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Ruling

Subject: Goods and services tax (GST) and something fee

Question 1

Will you be entitled to input tax credits where you pay an entity a something fee?

Answer

You will be entitled to an input tax credit where you pay an entity a something fee and the entity is registered or required to be registered for GST.

Where the entity is not registered or required to be registered for GST, you will not be entitled to an input tax credit.

Question 2

Will you be required to withhold GST from payments you make to the entities?

Answer

No.

Question 3

Can you issue Recipient Created Tax Invoices (RCTI) to the entities?

Answer

You are eligible to issue RCTI's to the entities where they make taxable supplies to you, provided that the requirements of clause 5 of A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No. 23) 2000 (RCTI 2000/23)(see copy enclosed) are satisfied.

Where the entities do not make taxable supplies to you, tax invoices are not relevant.

Question 4

What are the requirements of a written RCTI agreement?

Answer

Paragraph (f) of clause 5 of RCTI 2000/23 sets out the requirements of an RCTI agreement.

Relevant facts and circumstances

You are registered for GST.

You are a mortgage broker.

You operate in Australia only.

Our records show that your GST turnover is under $20 million a year.

You receive a commission from an aggregator where a loan is entered into and the borrower applies for the loan through you.

You are in the process of setting up a website that will offer home loans to individuals.

You will pay an entity a something fee where an individual applies for a loan through you, and as a result enters into a loan agreement with a financial institution.

All the entity has to do is make the individuals aware of the something fee scheme. They may do this in certain ways.

You will calculate the amount of the something fee after a loan is entered into. The something fee will be a percentage of the loan amount.

You will assist the individuals in choosing a loan and applying for a loan. You will not charge the individuals any fees for doing this.

The entities are based in Australia only.

The entities may or may not be registered or required to be registered for GST.

The majority of the entities will be something.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-15(3)(b)

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2)

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-70(3)

Reasons for decisions

Question 1

Summary

You will be entitled to an input tax credit where you pay a something fee to an entity that is registered or required to be registered for GST, because under these circumstances:

· you will acquire promotional services for a creditable purpose

· the entity will make a taxable supply to you

· you will provide consideration for the supply, and

· you are registered for GST.

You will not be entitled to an input tax credit where you pay a something fee to an entity that is not registered or required to be registered for GST, because under such circumstances the entity would not make a taxable supply to you.

Detailed reasoning

You are entitled to input tax credits on your creditable acquisitions.

You make a creditable acquisition where you satisfy the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

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.

(*Denotes a term defined in section 195-1 of the GST Act)

Acquisition for a creditable purpose

'Acquiring a thing for a creditable purpose' is defined in section 11-15 of the GST Act.

Subsection 11-15(1) of the GST Act states:

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

Subsection 11-15(2) of the GST Act states:

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.

You would acquire promotional services from an entity where you pay a something fee. This would involve the entity making individuals aware of the something fee arrangement. Where the individual applies for a loan through you and as a result enters into a loan agreement, you would pay the something fee.

You would acquire the promotional services in carrying on your enterprise. These acquisitions would not relate to making supplies that would be input taxed and would not be of a private or domestic nature.

Hence, you would acquire something for a creditable purpose under the arrangement. Therefore, the requirement of paragraph 11-5(a) of the GST Act would be satisfied.

Acquisition of a taxable supply

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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.

Supply

Under the something fee arrangement you will have with entities, the entities will supply promotional services to you.

Consideration for the supply

'Consideration' is defined in section 9-15 of the GST Act.

Subsection 9-15(1) of the GST Act states:

Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

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

Paragraph 180 of Goods and Services Tax Ruling GSTR 2006/9 provides guidance on determining whether a payment is consideration for a supply. It states:

180. In other GST rulings the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' those rulings take the view that:

· the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

· regard needs to be had to the true character of the transaction; and

· 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 transactions are made.

The payment of the something fee will have a sufficient nexus with the entity's supply of promotional services because it will be paid to an entity as reward for the entities promotional activities where an individual applies for a loan through you and enters into a loan agreement with a financial institution as a result.

Hence, the payment of the something fee will be consideration for a supply. Therefore, the requirement of paragraph 9-5(a) of the GST Act will be satisfied.

Supply made in the course or furtherance of enterprise

The entity would supply their services to you in the course or furtherance of an enterprise that they carry on. Therefore, the requirement of paragraph 9-5(b) of the GST Act would be satisfied.

Connected with Australia

The entity's supplies of promotional services to you would be connected with Australia. Therefore, the requirement of paragraph 9-5(c) of the GST Act would be satisfied.

GST registration

The entities may or may not be registered or required to be registered for GST. Therefore, the requirement of paragraph 9-5(d) of the GST Act may or may not be satisfied depending on the entity.

GST-free or input taxed supplies

There are no provisions in the GST Act under which the supplies of services made by the entities would be GST-free or input taxed.

Therefore, where the entity is registered or required to be registered for GST, the entities would be making taxable supplies to you, as all of the requirements of section 9-5 of the GST Act would be satisfied. Hence, where the entity is registered or required to be registered for GST, the requirement of paragraph 11-5(b) of the GST Act would be satisfied.

However, where the entity is not registered or required to be registered for GST, the entity would not be making a taxable supply to you, as not all of the requirements of section 9-5 of the GST Act would be satisfied. Hence, where the entity is not registered or required to be registered for GST, the requirement of paragraph 11-5(b) of the GST Act would not be satisfied.

Consideration

The something fee would be consideration for the supplies of promotional services the entities make to you. Therefore, the requirement of paragraph 11-5(c) of the GST Act would be satisfied.

GST registration

You are registered for GST. Therefore, the requirement of paragraph 11-5(d) of the GST Act would be satisfied.

Conclusion

Where the entity is registered or required to be registered for GST, you would make a creditable acquisition from the entity, as all of the requirements of section 11-5 of the GST Act would be satisfied. Under such circumstances you would therefore be entitled to an input tax credit.

Where the entity is not registered or required to be registered for GST, you would not make a creditable acquisition from the entity, as not all of the requirements of section 11-5 of the GST Act would be satisfied. Under such circumstances you would therefore not be entitled to an input tax credit.

Question 2

There is no requirement under the GST Act that you withhold GST from an entity, whether they are registered or required to be registered for GST or not.

Question 3

Summary

You are eligible to issue RCTI's to entities where they make taxable supplies to you, provided that the requirements of clause 5 of RCTI 2000/23 are satisfied, because these entities will be making taxable supplies of referral services to you and you will establish the value of those services after the supply is made using a calculation process.

Detailed reasoning

Subsection 29-70(3) of the GST Act states:

A recipient created tax invoice is a *tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the *recipient of a *taxable supply.

RCTI 2000/23 provides that recipient created tax invoices may be issued by recipients of taxable supplies of referral services, subject to certain requirements.

Clause 4 of RCTI 2000/23 states:

A tax invoice that belongs to a class of tax invoices for a taxable supply of referrals may be issued by an entity that is the recipient of that taxable supply where the recipient:

(i) establishes the value of those services after the supply is made using a calculation process; and

(ii) satisfies the requirements set out in Clause 5.

Clause 6 of RCTI 2000/23 defines referrals as the activity of publicising and promoting an entity and/or the goods and services of that entity with the aim of directing potential clients to that entity. This includes but is not restricted to services such as direct referrals, the display of promotional pamphlets and the inclusion of a hyperlink on a website.

In your case, the entities will effectively be promoting an entity (you) with the aim of directing potential clients to you. They will do this by making individuals aware of the something fee scheme through certain means. A something fee will be paid to an entity where an individual applies for a loan through you with the result that a loan agreement is entered into. We consider that the individuals who apply for a loan through you will be clients of yours as you will supply the services of assisting them with choosing a loan and applying for a loan, despite the fact that you will not charge them any fees and the fact that you will be paid a commission by the aggregator, which would also be your client. Therefore, the entities will be supplying referral services to you.

In some cases, the entities will make taxable supplies of referral services to you.

You will establish the value of the referral service after the supply is made using a calculation process. The value of the referral service will be a percentage of the loan amount.

Therefore, you may issue RCTI's to entities who are making taxable supplies to you, provided that the requirements of clause 5 of RCTI 2000/23 are satisfied.

In accordance with paragraph (h) of clause 5 of RCTI 2000/23, if you have a current GST turnover of less than $1,000,000, you must notify the Commissioner in writing of your intention to use recipient created tax invoices. This notification must be made before 14 days have elapsed after the first occasion that a recipient created tax invoice is issued by you.

Where the entities do not make taxable supplies to you, tax invoices are not relevant.

Question 4

One of the requirements of clause 5 of RCTI 2000/23 is that you have a written RCTI agreement with the entities.

Paragraph (f) of Clause 5 of RCTI 2000/23 sets out the requirements of an RCTI agreement.

There is no Australian Taxation Office template for RCTI agreements.