Edited version of your private ruling

Authorisation Number: 1012509798361

Ruling

Subject: Supply of seconded officers

Question

Is the government agency making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it receives payment for the secondment of its employees to another government entity?

Answer

No, the payment received is not consideration for a supply.

Relevant facts and circumstances

You are a government entity that has been registered for Goods and Services Tax (GST) since 1 July 2000.

You second employees to other government agencies.

The secondment to the recipient does not change the employment status of your employees

You enter into agreements to charge the other entity the salaries of the employees, plus the relevant on-costs such as annual leave, long service leave, payroll tax, workers compensation, and superannuation. You also charge a X% administration fee.

You continue to pay the employees as if the employees were still working for you.

In some instances, the employees may be entitled to the use of a motor vehicle and/or mobile phone supplied by you, even though the employees are working for the other entity.

The amount charged includes direct costs such as the salary of the employees, the costs for annual and long service leave and workers' compensation premiums and indirect costs. Indirect costs are covered by a X% administrative fee. If the employees are entitled to a motor vehicle and/or mobile phone, then these costs may also be included.

The payment by the other government agency is covered by an appropriation.

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

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:

(a) you make a 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 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 seconded officers to other entities 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 received from the other government agency 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.

However, section 9-17 of the GST Act provides that certain payments and other things are not consideration. In particular, subsection (3) provides:

(3) A payment is not the provision of consideration if:

(a) the payment is made by a *government related entity to another government related entity for making a supply; and

(b) the payment is:

(i) covered by an appropriation under an *Australian law; or

… and

(c) the payment is calculated on the basis that the sum of:

(i) the payment (including the amounts of any other such payments) relating to the supply; and

(ii) anything (including any payment for any act or forbearance) that the other government related entity receives from another entity in connection with, or in response to, or for the inducement of, the supply, or for any other related supply;

does not exceed the supplier's anticipated or actual costs of making those supplies.

The Explanatory Memorandum to the Tax and superannuation laws amendment (2012 measures No.1) bill 2012 (EM) relevantly provides (paragraph 2.12) that a payment will not be the provision of consideration if:

· the payment is made by a government related entity to a government related entity supplier for making a supply;

· the payment is covered by an appropriation under an Australian law; and

· the payment is calculated on the basis that the payment and anything else received by the government related entity supplier in connection with the supply does not exceed the actual or anticipated costs of making those supplies (non-commercial test).

The EM (paragraph 2.31) also provides that the concept of cost includes the direct and indirect costs of making the supply or supplies, but does not include a return on capital or concepts of cost which are measured based on opportunity cost or forgone revenue. An absorption costing methodology is an example of a methodology that may be used to calculate the anticipated or actual costs of making the supply or supplies.

Absorption costing is a methodology which entails the full cost of manufacturing or providing a service. It includes not just the costs of materials and labour, but also of all overheads (whether 'fixed' or 'variable'). The costs of each service can be direct or indirect. The direct cost can be identified with individual services and the indirect cost can be identified with the cost center providing the services or by allocation. The activity-based costing (ABC) methodology, which is common in service industries, could also be applied.

Example 2.3 of the EM provides an appropriate example of a service provider that is not required, by policy, to apply market or commercial rates.

The payments are made by a government entity to another government related entity.

The payments by the government agency are covered by an appropriation.

The payments cover the anticipated direct and indirect costs of providing the services to the other government agency.

The requirements of sub-section 9-17(3) of the GST Act are satisfied; consequently, these payments are not the provision of consideration.

Because 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.