Edited version of your private ruling

Authorisation Number: 1012611913145

Ruling

Subject: GST and creditable acquisition

Question

Is the payment made by you to a certain group of entities known as B entities, established as a specifically approved Supplier under a specified funding program (the Program) to deliver specified supplies to another group of entities known as C entities, consideration for a creditable acquisition pursuant to section 11-5 of the GST Act?

Answer

No. As the supply to you is a GST-free supply, your acquisition is not a creditable acquisition.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a government entity and registered for GST.

You provide a specified entitlement to C entities through the Program.

The Program provides a minimum entitlement to a subsidised item for C entities under certain conditions.

You invite B entities to participate in delivering a product to C entities.

An agreement (the Agreement) is negotiated individually with each of the B entities and do not include a specified contract value as funding is notionally attached to a C entity. A copy of the Agreement has been provided.

The Program provides flexibility for entity C to select a particular entity of their choice from a list of entities B and to negotiate the type of products they require. Amounts are allocated to each of C entities and paid to the approved B entity after the product has been delivered and a number of other conditions met.

If selected by a C entity, entity B delivers the product to entity C and submits data to you concerning the product delivered. After data validation, payment is made directly by you to entity B.

B entities are required to meet strict program requirements. These measures are designed to ensure efficient utilisation of funding under an entitlement model and the highest quality of product provision.

You provided a copy of the agreement and the policy in relation to the program.

Under the Program, an approved entity B holds an agreement with you to deliver a range of products for which B entities are approved. B entities may seek approval to add new or superseding products or remove products to this agreement at any point in time.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

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

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

Reasons for decision

Summary

The B entities are making a supply to you which is a supply of a specified product that is GST-free under section x of the GST Act. You are the recipient of the supply made by the B entities which is provided by the B entities to the C entities. As the supply to you is GST-free, you are not making a creditable acquisition in relation to the acquisition of the specified product.

Detailed reasoning

Note: In this ruling, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Is the payment made by you, to an entity B established as a specifically approved Supplier under the Program to deliver specified products to C entities, consideration for a creditable acquisition pursuant to section 11-5 of the GST Act?

Section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 provides that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

Under section 11-15 the meaning of creditable purpose includes:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

Section 9-15 includes:

(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.

Before analysing each element of section 11-5 it is important to note that it is accepted:

• for paragraph 11-5(a), if you acquire anything from entity B it is likely to be for a creditable purpose because your enterprise activities includes 'providing the product entitlement..' and the payments by you are directed at providing the product to people who fulfils your criteria. However, we need to be satisfied that you have acquired the supply that the payment to B entity is for.

• for paragraph 11-5(c), you provide consideration and are liable to pay consideration once the products that meet with your criteria have been delivered. However, similar to paragraph 11-5(a) we also need to analyse if the consideration is for a supply (if any) acquired by you.

• Paragraph 11-5(d) is satisfied as you are registered for GST.

In summary, the remaining elements of section 11-5 to be satisfied are whether:

A You are a recipient of, or have acquired, a supply from entity B, and

B The supply acquired by you is a taxable supply (11-5(b))

A Are you the recipient of the supply from entity B?

If you are a recipient of a supply from entity B then:

• for the purpose of 11-5(a), you have acquired something,

• for the purpose of 11-5(b), a supply has been made to you, and

• for the purpose of 11-5(c), the consideration is for the supply that is the subject of the analysis for paragraphs 11-5(a) and (b).

We consider you are the recipient of a supply from entity B as discussed below.

The meaning of 'supply' is given in section 9-10. It provides that a supply is any form of supply whatsoever and includes amongst other things a supply of services or 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;

Goods and Services Tax Ruling GSTR 2006/9, Goods and services tax: supplies (GSTR 2006/9) examines the meaning of 'supply' in the GST Act. The ruling looks at how to identify and characterise supplies in the context of the transactions in which they are made.

The ruling provides a number of propositions which focus on analysing the various arrangements in which supplies are made. The propositions are not universal as they may have exceptions or be qualified either by the operation of particular provisions of the GST Act, or by the facts and circumstances of a transaction.

The ruling explains that complex arrangements involving more than two entities are called 'tripartite arrangements'. In tripartite arrangements, as in two party transactions, the GST consequences turn on identifying:

• One or more supplies

• Consideration

• A nexus between the supply and the consideration and

• To whom the supply is made.

Propositions analysing more complex multi-party arrangements, commonly known as tripartite arrangements, include propositions 13 to 15:

Although each of propositions 13 to 15 in the table above would have some general relevance to your situation, we consider proposition 15 may have more relevance to the arrangement between you and the B entities in relation to the supplies. That is, 'one set of activities may constitute the making of two or more supplies. We consider entity B is making 2 supplies, based on the arrangement. The specified product delivered by entity B results in a supply made by entity B to you and provided to entity C, and another supply made and provided by entity C. A Goods and services tax publication sets out a number of criteria to determine whether a supply is a supply under proposition 15. We have considered the factors listed in paragraph z against your arrangement and have concluded that your arrangement meets these criteria

Under the above circumstances, we consider the above factors present in the tripartite arrangement between entity B, you and entity C point to a supply being made by entity b (supplier) to you (the payer), that involves the supply by entity B being delivered to the c entities. Proposition 15 therefore applies to your situation. That is, the one set of activities in the tripartite arrangement constitutes the making of 2 supplies by entity B. That is:

• Supply 1 made by entity b to entity C, being the supply of the specified products, and

• Supply 2 made by entity B to you.

Supply 1 is not the subject of this ruling and is therefore not discussed further.

Supply 2

B Is the supply (supply 2) acquired by you a taxable supply? (11-5(b))

Paragraph 11-5(b) requires that for you to make a creditable acquisition, the supply of the thing to you must be a taxable supply.

It is our view that the supply to you is not for a taxable supply as discussed below.

It is necessary to characterise the supply that is made by entity B to you.

Proposition 13 considers that when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

In your situation, we consider proposition 13 will assist in characterising supply 2. In the Agreement that entity B entered into with you, entity B has agreed to supply the specified products that are to be provided to entity C. This means there is a supply made by entity B to you (contractual flow) that entity B provides to entity C (actual flow).

In this scenario, the contractual agreement for the delivery of the training is between entity B as the specifically approved supplier and you:

The supplier is entity B.

The recipient is you.

The supply made by entity B to you is the specified products delivered to entity C.

Section x provides that a supply is GST-free if it is a supply of the specified product.

The definition of the 'specified product' includes...

In this case, you provide a specified product entitlement for c entities. The specified product includes certain items. You only provide contribution/funding towards the specified products.

Accordingly, we consider you are acquiring the specified product from entity B which would be a GST-free supply under section x.

The supply of the specified product made by entity B to you can be a supply that is GST-free despite entity C not being the recipient of the second supply. Section x does not stipulate who the recipient must be for the supply to be GST-free.

Accordingly, supply 2 is the supply of the specified product that is GST-free made by entity B to the recipient (you).

As the supply made to you is a GST-free supply, it is not a taxable supply. You do not satisfy paragraph 11-5(b) and your acquisition of the specified product is not a creditable acquisition.