within the definition of an Australian government agency as defined in section 995-1 of the ITAA.

Memorandum of Understanding

The entity and the authority have entered into a Memorandum of Understanding (MOU) to establish an agreed framework for mutual cooperation and exchange of information relevant to both agencies. A copy was provided.

The entity advised that it has treated the payment of all components of the fee to it by participants as consideration for a taxable supply made by it to the participants. The entity has issued tax invoices in relation to the taxable supplies it has made and remitted GST in relation to those supplies.

The entity has treated the payment to the authority as consideration provided for a taxable supply of services made to it by the authority. The entity has issued recipient created tax invoices (RCTIs) to the authority which includes GST. The entity claimed GST credits based on the RCTIs issued. The entity has ceased claiming GST credits since July 2012.

The entity is of the understanding that an RCTI agreement was signed. However, the entity is unable to provide a copy of that agreement.

The entity has advised that the authority questioned the GST treatment of the fees paid to it by the entity and that the authority had sought a private ruling from the ATO to clarify the issue.

The entity contends that payments of fees to the authority and payments of fees to another entity operate in the same way. There is no dispute between the entity and the other entity as to the existence of a supply of services made by the other entity to the entity, nor to the GST treatment of the fee paid by the entity. The entity has issued both the authority and the other entity with RCTIs in respect of the supplies received from the respective entity. The other entity has (and continues to do so) remitted GST to the ATO in respect of its supply.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 7-1

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-15

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 11-5

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 11-20

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 81-15

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

A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) Regulations 81-10.01

A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) Regulations 81-15.01

The Income Tax Assessment Act 1997 section 995-1

Reasons for decisions

Question 1:

Legislative background

Taxable supplies

Under subsection 7-1(1) of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act), GST is payable on taxable supplies. An entity will be liable to pay the GST payable on any taxable supply it makes. Section 9-5 of the GST Act states:

9-5 Taxable supplies

You make a taxable supply if:

(a) you make the supply for *consideration;

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

(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.

(* Asterisked terms are defined in the Dictionary in section 195-1 of the GST Act)

The GST-free and input taxed provisions found in Divisions 38 and 40 of the GST Act respectively are not relevant to the supplies of services that are the subject of this Ruling.

As the entity is registered for GST and makes supplies in the course of carrying on its enterprise, of services in undertaking its functions the issue that arises under section 9-5 of the GST Act is whether there are any supplies made by the entity for which all the components of the fee is consideration.

It is our view that the fee is made up of separate fees that are defined and referred to separately and it is not one fee for services provided by one entity. As such, it is our view that the fees need to be analysed separately in order to determine their GST treatment.

Supply

A supply is broadly defined by section 9-10 of the GST Act as any form of supply whatsoever and includes:

· a supply of services

· a creation, grant, transfer, assignment or surrender of any right, or

· an entry into, or release from, an obligation to do anything to refrain from an act or to tolerate an act or situation.

Consideration

Section 195-1 of the GST Act defines consideration as any consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply or acquisition. Subsection 9-15(1) of the GST Act provides that consideration includes:

· any payment, or any act or forbearance, in connection with a supply of anything, or

· any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

The expansive definition of 'consideration' in section 9-15 of the GST Act is taken to include Australian taxes or Australian fees or charges paid to an Australian government agency in connection with or in response to or for the inducement of the supply of anything.

The payment by the participants of the fees charged by the entity will come within the definition of consideration if it is in connection with a supply of anything or is in response to or for the inducement of a supply of anything.

In Goods and Services Tax Ruling GSTR 2006/9 on supplies, the ATO explains at paragraph 108 that for a supply to be a taxable supply there must be consideration and there must be a sufficient nexus between the supply and the consideration.

Further, it is important to determine who is making the supply. Under section 9-5 of the GST Act, you make a taxable supply if you make the supply for consideration.

There is, therefore, a sufficient connection between the payment by the participants of a component of the fees and the entity's services for the payment of the fees to be consideration for those supplies.

The supplies made by each of the entities in question including the entity will be taxable supplies where the requirements of section 9-5 of the GST Act are satisfied. Under section 9-40 of the GST Act, the entity is only liable for the GST payable on any taxable supplies it makes. On the facts provided, those supplies made by the entity to participants of services for which a component of the fee is payable satisfy the requirements of a taxable supply under section 9-5 of the GST Act.

This is the case unless Division 81 of the GST Act comes into operation to preclude the fee paid by participants to the entity from constituting consideration for the supply of services to which they relate. The same concepts would apply to the fee paid by participants in relation to the authority's services and collected on the authority's behalf by the entity as it is authorised to do.

Section 9-39 of the GST Act provides special rules in relation to making taxable supplies. Item 8 in the table in section 9-39 of the GST Act provides that where there is a payment of taxes, fees and charges the special rules in Division 81 of the GST Act may apply.

Application of Division 81 of the GST Act

Division 81 of the GST Act was amended with effect from 1 July 2011 to allow entities to self assess the GST treatment of a payment of an Australian tax or an Australian fee or charge in accordance with certain principles.

Under the transitional arrangements, those Australian taxes, fees or charges that were not subject to GST under the Treasurer's Determination 2011 remain not subject to GST until 30 June 2013 and thereafter, will be assessed under Division 81 of the GST Act as amended.

Any taxes, fees or charges that are currently listed in the Treasurer's Determination that become subject to GST (in relation to a supply) under the amendments will attract GST from 1 July 2013.

The GST treatment of all new Australian taxes or Australian fees or charges that were not listed in the Treasurer's Determination will be self assessed under the changes made to Division 81 of the GST Act with effect from 1 July 2011.

Section 81-10 of the GST Act considers the effect of the payment of certain fees and charge. It states:

81-10 Effect of payment of certain fees and charges

Certain fees and charges not consideration

1. 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).

Prescribed fees and charges treated as consideration

2. However, a payment you make, or a discharging of your liability to make a payment, is treated as the provision of *consideration to the extent the payment is an *Australian fee or charge that is, or is of a kind, prescribed by the regulations.

3. For the purposes of subsection (2), the *consideration is taken to be provided to the entity to which the fee or charge is payable, for a supply that the entity makes to you.

Fees or charges paid for permission

4. This subsection 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 (however described).

5. This subsection covers a fee or charge paid to an *Australian government agency if the fee or charge relates to the agency doing any of the following:

(a) recording information;

(b) copying information;

(c) modifying information;

(d) allowing access to information;

(e) receiving information;

(f) processing information;

(g) searching for information.

An 'Australian fee or charge' is defined in section 195-1 of the GST Act as a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency.

Subsection 81-10(2) of the GST Act provides that the payment of certain fees and charges prescribed by the GST Regulations are treated as the provision of consideration for a supply. These supplies will be taxable supplies where the other requirements of section 9-5 of the GST Act are satisfied.

In contrast, section 81-15 of the GST Act provides that GST Regulations may provide that the payment of a prescribed Australian fee or charge or the discharging of a liability to make such a payment is not the provision of consideration.

Additional GST Regulations were introduced with effect from 1 July 2012 to provide greater clarity of fees and charges that are considered to be taxable or exempt from GST. The major features of the GST Regulations introduced in July 2012 include:

GST Regulations for section 81-15 of the GST Act setting out those fees and charges that do not constitute consideration (regulation 81-15.01 of the GST Regulations)

· additional GST Regulations for subsection 81-10(2) of the GST Act which sets out fees and charges that do constitute consideration (regulation 81-10-01 of the GST Regulations) including paragraph 81-10.01(g) of the GST Regulations which refers to a fee or charge for a supply of a non-regulatory nature

· 'tiebreaker' regulation 81-15.02 of the GST Regulations for fees and charges covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations, and

· extension of the 'grandfathering' arrangements for those fees and charges specified in the Treasurer's Determination and imposed before 1 July 2013.

Relevantly, paragraph 81-15.01(1)(f) of the GST Regulations refers to a fee or charge for a supply of a regulatory nature made by an Australian government agency. Paragraph 81-15.01(1)(c) of the GST Regulations refers to a fee or charge imposed on an industry to finance regulatory or other government activities connected with the industry.

The term 'regulatory nature' is not defined. The explanatory statement to the A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No.2) (ES) states:

The term 'regulatory' captures those supplies made by a government agency, where that agency is legislatively empowered to make the relevant supply and the supply is to satisfy a regulatory purpose…

There is no issue in the present case that the fees come within the definition of an Australian fee or charge imposed under an Australian law.

The entity confirmed that it, the authority and the other entity are Australian government agencies.

The entity, therefore, needs to consider the GST treatment of the supplies of services it makes being the supplies of services for which a component of the fees is consideration.

Prior to 1 July 2011

On the facts provided, unlike the fees which are specified in the Treasurer's Determination 2011 in relation to the services supplied by the authority, the component of the fees relating to the services supplied by the entity are not specifically specified in the Treasurer's Determination.

As that component of the fee is not specified in the Treasurer's Determination, it is consideration for supplies to which it relates. Further, as all of the requirements of section 9-5 of the GST Act are satisfied, the supply of services by the entity are taxable supplies on which GST is payable.

This contrasts with the GST treatment of the fees which do not constitute consideration for the supply to which they relate, because they are specified in the Treasurer's Determination 2011. Paragraph 81-15.01(1)(h) of the GST Regulations provides that fees and charges specified in the Treasurer's Determination 2011 and imposed before 1 July 2013 do not constitute consideration.

From 1 July 2011 to 30 June 2012

From 1 July 2011, the entity as an Australian government agency, was to self assess under the amendments made to Division 81 of the GST Act.

On the facts provided and in the absence of evidence to the contrary, it does not appear that the component of the fee is a fee or charge covered by either subsections 81-10(4) or (5) of the GST Act.

Accordingly, the component of the fee was consideration for the services supplied by the entity during this period. As all the requirements of a taxable supply were satisfied, the supply of a service by the entity for which that component of the fee was consideration was a taxable supply on which GST was payable.

From 1 July 2012

As discussed above, the GST Regulations for section 81-15 of the GST Act and subsection
81-10(2) of the GST Act took effect from 1 July 2012.

Based on the description of the services to which the component of the fee relates, it is a fee or charge which does not constitute consideration. This is because it is a fee or charge imposed on an industry to finance regulatory or other government activities connected with the industry under paragraph 81-15.01(1)(c) of the GST Regulations or a fee or charge for a supply of a regulatory nature under paragraph 81-15.01(1)(f) of the GST Regulations.

In this case, the supply by the entity of services from 1 July 2012 will not satisfy the requirements of a taxable supply under section 9-5 of the GST Act. As such, GST is not payable.

The same self assessment process would need to be undertaken in relation to any other Australian government agency such as the authority in relation to the payment of an Australian fee or charge to them.

Question 2:

Under section 11-20 of the GST Act, an entity is entitled to GST credits for any creditable acquisition it makes. Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:

· it acquires anything solely or partly for a creditable purpose

· the supply of the thing to the entity is a taxable supply

· the entity provides, or is liable to provide consideration for the supply, and

· it is registered or required to be registered for GST.

The issue that arises under section 11-5 of the GST Act is whether there is a supply of a thing to the entity by the authority when the entity pays a component of the fee and if so whether that thing is a taxable supply.

In GSTR 2006/9, the ATO explains at paragraph 180, that in determining whether a payment is consideration under section 9-15 of the GST Act or in determining whether there is a 'supply for consideration', regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transaction is made.

Where the arrangement involves more than two parties, the GST consequences of the arrangement turn on identifying a nexus between the supply and the consideration and to whom the supply is made.

The entity's submission in respect of a supply being made by the authority to the entity of services or of the existence of a sub-contracting relationship is not supported by the Act, the Regulations or the Memorandum of Understanding.

It is our view that there is no separate supply made by the authority to the entity for which the payment of the component of the fee made by the entity to the authority is consideration. Where there is no supply there cannot be a taxable supply by the authority to the entity or an acquisition by the entity from the authority. It follows that as all of the requirements for a creditable acquisition are not satisfied, the entity is not entitled to GST credits.