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Ruling

Subject: GST and tax invoices

Question 1

Are you required to issue a tax invoice and include GST on the payments received for the funding of discounts/rebates given to the eligible persons under the Government Scheme?

Answer

Yes

Question 2

If the answer to Question 1 is positive, is the proposed GST treatment set out in table 2 correct for the purposes of administering the Scheme under the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act')?

Answer

See Reason for Decision

Question 3

Will the Australian Taxation Office approve an extension of time to update the invoicing arrangements, and confirm that you will not be required to make retrospective adjustments from 20XX until a date six months after the issue of this ruling?

Answer

No

Relevant facts and circumstances

You are a government-owned corporation and are registered for goods and services tax (GST). You provide utility services to the public in a commercial manner.

You do not receive direct budget appropriation from the State government. However, through government agencies, you receive payments for non-commercial services that it provides at the direction of the Government.

You receive payments to fund subsidies to pensioners under a Government Department' Scheme.

You and the Department entered into a service agreement to set out the protocols between you and the Department for the administration of the Scheme.

The Arrangement

This Scheme provides various concessions to certain individuals who are permanent residents of the State. Persons eligible to participate are issued with a card (Scheme card holder).

To receive the entitlements under the Scheme an individual must lodge an application with the Department and produce eligibility documentation.

The Scheme offers concessions for Services costs incurred by eligible persons.

Current Practice

You charge the Scheme card holder GST on the service prior to applying the concession under the Scheme. No GST is charged on the other services as they are GST-free supplies. The Scheme holder pays you the quarterly account for the services that are due and payable after the deduction of the concession amounts allowed under the Scheme.

You automatically deduct the concessions from all eligible clients' accounts.

You compile a total of the concessions allowed under the Scheme and issue a tax invoice to the Department comprising the concessions allowed for the services and a GST amount based on 10% of the administration charge.

Tables

You have provided 2 tables representing the current and proposed invoicing system/methodology.

Relevant legislative provisions

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

Section 9-5

Section 9-15

Section 29-70

Reasons for decision

Question 1

Summary

You are required to issue a tax invoice and include and remit GST (being one eleventh of the total concession amount) on the payments from the Department under the Scheme. The payment from the Department is the consideration for a taxable supply made by you to the Department under the Scheme.

Detailed reasoning

Subsection 29-70(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

The supplier of a *taxable supply must, within 28 days after the *recipient of the supply requests it, gives to the recipient a *tax invoice for the supply unless it is a *recipient created tax invoice

* an asterisk denotes a defined term in the GST Act.

In this case, the issue becomes whether there is any supply made by you in return for the payments under the Scheme and if there is a supply whether the supply is a taxable supply for the purposes of section 9-5 of the GST Act.

Section 9-10 of the GST Act provides that the meaning of 'supply' includes a supply of services. The provision of the services is considered a supply under section 9-10 of the GST Act.

Whether a supply is made to under the scheme

The decision in Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84 (the DOT case) and the subsequent issue of the addendum to goods and services tax ruling GSTR 2006/9 A on 14 December 2011 (now incorporated into the current version of GSTR 2006/9) provide guidelines for an analysis of whether you are making a supply to the Department

Goods and Services Tax Ruling GSTR 2006/9 examines the meaning of 'supply' in the GST Act. Part 3 of GSTR 2006/9 builds on the guidelines. It discusses six further propositions which also apply to analysing more complex multi-party arrangements, commonly known as tripartite arrangements.

Of relevance to this case is Proposition 15: one set of activities may constitute the making of two (or more) supplies. Paragraphs 217 and 217A of GSTR 2006/9 state that:

217. Examining the levels of contractual or reciprocal relationships between the entities in a tripartite arrangement may reveal two or more supplies being made based upon the one set of activities.

217A. This proposition is illustrated by Federal Commissioner of Taxation v. Secretary to the Department of Transport (Vic) 63A (Department of Transport), where the activity undertaken by the taxi operator of transporting the eligible passenger resulted in two supplies being made:

(i) the supply of transport to the passenger; and

(ii) the supply to the Department of the service of transporting the eligible passenger

In paragraph 221B of GSTR 2006/9 the Commissioner suggests a number of factors that need to be considered to determine whether a supply is made to a third party.

221B. The Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer under a tripartite arrangement that involves a supply by the supplier to the customer, even where there is no binding obligation between the payer and the supplier for the supplier to make a supply to the customer:

(a) there is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies by the supplier to particular third parties or a class of third parties;

(b) the pre-existing framework or agreement:

(i) identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies made to them come within the scope of the framework or agreement; and

(ii) specifies that the payer is under an obligation to pay the supplier if there is a relevant supply by the supplier to a third party and also sets out a mechanism by which such payment is authorised;

(c) the framework or agreement and the mechanism for authorising the payment are in existence before the supply by the supplier to the third party (that is, the supplier knows in advance that the payer is obliged to pay some or all of the consideration in the event of the supply to the third party);

(d) the supplier makes the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and

(e) the obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the third party) to the supplier in the event that there is a supply by the supplier to the third party.

Where the above conditions are met there may be two separate supplies made by virtue of the same set of activities, one to the Scheme card holder and one to the Department.

Pre existing framework for the supplier to act in a particular manner

There is an agreement between you and the Department responsible for administration of the Scheme. The agreement outlines the obligations of the respective entities. There is therefore a pre-existing framework in operation.

The agreement sets out the terms and conditions governing the parties and requires you to act in a particular manner in respect of supplies provided to Scheme card holders. Specifically, the agreement requires you to charge a lower amount for supplies of services to card holders.

Mechanism for identifying eligible recipients

The requirement that there be a mechanism for identifying eligible recipients is also satisfied in these circumstances. The concession card is authorisation from the Department that the card holder is entitled to the benefits under the Scheme.

A card holder presents the card to you before the supply of services. It is at this point that it becomes a supply of services under the Scheme and the Department assumes liability to make payments under the Scheme. In this circumstance, the Department acquires from you a service, being the supply of the services to the card holder. The Department sought this supply when the presentation of the card authorised the supply of services as a supply under the Scheme.

The supplier obtains authorisation in the form of the card before providing the subsidised services. This validation means that you do what the Department has asked it to do on the basis that the department would pay.

Requirement to pay the supplier and an established mechanism for making payment

The Scheme card holder pays their amount and the GST attributable, and the Department pays the rest and the GST attributable to that amount. You invoice the Department every fortnight for the actual concessions provided in the prior two weeks. The subsidy payment from the Department to you is directly referrable to the number of concessions provided to the Scheme card holders.

Therefore the requirement that the supplier be paid directly by the payer is met, and there is an established mechanism for making this payment. The department therefore acquires the service for consideration, even though it is not the full amount of consideration.

Supplier knows that where the supply is made to the Scheme card holder that the Department will pay

You know that if the supply of discounted services is made to the Scheme card holder then the Department is obliged to pay the difference. It is on this basis, and on the basis of the whole of the arrangements between you and the Department, that the subsidised services are supplied to the Scheme card holders.

Liability is owed by the Department

If the supply of discounted services is made to the Scheme card holder then the Department is obliged to pay the difference. This is a liability owed by the Department. A supply will not be made to the Department in circumstances where services have been obtained by a person before they have presented their concession card to you or otherwise where there is merely an arrangement to pay on behalf of the third party for a liability already owed by the third party. Supplies to the Department are only made from the time the card is accepted by you until it is revoked.

Supplier provides the supply in accordance with the pre-existing framework or agreement

You provide the supplies to the Department in accordance with the arrangement.

Conclusion

Taking into account all the circumstances above it is considered that there have been supplies made by you to the Department, being the supplies of a service of providing services providing to a Scheme card holder. This can be construed as the supply of a service under the agreement to the Department , which is separately identifiable, independent from the supply of the services to the Scheme card holder. Note that the supply of service of the provision of services are separate supplies and are included separately in the same tax invoice to the Department.

The supply (from you to the Department) of the service to the Scheme card holder

The supply of the service of providing electricity, made by you to the Department, is a taxable supply under section 9-5 of the GST Act where all of the following are met:

· the supply is made for consideration,

· the supply is made in the course or furtherance of the supplier

· the supply is connected with Australia,

· the supplier is registered for GST at the time of the supply, and

· the supply is not taxable supply to the extent that it is GST-free or input taxed.

It is considered that:

· the supply is made in return for consideration. The consideration for the supply is the Scheme component of the total charges for the provision of services to the Scheme card holder. (Note that the Scheme card holder is paying the total charges less the Scheme component).

· the supply is made in the course of their enterprise,

· the supply is connected with Australia, and

· you are registered for GST.

It is considered that the supply of services to the Scheme card holder is not GST-free nor input taxed. The supply of the service of providing services to the Scheme card holder is also not GST-free or input taxed.

The supply (from you to the Department) of the service of providing other services to the Scheme card holder

The supplies of the other services to the Scheme card holder are GST-free under Division 38 of the GST Act. However, the supply of the service of providing those other services is not GST-free (unlike the underlying supplies) as those are not the same supply of the other services.

Those services are not GST-free or input taxed under any provision of the GST Act or other Acts. Similar to the reasoning above, the supplies to Department of the services of providing water, sewerage services to the Scheme card holder are taxable under section 9-5 of the GST Act

As a supplier making taxable supplies to the Department, you are required to issue a tax invoice for the payment of the services upon request by the Department.

Question 2

Summary

The GST component for each recipient of your supplies is as follows:

Scheme card holder: is correct following your calculation in table 2.

The Department: the GST component must also include the GST on the supplies of the service of the all services.

Detailed reasoning

In table 2 you have provided a numerical example to demonstrate how the various transactions will be treated for GST purposes and how the amount of GST in relation to those various transactions will be determined. 

We provide the following advice:

Under section 9-75 of the GST Act, the amount of GST on a taxable supply is 10% of the value of the taxable supply.

As discussed above there are two separate supplies to two separate recipients of your services, the Scheme card holder and the Department. Each entity is liable separately for the GST charged on the supply made to them. This is demonstrated below.

Supplies of services (Scheme card holder)

In the example (table 2) you have correctly demonstrated the liability of a Scheme card holder as $100 (GST-exclusive) and $105 GST-inclusive (under separate tax invoice to each recipient), being the sum of:

- the value of the taxable supply (service 1) $50.00

- the GST is 10% of the value of the taxable supply: $5.00

- the value of the GST-free supply (other services): $50.00

Total: $105.00

Supply of services (the Department)

The correct GST payable by the Department must also include the GST on the supply of the all services as follows:

- the value of the taxable supply (service1): $X

- the GST is 10% of the value of the taxable supply: $Y

- the value of the supply of the service of providing

other services): $X

- the GST is10% of the value of the supplies $Y

Total $V

Therefore, the outcome of the example is:

· The GST payable by the scheme card holder is $Y

· The GST payable by Department is $Z.

· The total GST you are required to remit for the supplies is $W.

Question 3

Summary

No, it is not appropriate to allow an extension of time to update the invoicing arrangement. Neither is it appropriate to approve that you are not be required to make retrospective adjustments XX to a date commencing six months after the outcome of this ruling request

Detailed reasoning

Extension of time to update the invoicing system

GSTR 2006/9 was amended by an addendum issued on 14 December 2011 which changed the GST treatment of certain payments (previously considered third party payments) made on or after 1 July 2010. The Addendum explains the Commissioner's view of the law as it applied before and after its date of issue. Subject to the transitional arrangements at paragraphs 9A and 9B of the Ruling, you can rely on the Addendum from its date of issue for the purposes of section 357-60 of Schedule 1 to the Taxation Administration Act.

As discussed above, the payment from the Department is consideration for a taxable supply (in relation to the supply of other services) in accordance with the view of the Tax Office in GSTR 2006/9.

The Addendum was issued on 14 December 2011 which is now over 12 months ago. Where the GST treatment of supplies has changed following the issue of the Addendum, suppliers should by now have made arrangements to update their invoicing system to reflect the requirement to issue tax invoices to all recipients of taxable supplies.

You have not provided evidence of any extenuating circumstances. Therefore, it is considered that the extension to allow you to update the invoicing system is not warranted.

Retrospective change of the GST treatment of the supply

As discussed above, there two separate supplies to two separate recipients.

In table 2 you have provided sample calculations of the separate GST liability for each recipient, the Scheme card holder and the Department. Using the table 2 calculations, under the ATO view for the law that has been in place since 14 December 2011, the GST that should have been remitted to the ATO by you is $W (exclusive of the admin fee).

Using table 2 the Scheme card holder's correct liability is $V for the supplies of electricity, water and sewerage services including $Y GST relating to the supply of electricity. The Department's correct liability (exclusive of the admin fees) is $V for the service of supplying the Scheme card holder with the services, including $Z GST.

To date, you have only remitted a total of $Z GST on the supplies made both recipients (exclusive of the admin fees). Using the table 1 sample calculations that you have supplied, the whole of the $Z has to date 'effectively' been collected from the Scheme card holder resulting in the card holder being 'overcharged' by $V.

The Department to date has paid $X. You have treated the supplies to the Department for the services of supplying the card holder with relevant services as GST-free. As discussed above, these are taxable supplies to Department.

In the circumstances it is not appropriate for the ATO to approve any arrangement that maintains or continues the incorrect treatment. This is particularly so in light of your awareness of the ruling issued to the Department shortly before the amendments to GSTR 2006/9.