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Ruling

Subject: Private Ruling - Licence Fee

The supply of determinations on applicants for Licences to another government entity

Question 1

Is the supply of a determination on the applicant for a Licence, by a government entity to another government entity, a taxable supply for purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of a determination on the applicant for a Licence, by a government entity to another government entity, is not a taxable supply for purposes of the GST Act.

Relevant facts and circumstances

Introduction

A government entity ('you') has been registered for Goods and Services Tax (GST) since 1 July 2000.

The Government recently introduced an Act which requires a person to attain a licence in order to operate a particular activity.

The Act requires an application for a licence to be made a government accompanied by the fee prescribed by the Act.

The government entity is required to refer a valid licence application (along with any supporting information) to you for an investigation and determination in accordance with the Act. The person applying for this licence pays for the licence directly to the government entity. The money collected for the licence is apportioned between several government agencies (you being one of those) for their work in the process of issuing this licence. You receive a percentage of the licence fee, based on the funding apportionment agreement devised by the government agencies involved.

The agreement requires you to issue a tax invoice to the other government entity for payments received in a particular month.

Supply

Following due process and investigation, you issue a determination on the applicant to the other government entity noting whether the applicant should hold a licence.

Consideration

The other government entity receives and retains all licence fees.

On receipt of a valid licence application and fee, the other government entity forwards an amount equal to the agreed portion of the licence fees to you. The payment is not covered by an appropriation. The payment is allocated to you to meet all costs incurred by you in issuing the determination. The payment is to compensate you for costs incurred by you in undertaking regulatory activities.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

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 Section 9-17

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

Reasons for decision

Summary

The supply is not a taxable supply. Section 9-5 of the GST Act is not satisfied because the payment received is not consideration for a supply pursuant to Division 81 of the GST Act.

Detailed reasoning

The basic rules

Under the basic rules, Division 9 of the GST Act defines taxable supplies, states who is liable for the GST, and describes how to work out the GST on supplies.

Taxable Supply

Under section 9-5 of the GST Act you make a taxable supply if:

you make a supply for *consideration; and

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

the supply is *connected with Australia; and

you are *registered or *required to be registered for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed under the exemptions.

Note: Definitions of asterisked terms are provided in the Dictionary under section 195-1 of the GST Act.

It is accepted that the provision of the determination in accordance with the Act, is a supply. The supply is made in the course of your enterprise. The supply is connected with Australia and you are registered for GST.

The question at issue is whether the payment by the other government entity to you under an agreement is consideration for the supply.

Consideration

Section 9-15 of the GST Act provides that consideration includes any payment, or any act or forbearance, in connection with a supply of anything or in response to or for the inducement of a supply of anything.

Section 9-39 of the GST Act provides special rules in relation to making taxable supplies. In particular, 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.

Division 81 - fees and charges

Division 81 of the GST Act provides that GST does not apply to payments of taxes, fees and charges that are excluded from the GST by Division 81 of the GST Act or by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). However, GST does apply to certain taxes, fees and charges that are prescribed by the GST Regulations.

Sections 81-10 and 81-15 of the GST Act consider the effect of certain fees and charges.

Section 81-10 of the GST Act provides that a payment, or the discharging of a liability to make a payment, is not the provision of consideration to the extent the payment is paid for a permission, exemption, authority or licence (however described) or relates to information and record-keeping. However, 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 GST Regulations.

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

The term 'Australian fee or charge' is defined in section 195-1 of the GST Act as:

Australian fee or charge means a fee or charge (however described), other than an Australian tax, imposed under an *Australian law and payable to an *Australian government agency.

The term 'Australian law' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and relevantly includes a State law.

Fees and charges that constitute consideration

GST Regulation 81-10.01 sets out those fees and charges which constitute consideration for a supply and are not intended to be exempt from GST. None of the paragraphs under this regulation apply to the payment to you in relation to the licences.

Fees and charges that do not constitute consideration

Regulation 81-15.01 of the GST Regulations sets out those fees and charges that are prescribed under section 81-15 of the GST Act and which do not constitute consideration. Paragraph 81-15.01(1)(d) of the GST Regulations provides that a fee or charge to compensate an Australian government agency for costs incurred by the agency in undertaking regulatory activities does not constitute consideration for a supply.

The payments in relation to the licences are made to compensate you for costs incurred by you in undertaking regulatory activities. Therefore, the payments in relation to the licences are not the provision of consideration for the purposes of section 81-15 of the GST Act. Therefore, as these payments do not constitute consideration, the supplies to which they relate do not satisfy the requirements of section 9-5 of the Act and are not taxable supplies.