Edited version of your private ruling

Authorisation Number: 1012404060040

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Taxable supply and overpayment of GST

Question 1

Do you make a taxable supply to entity A under the Scheme for which the payments made by entity A are consideration for this supply?

Answer

No. There is no taxable supply made by you to entity A under the Scheme. However, there is a taxable supply made by you to entity B. The payments from entity A to you are directly connected to the taxable supplies, by you to entity B, and therefore form part of the consideration received by you.

Question 2

If the answer to Question 1 is 'no', have you overpaid GST on payments received from entity A under the Scheme?

Answer

No. you have not overpaid GST on payments received from entity A under the Scheme notwithstanding the fact that there is no taxable supply made by you to entity A in relation to these payments. The payments made by entity A to you are taken to be consideration, under the GST Act, in relation to the taxable supplies by you to entity B. You receive consideration for those supplies from two sources; from entity B and from entity A. Therefore GST is payable by you based on the total amount of consideration received.

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.

The facts and circumstances supplied in a previous application for private binding ruling, in which you were not an applicant but have made reference to, have also been considered in this ruling as well as additional facts provided as follows:

· In our previous decision, to the original applicant, you were referred to as 'Entity X'

· In the previous application for private binding ruling, details and agreements under a scheme were supplied and for the purposes of this ruling are also included and referred to as the 'Scheme'

· In our previous decision to the original applicant, the ATO confirmed that you were not making a taxable supply to the applicant

· The facts describing the scheme and circumstances for this private binding ruling application are the same as those outlined in the previous private binding ruling application

You have remitted GST on payments received from the original applicant under the Scheme historically on the basis that the payments were considered third party consideration as confirmed in a previous ruling for a taxable supply made to entity B.

Relevant legislative provisions

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

Section 9-5.

Section 9-15.

Section 9-17.

Section 9-75.

Section 11-5.

Section 195-1

Reasons for decision

Question 1

Summary

You do not make taxable supplies to entity A. You make taxable supplies to entity B. You receive consideration from two sources in respect of the taxable supplies; partly from entity B and partly from entity A under the terms of the Scheme. Even though the consideration received is in two parts, there is one taxable supply which is provided to entity B.

Detailed reasoning

The reasons for decision, in our previous correspondence in which you were not an applicant but have made reference to, are still relevant in the current circumstances. In addition to the previous ruling we provide further clarification in relation to your questions.

In relation to supplies to entity B, you have entered into an agreement with one party only, entity Z. You provide taxable supplies to entity B in accordance with that agreement. You receive consideration for those supplies from two sources; from entity B and from entity A, who is not a party to the agreement between you and entity Z.

From all of the evidence previously supplied, there are no binding obligations, and no pre-existing framework of a relevant nature between you and entity A in respect of the supply by you to entity B. The payments made by entity A to you are not for a liability owed by entity A, within the context of a pre-existing arrangement entered into between entity A and you, in relation to supplies to entity B.

The words 'in connection with the supply or acquisition' in section 195-1 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and the phrases 'in connection with a supply of anything' and 'it does not matter whether the payment, act or forbearance was voluntary' in section 9-15 of the GST Act, mean that there does not have to be an enforceable relationship for there to be a sufficient nexus between the supply and a payment. The Commissioner's view on sufficient nexus is stated in a number of GST rulings.

The references in the GST Act to 'supply for consideration' and more commonly to 'consideration for a supply' underscore the close relationship between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST.

The payment from entity A is determined by reference to the supplies already made by you to entity B and by reference to the amount not paid by entity B. Therefore, there is a direct relationship between the concession component of the supply by you and the payment from entity A making up the full price of the supply. Therefore, the payments made by entity A to you are taken to be consideration in part, under the GST Act, in relation to the taxable supplies by you to entity B and to entity Z.

The Commissioner's view on the meaning of supply and whether a supply has been made by you to entity A was discussed in previous correspondence, and is discussed further in GSTR 2006/9. We advise that the agreements made under the Scheme confirm there is no taxable supply between you and entity A in relation to the payments made by entity A to you.

In addition to the meaning of supply outlined in Goods and Services Tax Ruling (GSTR) 2006/9, the meaning of taxable supply is defined in subsection 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.

(The asterisks indicate terms defined under section 195-1 of the GST Act.)

As all of the paragraphs of section 9-5 of the GST Act are satisfied, you clearly make taxable supplies to entity B, not to entity A.

Question 2

Summary

Entity A pays you the difference between the full price of the supply and the concession amount paid by entity B. Consideration for a supply is defined as being any consideration in connection with a supply and it does not matter who the payment is made by in order for it to be consideration for a supply. You receive consideration for those supplies from two sources; entity B and from entity A. Therefore GST is payable by you based on the total amount of consideration received for the supply to entity B.

Detailed reasoning

As discussed earlier in relation to your Question 1, under the Scheme entity A pays you the difference between the full price of the supply and the concession amount paid by entity B. Consideration is discussed in subsections 9-15(1) and (2) of the GST Act which state:

(1) 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.

(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.

The definition of consideration in section 195-1 of the GST Act states:

consideration, for a supply or acquisition, means any consideration within the meaning given by section 9-15, in connection with the supply or acquisition.

Hence, consideration for a supply is defined as being any consideration in connection with a supply. Subsection 9-15(2) of the GST Act provides that it does not matter who the payment is made by in order for it to be consideration for a supply.

In this case, the substance of the scheme is that you supply services to entity B and receive consideration from two sources in respect of the supply; partly from entity B and partly from entity A. The payments made by entity A to you are taken to be consideration in part, under the GST Act, in relation to the taxable supplies by you to entity B and to entity Z. Therefore GST is payable by you based on the total amount of consideration received for the supply to entity B (section 9-75 of the GST Act). You are correctly remitting the GST on payments received from entity A under the Scheme.

Please note that from 1 July 2012, whether payments between Government related entities constitute consideration, subsection 9-17(3) of the GST Act must be considered. Prior to 1 July 2012, paragraph 9-15(3)(c) of the GST Act applied.