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Edited version of your private ruling
Authorisation Number: 1012514301532
Ruling
Subject: Goods and Services Tax Government taxes, fees and charges
Question 1
Does goods and services tax (GST) apply to contributions made by a private entity to you for future maintenance?
Answer 1
Yes.
Relevant facts:
You are a government body which has entered into a contract with a private entity to provide services on your behalf under the terms of an agreement.
You provided a copy of the agreement.
The contractor is paying you an amount which obligates you to use the funds to provide future maintenance services.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 7-1
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 9-10
A New Tax System (Goods and Services Tax) Act 1999 section 9-15
A New Tax System (Goods and Services Tax) Act 1999 section 9-39
A New Tax System (Goods and Services Tax) Act 1999 section 9-40
A New Tax System (Goods and Services Tax) Act 1999 section 81-10
A New Tax System (Goods and Services Tax) Act 1999 section 81-15
A New Tax System (Goods and Services Tax) Regulations1999 Regulation 81-10.01
A New Tax System (Goods and Services Tax) Regulations1999 Regulation 81-15.01
Reasons for decision
Subsection 7-1(1) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies. Under section 9-40 of the GST Act you must pay the GST payable on any taxable supply that you make.
You make a taxable supply under section 9-5 of the GST Act if:
· you make the supply for consideration
· the supply is made in the course or furtherance of an enterprise that you carry on
· 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.
There are no provisions under Division 38 or Division 40 of the GST Act under which the obligation to supply of maintenance services is GST-free or input taxed.
The payment of an Australian fee or charge for a supply will constitute a taxable supply under the basic rules if the requirements of section 9-5 of the GST Act are satisfied. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies, examines the meaning of 'supply' in the GST Act.
Under 9-10 a supply is defined broadly as any form of supply whatsoever and is intended to encompass supplies as widely as possible. It includes the entry into, or release from, an obligation.
Paragraph 93 of GSTR 2006/9 states:
93. Also, a comparison of subsection 9-10(2) with its corresponding provision, subsection 11-10(2), shows that the thing supplied is not necessarily the thing acquired. For example, a supply that is 'an entry into an obligation' is mirrored by an acquisition that is 'an acquisition of a right'. The obligation remains with the supplier, while the 'right' is created in the hands of the recipient, rather than there being a thing that passes from one entity to another.
In agreeing to take responsibility for the future maintenance services after the entity's activity has ceased, you are making a supply. The consideration received for the supply is contributions paid to you by the entity.
Maintenance fees and charges are generally considered to be consideration for taxable supplies for purposes of the GST Act. However, section 81-10 of the GST Act provides that the payment, or the discharging of a liability to make a payment, is not the provision of consideration for GST purposes to the extent the payment relates to the granting of permission or the supply or management of information. The Entity's payment is not excluded under this provision.
Section 81-15 (Other fees and charges that do not constitute consideration) provides that the 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.
GST Regulation 81-15.01 does not prescribe any payment similar to the contribution payment that would not be the provision of consideration.
The supply is not exempt under Division 81 of the GST Act as it is not relating to a permission, exemption, authority or licence, information or excluded by Regulation 81-15.01 of A New Tax System (Goods and Services Tax) Regulations 1999
The obligation to supply the maintenance services is for consideration and is made in the course or furtherance of an enterprise that you carry on in Australia and you are registered for GST. Therefore the contributions made by the entity, to you for the right to the supply of future maintenance services is consideration for a taxable supply as all the requirements of section 9-5 of the GST are met.