Edited version of your private ruling

Authorisation Number: 1012584704154

Ruling

Subject: GST and payment of an Entry Fee

Question

Is the payment of an Entry Fee consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the payment of the Entry Fee is consideration for a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

The entity is a government entity and is registered for the goods and services tax (GST).

It is responsible for providing certain services in the State.

Contracts to provide the services are offered to the market and bidders for the contract will have to meet certain criteria and nominate an Entry Fee. Only successful bidders are required to pay the fee.

The Entry Fee is a one off payment and is not imposed under a law. It is essentially an amount of money paid to win or to be awarded the contract.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(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 paragraph 9-10(2)(e)

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

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

Reasons for decision

Subsection 7-1(1) of the GST Act provides that GST is payable on taxable supplies. Under section 9-40 of the GST Act an entity must pay the GST payable on any taxable supply it makes.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the 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.

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

(*Asterisked items are defined in section 195-1 of the GST Act).

The first requirement in paragraph 9-5(a) of the GST Act for a taxable supply is a supply is made for consideration.

The meaning of 'supply' is given in section 9-10 of the GST Act. It states:

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of *real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a *financial supply;

(g) an entry into, or release from, an obligation:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

It is, therefore, necessary to determine whether the entity is making any supply to the successful bidder for which the payment of the Entry Fee is consideration and if so, what is the nature of the supply. It is also necessary to determine whether the payment (Entry Fee) has sufficient nexus to be consideration for the entity's supply.

Goods and Services Tax Ruling: GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) provide guidance in relation to the identification and character of a supply. GSTR 2006/9 uses various propositions to assist in analysing a transaction to identify the supply or supplies made in that transaction. The propositions may have exceptions depending on the facts and circumstances of a transaction.

In Propositions 1 and 2 of GSTR 2006/9, at paragraphs 52 and 53, the Commissioner considers that for every supply there is a supplier and generally, for every supply there is a recipient and an acquisition.

The Commissioner, in Proposition 5 at paragraph 71 of GSTR 2006/9, explains that to make a supply, an entity must do something. However, Proposition 6, at paragraph 92 of GSTR 2006/9 states:

The fact that 'supply' requires something to be passed from one entity to another is largely self-evident in a transaction based tax. However, not all forms of supply have this characteristic. For instance, paragraph 9-10(2)(e) includes a creation of a right as a supply. The 'creation' of a right does not involve a passing of the right from entity to another. In this case, the action of the supplier causes the recipient to make an acquisition but without anything passing between them.

From the information provided, it is considered that the entity is granting a right to provide services when it awards a contract to a successful bidder. The successful bidder is acquiring something and as such, the granting of this right falls within the concept of a 'supply' as per paragraph 9 -10(2)(e) of the GST Act.

The Entry Fee is a one off payment. It is necessary to determine whether the payment of this Entry Fee is consideration for the entity's supply of the right to provide the services such that paragraph 9-5(a) of the GST Act is satisfied.

Paragraph 108 of GSTR 2006/9 explains that for a supply to be a taxable supply there must also be consideration and a sufficient nexus between the supply and consideration. In paragraph 180 of GSTR 2006/9, the Commissioner outlines how to determine whether a payment is consideration under section 9-15 of the GST Act and whether there is a 'supply for consideration'. Paragraph 180 of GSTR 2006/9 states:

180. In other GST rulings the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' those rulings take the view that:

· the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

· regard needs to be had to the true character of the transaction; and

· an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

The term 'consideration' is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply or acquisition. Subsections 9-15(1) and (2) of the GST Act state:

(1) Consideration includes:

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

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

(2) It does not matter whether the payment, act or forbearance was voluntary…

It is considered that the expansive definition of 'consideration' in section 9-15 of the GST Act would include the Entry Fee that the successful bidder pays the entity for its supply of a right to provide the services. As such, paragraph 9-5(a) of the GST Act is satisfied.

The entity is registered for GST and is making its supply of a right to provide the services in the course of carrying on its enterprise in Australia. Therefore, paragraphs 9-5(b) to (d) of the GST Act are also satisfied and the entity is making a taxable supply of the right to provide the services to the successful bidder.

Consequently, the payment of the Entry Fee is consideration for a taxable supply under section 9-5 of the GST Act.