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Ruling

Subject: GST and administration fees between government related entities

Question

Was goods and services tax (GST) applicable to the administration fees that government entity 1 paid to you for processing the applications?

Answer

No, GST was not applicable to the administration fees that government entity 1 paid to you for processing the applications.

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.

You are registered for GST. You are a government entity.

Government entity 1 paid an amount monthly to you for the administrative services that you provided in processing the applications. You were paid for each application that you processed whether or not the application was successful.

You have stated that the payment by government entity 1 to you for the cost of administering and processing the applications was specifically covered by an appropriation under an Australian Law. You have not received any of these payments since 1 July 2012.

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 paragraph 9-15(3)(c).

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

a) you make the supply for consideration

b) the supply is made in the course or furtherance of an enterprise that you carry on

c) the supply is connected with Australia, and

d) 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.

In this case, you are registered for GST. What needs to be decided is whether there is a supply being made by you to government entity 1 for consideration.

Section 9-15 of the GST Act defines consideration to include:

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

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

However, paragraph 9-15(3)(c) of the GST Act provides that a payment made by a government related entity to another government related entity is not the provision of consideration if the payment is specifically covered by an appropriation under an Australian law.

[Note, paragraph 9-15(3)(c) of the GST Act has now been replaced by subsection 9-17(3) of the GST Act for payments made after 1 July 2012. However, as the payments referred to in this ruling were made prior to 1 July 2012, paragraph 9-15(3) (c) of the GST Act still applies.]

Therefore, the following requirements have to be met for a payment not to be consideration under paragraph 9-15(3)(c) of the GST Act :

a) there has to be an appropriation under an Australian law

b) the payment must be made by a government related entity to another government related entity, and

c) the payment must be specifically covered by an appropriation.

Government related entity is defined in section 195-1 of the GST Act as:

a) a government entity; or

b) an entity that would be a government entity but for subparagraph (e)(i) of the definition of government entity in the A New Tax System (Australian Business Number) Act 1999; or

c) a local governing body established by or under a State law or Territory law.

Paragraph 9-15(3)(c) requires the payment to be 'specifically' covered by an appropriation. The views expressed in Goods and Services Tax Ruling GSTR 2011/2 which has now been withdrawn can be relied upon for payments made before 1 July 2012. However, as a transitional arrangement for the withdrawal of Goods and Services Tax Ruling GSTR 2006/11 which sets out the Commissioner's views on the operation of paragraph 9-15(3)(c) before GSTR 2011/2 issued, taxpayers are able to rely upon the views expressed in GSTR 2006/11 for payments made before 1 July 2012.

To be specifically covered by an appropriation does not mean that the payment must be specified in the wording of the appropriation made under the relevant Australian law. Rather, the payment has to be specifically covered by the appropriation which is the authority for the payment.

A payment authorised by an appropriation is an expenditure of money authorised by a statute or by delegated legislation. For Parliament to authorise expenditure it needs to specify the amount allocated. The payment is made so that particular outcomes or other purposes desired by Parliament are achieved. Hence, to be specifically covered the following must be specified:

a) the purpose of the payment, and

b) the amount of the payment.

Although the authorisation for the payment derives from an appropriation Act, that Act may only be based on a higher-level 'Outcomes' approach. Under the Outcomes approach, only a brief outline of funding arrangements is given in the appropriation Act. This brevity does not allow for specific details of the payment required to meet the 'specifically covered' element in paragraph 9-15(3) (c) of the GST Act to be included in the appropriation Act.

Government entity 1 made a payment to you which was a payment made by one government entity to another government entity. You have stated that the payments government entity 1 made to you were specifically covered by an appropriation under an Australian Law. As such, the payments made to you were not consideration for any supply you made in accordance with paragraph 9-15(3) (c) of the GST Act. Therefore, you were not making a taxable supply under section 9-5 of the GST Act.