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Ruling

Subject: GST and appropriations

Question:

Is the payment covered by an appropriation under an Australian law in accordance with subparagraph 9-17(3)(b)(i) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer:

Yes, the payment is covered by an appropriation under an Australian law in accordance with subparagraph 9-17(3)(b)(i) of the GST Act.

Relevant facts and circumstances

You are a government entity which is registered for GST.

You entered into a Memorandum of Understanding (MOU) with another government entity.

Under the MOU, the other government entity will provide funding to you to undertake a project.

The MOU outlines the specific requirements of the project.

The funding payment is not made under any National Health Reform Agreement. Instead, the other government entity has advised you, in writing that the funding provided to you for the project is authorised under appropriation bill X.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-15(3)(c)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-17

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-17(3)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-17(3)(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-17(3)(b)

A New Tax System (Goods and Services Tax) Act 1999 Subparagraph 9-17(3)(b)(i)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-17(3)(c)

Reasons for decision

Summary

The facts show that the payment by the other government entity to you for the project is authorised under appropriation bill X.

Therefore, as the authorisation for the payment is by way of a statute of the Australian Government, the payment is covered by an appropriation under an Australian law in accordance with subparagraph 9-17(3)(b)(i) of the GST Act.

Detailed reasoning

With effect from 1 July 2012, Schedule 2 to the Tax and Superannuation Laws Amendment (2012 Measures No.1) Bill 2012 (the Bill) amended the GST Act to restore the policy intent that the non-commercial activities of government related entities are not subject to GST. This is achieved by treating payments which meet certain criteria as not being the provision of consideration.

Prior to the amendments, paragraph 9-15(3)(c) of the GST Act provided that a payment made by one government entity to another was not treated as consideration if it was 'specifically covered' by an appropriation.

However, following the decision in TT-Line Company Pty Ltd v Commissioner of Taxation [2009] FCAFC 178, it was held that a payment did not satisfy the 'specifically covered' requirement in paragraph 9-15(3)(c) of the GST Act if the terms of the appropriation allowed the services to be supplied by either a government related entity or a non-government related entity. In addition, the Court held that the exclusion in paragraph 9-15(3)(c) of the GST Act is confined to payments pursuant to an appropriation, the terms of which specify the government related entity by name or generically to those entities having that status.

Under the amendments in Schedule 2 to the Bill, subsection 9-15(3) of the GST Act was repealed and replaced with section 9-17 of the GST Act.

Of relevance to this case is subsection 9-17(3) of the GST Act which states:

(3) A payment is not the provision of consideration if:

(a) the payment is made by a *government related entity to another

government related entity for making a supply; and

(b) the payment is:

(i) covered by an appropriation under an *Australian law; or

(ii) made under the National Health Reform Agreement agreed to by

the Council of Australian Governments on 2 August 2011, as

amended from time to time; or

(iii) made under another agreement entered into to implement the

National Health Reform Agreement; and

(c) the payment is calculated on the basis that the sum of:

(i) the payment (including the amounts of any other such payments)

relating to the supply; and

(ii) anything (including any payment for any act or forbearance) that

the other government related entity receives from another entity in

connection with, or in response to, or for the inducement of, the

supply, or for any other related supply;

does not exceed the supplier's anticipated or actual costs of making those supplies.

In relation to the first requirement of subsection 9-17(3) of the GST Act, it is clear that both you and the other government entity would constitute government related entities and therefore, the payment by the other government entity to you would be a payment made by one government related entity to another government related entity. Thus, paragraph 9-17(3)(a) of the GST Act is satisfied.

In relation to the second requirement in subsection 9-17(3) of the GST Act, the facts show that the payment was not made under any National Health Reform Agreement. Therefore, it is necessary to determine if the payment is covered by an appropriation under an Australian law in accordance with subparagraph 9-17(3)(b)(i) of the GST Act.

Guidance on the requirements of subparagraph 9-17(3)(b)(i) of the GST Act is contained in the Explanatory Memorandum to the Bill (EM). In particular, clause 2.17 of the EM provides that the requirement in subparagraph 9-17(3)(b)(i) of the GST Act is met if the payment is made pursuant to an appropriation.

In addition, clause 2.18 of the EM highlights the fact that the payment no longer needs to be 'specifically covered' by an appropriation under an Australian law as the term 'specifically' has been excluded from the amendments.

Following on from this, clauses 2.19 and 2.20 of the EM state:

2.19 The government related entity supplier does not need to be specified under the terms of the appropriation, either by name, or as part of a class of government related entities, for subparagraph 9-17(3)(b)(i) to be satisfied. Subparagraph 9-17(3)(b)(i) is satisfied where the terms of the appropriation state the purpose for which the funds are appropriated, rather than the entities to which the funds can be paid. A payment is therefore covered by an appropriation for the purposes of subparagraph 9-17(3)(b)(i), if the terms of the appropriation authorise the payment to be made.

2.20 Furthermore, the exception can apply where the terms of the appropriation under which the payment is made do not confine the payment to government related entities, either by name or to a class of government related entities. Accordingly, a payment is covered by an appropriation where the terms of the appropriation authorise payments to be made to both government related entities and non-government related entities.

This means that to satisfy the requirement in subparagraph 9-17(3)(b)(i) of the GST Act the payment only needs to be 'covered' by an appropriation under an Australian law rather than being 'specifically covered'.

An 'appropriation under an Australian law' means an authorisation to spend money, by a statute of the Commonwealth, a state or a territory, or by delegation legislation. In other words, a payment is covered by an appropriation under an Australian law if it is authorised to be paid under that law. However, an appropriation is not in itself a payment; it is the legislative authorisation for making a payment.

In this case, the other government entity has advised that the funding provided to you for the project is authorised under appropriation bill X.

Appropriation bill X is a statute of the Australian Government which authorises the payment of funds out of the Consolidated Revenue Fund.

Therefore, as the authorisation for the payment by the other government entity to you is by way of a statute of the Australian Government, the payment is 'covered' by an appropriation under an Australian law in accordance with subparagraph 9-17(3)(b)(i) of the GST Act.

Consequently, as the requirements of paragraphs 9-17(3)(a) and (b) of the GST Act are satisfied, the payment will not be consideration for a supply and thus, not be subject to GST if the payment also satisfies the non-commercial test in paragraph 9-17(3)(c) of the GST Act.