Edited version of your private ruling

Authorisation Number: 1012601747540

Ruling

Subject: GST - supply and consideration

Question

Is the compulsory levy paid by members of an entity consideration for a supply under paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the compulsory levy paid by members of the entity is not consideration for a supply under paragraph 9-5(a) of the GST Act.

Relevant facts and circumstances

• The entity is registered for goods and services tax (GST).

• The entity charges a compulsory levy on some of its members.

• The levy is paid in addition to the annual membership fee paid by all the entity's members.

• The levy is used solely for general administrative purposes or overheads of the entity rather than for anything specifically requested by or for the members who pay the levy.

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 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 195-1

Reasons for decision

Detailed reasoning

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 for a taxable supply in paragraph 9-5(a) of the GST Act is that 'you make the supply for consideration'. It is the ATO's view in Goods and Services Tax Ruling GSTR 2001/6: non-monetary consideration that in the context of the GST Act, the expression 'you make the supply for consideration' in paragraph 9-5(a) has a similar meaning to 'there is consideration for the supply that you make'.

The issue that needs to be addressed in the present case is whether the compulsory levy paid by the entity's members is consideration for a supply made by the entity.

GSTR 2001/6 provides guidance on the meaning of consideration.

Paragraph 49 of GSTR 2001/6 explains that consideration is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by sections 9-15 and 9-17 of the GST Act in connection with the supply. The meaning given to consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearances. It may include payments made voluntarily, and payments made by persons other than the recipient of a supply.

Section 9-15 of the GST Act states:

(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, or whether it was by the *recipient of the supply.

Paragraph 50 of GSTR 2001/6 states:

50. Section 9-15 further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply.

It follows that there are two elements to the definition of consideration. The first is the payment by one entity to another. The second element is the nexus that must be established between the payment and a supply.

In the present case, there is a payment by the members to the entity in the form of the compulsory levy so the first element is satisfied.

It is necessary to establish whether the entity is making a supply before the second element to the definition of consideration can be determined.

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) - (h) …

Goods and Services Tax Ruling: GSTR 2006/9 Goods and services tax: supplies provide guidance in relation to the identification and character of a supply.

Paragraph 33 of GSTR 2006/9 explains that the words in subsection 9-10(1) of the GST Act cover all supplies regardless of whether they concern goods or services.

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.

Based on the information provided that the entity uses the levy for overheads, it is the ATO's view that the levy is not for any supply that the entity makes to its members. That is, the members who pay the levy are not in receipt of or acquiring anything from the entity that can be identified as a supply by the entity for the purposes of section 9-10 of the GST Act.

As such, the compulsory levy paid by the members of the entity is not consideration for a supply under paragraph 9-5(a) of the GST Act. Consequently, all the requirements for a taxable supply in section 9-5 of the GST Act are not satisfied.