Edited version of your private ruling

Authorisation Number: 1012437969821

Ruling

Subject: Entitlement to input tax credits - rebate agreement

Question 1

Do the Retailers make a taxable supply to you, for which the payments you make under an agreement with the retailers are consideration?

Are you therefore making a creditable acquisition?

Answer

Yes. You are the recipient of a taxable supply and make a creditable acquisition.

Question 2

Do you hold valid tax invoices in respect of your acquisitions from the Retailers such that you are entitled to claim input tax credits for the creditable acquisitions made?

If not, will the Commissioner exercise his discretion to treat the documents as valid tax invoices?

Answer

You already hold valid tax invoices. Therefore the Commissioner's discretion is not required.

Relevant facts and circumstances

· You are a government department and are registered for GST.

· You are tasked with providing a range of public service to the community, including providing funding to support participation by seniors in the community.

· The retailers are private retail suppliers of goods and services and are registered for GST.

· The retailers are granted a license to operate as retail entities under an Act.

· The rebate scheme provides a rebate on the cost of certain supplies to eligible concession card holders.

· The rebate scheme provides details as to who is eligible for the rebate.

· The majority of eligible concession card holders are pensioners and seniors.

· Although administered by you, the rebate is delivered to eligible participants (card holders) by the retailers.

· The retailers have entered into a written agreement with you.

· In order to determine the eligibility of potential participants, participants are required to complete an application form and this is lodged with the retailers.

· The retailers are responsible for receiving and processing the applications and providing the rebates under the terms and conditions set out in the Agreement.

· The rebate is delivered by the retailers to the card holders by deducting the value of the card holder's rebate entitlement from the value of the supply. Eligible participants are then only required to pay the price on the invoice issued to them.

· The Agreement states that any payments made by you will be subject to GST where appropriate.

· The Agreement sets out the obligations that the retailers are required to complete in order to receive reimbursement of the rebate from you.

· Under the Agreement, if a customer requests that a rebate be given to them retrospectively, and they meet the eligibility criteria, the Retailer must give the rebate for the period up to 12 months before the successful request.

· In these circumstances the retailer includes any retrospective claims in the current claim form and advises you by email. 

· Any older retrospective claims must be separately considered by you. 

· Under the Agreement, where the retailer receives a claim from a customer for a retrospective rebate that relates to a period over 12 months prior to the application, they must refer the claim to you for determination. On request, the retailer must also assist you to determine whether the claim should be accepted or rejected. They must then pay the rebate to the customer for the period that you inform them in writing that the customer is entitled to the rebate.

· No retrospective payments can be given for any periods prior to a certain date.

· The retailers issue tax invoices to you, which detail the total value and number of rebates provided to eligible participants on a monthly basis. It is understood that the retailers remit GST on the consideration received from you.

· You have not been claiming input tax credits in respect of the tax invoices issued by the retailers for the past few years.

· Following recent amendments to public rulings, you are requesting confirmation as to the correct GST treatment of the supplies made between the retailers and you, the extent to which you are entitled to claim input tax credits on these supplies, and whether the tax invoices issued to date by the retailers are valid tax invoices.

Relevant legislative provisions

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

Division 9

Division 11

Section 29-10

Section 29-70

Reasons for decision

Summary

The retailers make a separate supply to you under the agreement. Your payments are consideration for this supply, and the supply is a taxable supply. As you are the recipient of a taxable supply you therefore make a creditable acquisition.

Detailed reasoning

To determine the supplies that are made in your circumstances it is necessary to look at the agreements between the parties (the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply, see proposition 11 of Goods and Services Tax Ruling (GSTR) 2006/9).

We note that GSTR 2006/9 has been updated to reflect the decision in Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84 (Department of Transport Case).

Following the principles in GSTR 2006/9 (and the Department of Transport Case), one set of activities may constitute the making of two (or more) supplies.

Where an entity (such as a retailer) agrees with you to provide goods, services, rebates or anything else to another party (the eligible person), if the retailer enters into a binding obligation with you to provide goods under certain terms, perform services or do something else for the eligible person, and you are liable to pay for those services, the retailer makes a supply to you, even though the supply may be provided to another entity.

Similarly, you may enter into a pre-existing framework or arrangement with the retailer which contemplates that the parties act in a particular manner in respect of supplies by the supplier to the eligible person which establishes a liability owed by you to the retailer (rather than the eligible person having the liability to the retailer) in the event that there is a supply to the eligible person.

Both of these types of arrangement (binding obligation or pre-existing framework) result in a supply being made to you under the arrangement.

In your circumstances, you have entered into a written agreement (the Agreement) with the retailers. We consider that, your written agreement forms and details the binding obligations between you and the retailer. When the retailer enters into the Agreement with you they are entering into an obligation to do something, which results in a supply being made to you (see subparagraph 9-10(2)(g)(i) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)).

Your agreement sets out the terms and conditions governing the parties (the retailer and you) and requires the retailer to act in a particular manner in respect of the supplies provided to third parties (eligible persons). It covers arrangements with regards to receiving and processing applications for the rebate, the eligibility criteria that must be used, verification processes and paying the rebate to eligible customers.

We consider that under the agreement it is the retailer that is required to provide the rebate to the eligible participant.

Under the agreement you are required to reimburse the retailer for any rebate validly given to an eligible person. You also pay an administration fee to the retailer. There are mechanisms for how and when the retailer submits their claims. Your payments of the amounts under the arrangement are payments for the liability that you owe in your own right, for the supplies contemplated under the Agreement.

We consider that there are two supplies made by the retailers under your particular arrangements - one to you and a separate (and not necessarily concurrent) one to the eligible rebate recipients. The supply made to you is the retailer's service of administering and providing the rebates to eligible persons under the Agreement. The eligible person receives the supply of the actual goods or services, for consideration being the lesser amount that they are required to pay (reduced because of the rebate). The consideration received from each party is in connection with the corresponding supplies made to them.

Your payments of the reimbursement amounts (and the administration costs) are consideration for the separate supply made to you. The supply is made by a registered supplier in the course of their enterprise, it is connected with Australia and the supply is for consideration. Therefore the supply made to you is a taxable supply.

From the perspective of the retailer it is not important who provides the consideration for the taxable supplies that are made, GST is payable on the full consideration received.

However, as you are the recipient of a taxable supply from the retailer this is relevant to your entitlement to input tax credits.

You make a creditable acquisition if you acquire something solely or partly for a creditable purpose, the supply of the thing to you is a taxable supply, you provide or are liable to provide consideration for the supply, and you are registered or required to be registered (section 11-5 GST Act).

You have made a creditable acquisition as you have acquired the services under the agreement in carrying out your enterprise, and it is not in relation to making supplies that are input taxed or private or domestic (section 11-15 GST Act). You have acquired the service as part of your enterprise, as an enterprise includes an activity or series of activities done by the Commonwealth, a State or a Territory (section 9-20 GST Act).

Therefore you are entitled to input tax credits. You may claim past credits for the period we advised in our response to your notification of entitlement to those credits, subject to you holding a valid tax invoice. This is considered below.

Payments in connection with retrospective rebates

We also note that your agreement allows that the retailer may provide retrospective rebates to eligible persons. Where the retailer acts in accordance with the terms of the agreement and a retrospective rebate is paid, we consider that this is also a payment pursuant to your binding obligations with the retailer. Therefore, for the reasons given above, the payment is consideration for their supply of services under the Agreement to you, and these are taxable supplies and you will be entitled to input tax credits for these supplies also.

GSTR 2006/9 confirms that in your situation the entry by the retailers into a binding obligation to administer, and pay current as well as retrospective rebates to eligible participants is the subject matter of the supply. Paragraph 137 of GSTR 2006/9 states;

137. The grant of a right or entry into an obligation may be a term or condition of a larger transaction. Where the grant of the right or entry into the binding obligation is the substance of the transaction it will be the subject matter of a supply

It does not matter that the payment is linked to retrospective rebates, as it is more directly connected to the retailer's services and supplies under the Agreement that they have entered into with you. Therefore you are the recipient of a taxable supply by the retailer in these circumstances also, and are entitled to input tax credits on your acquisition. We note that no retrospective rebates can be given for periods before a certain date.

Question 2

Summary

You already hold valid tax invoices in respect of your acquisitions from the Retailers such that you are entitled to claim input tax credits for the creditable acquisitions made.

Therefore it is not necessary for the Commissioner to exercise his discretion to treat the documents as valid tax invoices.

Detailed reasoning

Under section 29-10 of the GST Act, you are required to hold a valid tax invoice to claim input tax credits relating to creditable acquisitions (where the supply is over $75).

A tax invoice for a taxable supply must be issued by the supplier and must contain relevant information (subsection 29-70(1) GST Act). However, the Commissioner may treat as a tax invoice a particular document that is not a tax invoice.

We have reviewed the documentation that you have provided as a sample of the documentation that you hold for all the relevant supplies.

We consider that the information provided on the original invoice from the retailer in their usual format meets the requirements of a tax invoice under section 29-70 of the GST Act. In particular:

· The tax invoice is issued by the supplier of the supply

· It is in the approved form

· The supplier' identity and ABN are provided

· The recipient's identity (your billing area)

· What is supplied, including the quantity (if applicable) and the price of what is supplied (provides that the invoice is for eligible concessions, the period to which it applies, and the particular types of eligible persons and the amounts paid)

· The date the document is issued

· The amount of GST payable in relation to each supply to which the document relates is shown, and the total GST payable is given.

Therefore the tax invoice provided meets the requirements of a valid tax invoice. Where your other suppliers provide you with a document that contains all of this information the documents will also be valid tax invoices.