Edited version of private advice

Authorisation Number: 1012616769361

Ruling

Subject: GST, concession fees and administration fees

Question 1

Is Entity A (you) making creditable acquisitions from Entity B in respect of concessions provided to eligible persons?

Answer

No, you do not make creditable acquisitions from Entity B in respect of concessions provided to eligible persons.

Question 2

Are you making creditable acquisitions from Entity C in respect of concessions provided to eligible customers?

Answer

No, you do not make creditable acquisitions from Entity C in respect of concessions provided to eligible customers.

Question 3

Are you making creditable acquisitions for which you make payments of administration fees to Entity B under agreements in the 2013 -14 financial year?

Answer

No, you will not be making creditable acquisitions for which you make payments of administration fees to Entity B under agreements in the 2013 - 14 financial year.

Question 4

Are you making creditable acquisitions for which you make payments of administration fees to Entity C under agreements in the 2013 -14 financial year?

Answer

Whether or not you are making creditable acquisitions depends on if Entity C is or is not a government related entity. If:

• the payments are made to Entity C which is not a government related entity, you are making creditable acquisitions of administration services from Entity C for which you make those payments of administration fees;

• the payments are made to Entity C which is a government related entity, you will not be making creditable acquisitions of administration services for which you make those payments of administration fees,

under agreements in the 2013 - 14 financial year.

Question 5

Are you making a creditable acquisition from customers for whom you make grant payments under agreements with Entity C in the 2013-14 financial year?

Answer

No, you are not making a creditable acquisition from customers for whom you make grant payments under agreements with Entity C in the 2013 - 14 financial year as you do not acquire anything from the customers.

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 department of a State.

You are registered for goods and services tax (GST).

You have advised that as a state government department you are a government related entity for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Agreement with Entity B

You have provided a copy of a draft agreement between a Minister of the State and Entity B which contains various relevant provisions.

Agreement with Entity C

You have provided a copy of a draft agreement between a Minister of the State and Entity C which contains various relevant provisions.

Entity C may be a government related entity for the purposes of the GST Act.

Grant Scheme

A document available in relation to the scheme contains relevant information, including that the grant does not have to be paid back.

Appropriation

The appropriation of expenditure of money has occurred via a State Appropriation Act for the 2013 - 14 financial year.

Administration fees

You have advised that administration fees:

• are paid to Entities B and C to reimburse them for some or all of the costs they bear as a result of administering concessions, that is, costs which would not have been incurred by these organisations in the absence of having to provide concessions to their customers

• the amount of the payments is set by you by reference to the fees paid to certain other entities.

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 subsection 9-10(2)

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-17(3)

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-10

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2)

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-25

A New Tax System (Goods and Services Tax) Act 1999 Division 81

A New Tax System (Goods and Services Tax) Act 1999 subsection 81-5(1)

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

Reasons for decision

Question 1

Are you making creditable acquisitions from Entity B in respect of concessions provided to eligible persons?

Summary

No, you do not make creditable acquisitions from Entity B in respect of concessions provided to eligible persons.

You are making payments to Entity B to reimburse Entity B for concessions granted to eligible customers.

Having regard to the facts of your case, it is considered that the concession fees you pay to the Entity B form part of the charges imposed. Where those charges are considered to be an 'Australian tax' for the purposes of Division 81 of the GST Act, then that amount is not consideration for a supply.

Consequently, you do not make a creditable acquisition from Entity B in respect of concessions provided to eligible persons.

Detailed reasoning

Legislative context

All legislative references are to the GST Act unless otherwise stated.

Under section 11-20, you are entitled to the input tax credits (ITCs) for any creditable acquisition that you make.

Under section 11-5, 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.

Section 11-10 defines an 'acquisition' as any form of acquisition whatsoever.

Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

Section 9-5 provides:

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.

A supply is defined in section 9-10 as any form of supply whatsoever. Further, it is stated in subsection 9-10(2) that it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

Consideration is defined in section 9-15 as any payment or any act or forbearance in connection with, in response to or for the inducement of a supply of anything.

'Recipient' is defined in section 195-1 to mean the entity to which the supply was made.

Australian fees and charges are not consideration for a supply and are not subject to GST, when they are excluded by Division 81 or by the regulations.

Analysis

It is necessary to examine if all of the requirements of section 11-5 will be satisfied to determine if the concession fees you pay are for creditable acquisitions you make from Entity B.

In your case, you will be making payments to Entity B to reimburse Entity B for concessions they have granted to eligible customers. In particular, as reflected in the proposed agreement, Entity B is to be reimbursed for the concessions granted.

This type of multi-party arrangement under which you make the payments is known as a 'tripartite arrangement'. It has been noted that the involvement of a third entity in a tripartite arrangement calls for close analysis (Customs and Excise Commissioners v Plantiflor Ltd [2002] UKHL 33, [49]). Ultimately, the process of deciding what was supplied under a particular arrangement is a question of fact (ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33, [38] (ATS)). Further, the appropriate level of generality or particularity at which to assess whether a particular act constitutes a supply for consideration is factually dependent (AP Group Ltd v Commissioner of Taxation [2013] FCAFC 105, [26], [42], [44] (AP Group)).

All aspects of the arrangement must be taken into account and the relevant question is not whether the conduct was for consideration but whether the particular supply which arose from the conduct was for consideration (AP Group at [42] and [76]-[78] respectively). In your case, the total fact matrix includes not only the agreement, but also the statutory framework under which that agreement is formed (GSTR 2006/9, [226]).

What is the appropriate level of assessment in your factual circumstances?

Your arrangement includes the terms of various State Acts and the agreement. More specifically, the arrangement can be described by reference to facts which include the following:

• The functions of Entity B include raising revenue to enable it to perform its functions. In order to raise this revenue, Entity B may declare certain charges.

• The eligible person is liable for any charges.

• Any unpaid charges, interest in relation to such charges and legal costs incurred by Entity B in pursuing payment of those charges become a first charge.

• Where an eligible person is entitled to a concession, Entity B is required to waive the amount of the concession.

• The Minister is required to reimburse Entity B for the concessions granted.

• The Minister and Entity B have entered into an agreement which includes arrangements for the reimbursement by the State to Entity B of concessions granted.

The charges are levied on all eligible persons because of their ownership of certain property.

However, the charges are considered to be an 'Australian Tax' for the purposes of subsection 81-5(1) (ATO ID 2012/87). Consequently, the payment of the charges is not consideration for a supply.

On these facts, it is relatively clear that it is the imposition of the charges which causes or triggers the obligation placed on the Minister (and hence you) to reimburse Entity B for the amount waived.

Are the requirements of section 11-5 satisfied?

You make a creditable acquisition if you satisfy the requirements of section 11-5. Two of those requirements are that you are the recipient of a taxable supply (paragraph 11-5(b)) and that you provide or are liable to provide consideration for the supply (paragraph 11-5(c)).

In relation to the requirement in paragraph 11-5(b), the analysis of an arrangement may reveal that a supply is made to one entity but provided to another, two or more supplies are made, or a supply is made and provided to one entity and consideration paid by a third party. Each of these scenarios is examined in Part 3 of GSTR 2006/9. It will depend on the specific facts of each case which of these scenarios applies. Of particular relevance to your situation are propositions 14 and 15 of GSTR 2006/9.

Proposition 14 of GSTR 2006/9 (at [177]-[216]) examines the situation where consideration is provided by an entity, but that entity is not the recipient of the supply. This proposition is illustrated in TT-Line Company Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 178 (TT-Line).

Proposition 15 of GSTR 2006/9 (at [217]-[221S]), considers the circumstances where there may be two or more supplies arising from the one set of activities. This proposition is illustrated in Federal Commissioner of Taxation v Secretary to the Department of Transport (Vic) [2010] FCAFC 84 (Department of Transport). A number of factors are set out in paragraph 221B of GSTR 2006/9 which may point to a supply being made to a payer under a tripartite agreement. Ultimately, it is a question of fact and degree whether a supply to the payer can be identified in a tripartite arrangement. Even where all of the factors listed in paragraph 221B are present, there may be something else in the factual matrix which points to the payment not being consideration for a supply to the payer (GSTR 2006/9, [221G]).

The primacy of the facts in each case in analysing supplies made in a tripartite arrangement was emphasised by Edmonds J in Professional Admin Services Centres Pty Ltd v FC of T [2013] FCA 1123, at [53], quoting with approval the observations made by Hope LJ in Her Majesty's Revenue and Customs v Aimia Coalition Loyalty UK Limited [2013] UKSC 15:

A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole. It may lead the conclusion that it was solely third party consideration, or it may not. It is also important to bear in mind that decisions about the application of the VAT system are highly dependent on the factual situations involved. A small modification of the facts can render the legal solution in one case inapplicable to another.

This sentiment is also reflected in the comments by the majority in Department of Transport, at [39], and the economic realities of the transaction were seen as important in TT-Line, at [17] & [50], see also Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41; Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342.

Having regard to the facts of your case, it is considered that the concession fees you pay to Entity B form part of the charges imposed. Where those charges are considered to be an 'Australian tax' for the purposes of Division 81, then that amount is not consideration for a supply.

This conclusion is based on the following facts and considerations:

• It is only the eligible person that has a liability to pay for the charges;

• Under the arrangement, the eligible person is entitled to the concession to reduce the cost of the charges. Entity B has no entitlement to the concession, rather it is entitled to be reimbursed for the amount of the concession that it allowed to the eligible person (as reflected in the agreement, see also TT-Line, [17] & [50]);

• It is apparent from a State Act that Entity B is imposing the charges for its own purposes and you have not requested it to impose those charges for your own purposes (in contrast to the facts of Department of Transport, [45]-[46] where the MPTP member was carried effectively at the request of the DOT); and

• The agreement entered into between you and Entity B is in substance an administrative payment arrangement by which you will reimburse Entity B for revenue foregone in respect of concessions provided to eligible persons. This much is clear from the legislative provision under which the agreement is entered into. Further, it cannot be said that the Minister (ie: you) assumed responsibility for the amount required to be waived under the relevant State Act. The fact that, once the amount of the concession has been waived, the eligible person is not under an obligation to pay the full amount of the fee is not to the point (TT-Line, [41]). Hence, it is considered that the factor outlined at [221B(e)] in GSTR 2006/9 is not satisfied.

Conclusion

Therefore, as the requirements of paragraph 11-5(b) are not satisfied, you do not make a creditable acquisition from Entity B in respect of concessions provided to eligible persons.

Question 2

Are you making creditable acquisitions from Entity C in respect of concessions provided to eligible customers?

Summary

You are making payments to Entity C to reimburse Entity C for concessions it has granted to eligible customers in respect of the supply of services.

An examination of your arrangement indicates that although your payment of concession fees forms part of the consideration for the supply of services to the eligible customer, you are not the recipient of that supply.

Consequently, you do not make a creditable acquisition from Entity C in respect of concessions provided to eligible customers.

Detailed reasoning

Legislative context

Under section 11-20, you are entitled to the input tax credits (ITCs) for any creditable acquisition that you make.

Under section 11-5, 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.

Section 11-10 defines an 'acquisition' as any form of acquisition whatsoever.

Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

Section 9-5 provides:

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.

A supply is defined in section 9-10 as any form of supply whatsoever. Further, it is stated in section 9-10(2) that it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

Consideration is defined in section 9-15 as any payment or any act or forbearance in connection with, in response to or for the inducement of a supply of anything.

'Recipient' is defined in section 195-1 to mean the entity to which the supply was made.

The services are GST-free under the GST Act.

Analysis

It is necessary to examine if all of the requirements of section 11-5 will be satisfied to determine if the concession fees you pay are for creditable acquisitions you make from Entity C.

In your case, you will be making payments to Entity C to reimburse Entity C for concessions it has granted to eligible customers. In particular, the Minister is required to reimburse Entity C for the concessions granted (under a State Act and as reflected in the agreement).

This type of multi-party arrangement under which you make the payments is known as a 'tripartite arrangement'. It has been noted that the involvement of a third entity in a tripartite arrangement calls for close analysis (Customs and Excise Commissioners v Plantiflor Ltd [2002] UKHL 33, [49]). Ultimately, the process of deciding what was supplied under a particular arrangement is a question of fact (ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33, [38] (ATS)). Further, the appropriate level of generality or particularity at which to assess whether a particular act constitutes a supply for consideration is factually dependent (AP Group Ltd v Commissioner of Taxation [2013] FCAFC 105, [26], [42], [44] (AP Group)).

All aspects of the arrangement must be taken into account and the relevant question is not whether the conduct was for consideration but whether the particular supply which arose from the conduct was for consideration (AP Group at [42] and [76]-[78] respectively). In your case, the total fact matrix includes not only the agreement, but also the statutory framework under which that agreement is formed (GSTR 2006/9, [226]).

Having regard to the terms of the various State Acts and the proposed contract between the Minister and Entity C, the arrangement can be described by reference to the following facts:

• Entity C has the power to charge for anything it does in performance of its functions.

• The occupier of the relevant property is liable for any services.

• Where a person is entitled to a concession (the eligible customer), Entity C is required to waive the amount of the concession.

• the Minister is required to reimburse Entity C for the concessions it has granted.

• The Minister and Entity C have entered into an agreement which includes arrangements for the reimbursement by the State to Entity C of concessions granted.

On these facts, it is relatively clear that the supply of services to an eligible customer causes or triggers the obligation placed on the Minister (and hence you) to reimburse Entity C for the amount waived.

Are the requirements of section 11-5 satisfied?

You make a creditable acquisition if you satisfy the requirements of section 11-5. Two of those requirements are that you are the recipient of a taxable supply (paragraph 11-5(b)) and that you provide or are liable to provide consideration for the supply (paragraph 11-5(c)).

In relation to the requirement in paragraph 11-5(b), the analysis of an arrangement may reveal that a supply is made to one entity but provided to another, two or more supplies are made, or a supply is made and provided to one entity and consideration paid by a third party. Each of these scenarios is examined in Part 3 of GSTR 2006/9. It will depend on the specific facts of each case which of these scenarios applies. Of particular relevance to your situation are propositions 14 and 15 of GSTR 2006/9.

Proposition 14 of GSTR 2006/9 (at -[216]) examines the situation where consideration is provided by an entity, but that entity is not the recipient of the supply. This proposition is illustrated in TT-Line Company Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 178 (TT-Line).

Proposition 15 of GSTR 2006/9 (at [217]-[221S]), considers the circumstances where there may be two or more supplies arising from the one set of activities. This proposition is illustrated in Federal Commissioner of Taxation v Secretary to the Department of Transport (Vic) [2010] FCAFC 84 (Department of Transport). A number of factors are set out in paragraph 221B of GSTR 2006/9 which may point to a supply being made to a payer under a tripartite agreement. Ultimately, it is a question of fact and degree whether a supply to the payer can be identified in a tripartite arrangement. Even where all of the factors listed in paragraph 221B are present, there may be something else in the factual matrix which points to the payment not being consideration for a supply to the payer (GSTR 2006/9, [221G]).

The primacy of the facts in each case in analysing supplies made in a tripartite arrangement was emphasised by Edmonds J in Professional Admin Services Centres Pty Ltd v FC of T [2013] FCA 1123, at [53], quoting with approval the observations made by Hope LJ in Her Majesty's Revenue and Customs v Aimia Coalition Loyalty UK Limited [2013] UKSC 15:

A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole. It may lead the conclusion that it was solely third party consideration, or it may not. It is also important to bear in mind that decisions about the application of the VAT system are highly dependent on the factual situations involved. A small modification of the facts can render the legal solution in one case inapplicable to another.

This sentiment is also reflected in the comments by the majority in Department of Transport, at [39], and the economic realities of the transaction were seen as important in TT-Line, at [17] & [50], see also Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41; Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342.

Having regard to the facts of your case, it is considered that the concession fees you pay to Entity C form part of the consideration for the supply of services to the occupier of the land. You, however, are not the recipient of that supply. Therefore, the requirements of paragraph 11-5(b) have not been satisfied.

This conclusion is based on the following facts and considerations:

• It is only the occupier of the land that has a liability to pay for that service;

• Under the arrangement, the eligible customer is entitled to the concession to reduce the cost to the customer of the services. Entity C has no entitlement to the concession, rather it is entitled to be reimbursed for the amount of the concession that it allowed to the eligible customer (as reflected in the agreement, see also TT-Line, [17] & [50]);

• There is nothing in the relevant Acts, or the agreement which establishes that you have required or engaged Entity C to supply services to the occupier of the land (in contrast to the facts of Department of Transport, [45]-[46] where the MPTP member was carried effectively at the request of the DOT); and

• The agreement entered into between you and Entity C is in substance an administrative payment arrangement by which you will reimburse Entity C for the cost of the concessions provided to eligible customers. This much is clear from the legislative provision under which the agreement is entered into. Further, it cannot be said that the Minister (ie: you) assumed responsibility for the amount required to be waived. The fact that, once the amount of the concession has been waived, the eligible customer is not under an obligation to pay the full amount of the fee is not to the point (TT-Line, [41]). Hence, it is considered that the factor outlined at [221B(e)] in GSTR 2006/9 is not satisfied.

Conclusion

Therefore, as the requirements of paragraph 11-5(b) are not satisfied, you do not make a creditable acquisition from Entity C in respect of concessions provided to eligible customers.

Question 3

Are you making creditable acquisitions for which you make payments of administration fees to Entity B under agreements in the 2013 -14 financial year?

Summary

You pay administration fees to Entity B under the terms of the agreements for the supply of administration services to you.

The supplies of administration services to you by Entity B are not supplies for consideration and this requirement of a taxable supply is not satisfied. As the supply to you is not a taxable supply, the requirements for making a creditable acquisition are not satisfied.

You will not be making creditable acquisitions for which you make payments of administration fees.

Detailed reasoning

Under section 11-20 you are entitled to the input tax credits (ITCs) for any creditable acquisition that you make.

Under section 11-25 the amount of ITCs for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of ITCs is reduced if the acquisition is only partly creditable.

Creditable acquisition

Under section 11-5, 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.

Subsection 11-15(1) provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) provides that an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

In your case, you pay administration fees to Entity B under the terms of the agreement for the supply of administration services to you.

In addition, the agreement provides that Entity B is to submit invoices to you for applicable administration fees.

It is necessary to examine if all the requirements of section 11-5 of the GST Act will be satisfied, to determine if the administration fees you pay are for creditable acquisitions of administration services you make from Entity B.

Of particular relevance in your case is the requirement of section 11-5 that the supply of the thing to you is a taxable supply.

Under section 9-5, the first requirement of a taxable supply to be satisfied is that there is a supply for consideration. In examining if the payments are consideration for supplies, subsection 9-17(3) is also relevant in your case.

Subsection 9-17(3)

Subsection 9-17(3) is intended to ensure that non-commercial activities of government related entities are not subject to GST. This is achieved by treating a payment which meets certain conditions as not being the provision of consideration and, therefore, not subject to the basic GST rules.

Under subsection 9-17(3), a payment is not the provision of consideration where the payment:

• is made by a government related entity to another government related entity for making a supply;

• is covered by an appropriation under an Australian law, and

• satisfies a non-commercial test.

Government related entity

The first condition of subsection 9-17(3) is that the payment must be made by a government related entity to another government related entity for making a supply, in accordance with paragraph 9-17(3)(a).

The term 'government related entity' is defined in section 195-1 and includes:

• a department of state of a state or territory, and

• a local governing body established by or under a state or territory law.

We consider that you are a government related entity as you are a department of a State. We also consider that Entity B is a government related entity.

You have advised that you pay administration fees to Entity B for administration services they supply to you.

Therefore, the payments you make to Entity B are payments made between government related entities and satisfy paragraph 9-17(3)(a).

Payment covered by an appropriation

In relation to the relevant second condition in subsection 9-17(3) of the GST Act, it is necessary to determine if the payment is covered by an appropriation under an Australian law in accordance with subparagraph 9-17(3)(b)(i).

Relevant guidance is contained in the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2012 Measures No.1) Bill 2012 (EM). In particular, clause 2.17 of the EM explains that a payment is covered by an appropriation under an Australian law if the payment is made pursuant to an appropriation.

An appropriation is not in itself a payment. Payments cannot be drawn from a government's consolidated revenue fund unless the funds for which the payment is for have been appropriated for that purpose.

In relation to the administration fees you pay, you have advised that the appropriation for expenditure of money has occurred via a State Appropriation Act.

We accept that appropriation of expenditure of money has occurred under the State Appropriation Act for you, as a statute of the government of a State.

Therefore, as the appropriation for the payment is by way of a statute of the government of the State, the payment is 'covered' by an appropriation under an Australian law in accordance with subparagraph 9-17(3)(b)(i).

Non-commercial test

The third condition of subsection 9-17(3) is that the payment must satisfy the non-commercial test set out in paragraph 9-17(3)(c), which states:

(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 test is that the payment is calculated on the basis that the sum of the payment received by the government related entity supplier and anything else received by it from another entity in connection with the supply (or any other related supply), does not exceed the actual or anticipated costs of making those supplies.

Paragraph 2.31 of the EM explains the concept of 'cost' for the purposes of the calculation and states:

2.31 ……the concept of cost includes the government related entity supplier's 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.

You have advised that administration fees:

• are paid to concession providers to reimburse them for some or all of the costs they bear as a result of administering concessions, that is, costs which would not have been incurred by these organisations in the absence of having to provide concessions to their customers

• the amount of the payments is set by you by reference to the fees paid to certain other entities.

In your case, the amount of the payments to Entity B has been calculated so as to reimburse some or all of the administration it incurs. The calculation of the payment does not include a return on assets and is not based on opportunity cost or forgone revenue.

Therefore, the payment of the administration fees satisfies the non-commercial test as the payment does not exceed the anticipated or actual costs Entity B will incur in making the supplies of administration services to you.

In summary, we consider the payment satisfies the conditions set out in subsection 9-17(3) of the GST Act. Specifically:

• paragraph 9-17(3)(a) is satisfied as the payments are made by a government related entity to another government related entity, being paid by you to Entity B; and

• subparagraph 9-17(3)(b)(i) is satisfied as the payments are covered by an appropriation under an Australian law, being the State Appropriation Act, and

• paragraph 9-17(3)(c) is satisfied as the payments have been calculated on the basis that the payments do not exceed the anticipated or actual costs of Entity B in making the supplies.

Therefore, the payments are treated as not being the provision of consideration.

Conclusion

Consequently, the supplies of administration services to you by Entity B are not supplies for consideration and this requirement of a taxable supply is not satisfied. As the supply to you is not a taxable supply, all of the requirements of section 11-5 have not been satisfied.

Therefore, you will not be making creditable acquisitions for which you make payments of administration fees to Entity B under agreements in the 2013 - 14 financial year.

Question 4

Are you making creditable acquisitions for which you make payments of administration fees to Entity C under agreements in the 2013 -14 financial year?

Summary

In relation to payments made to Entity C if it is not a government related entity, all of the requirements for making a creditable acquisition are satisfied for the acquisition of administration services from entity C for which you make those payments of administration fees.

In relation to payments made to Entity C if it is a government related entity, the supply to you is not a taxable supply and all of the requirements for making a creditable acquisition are not satisfied. Therefore, you will not be making creditable acquisitions of administration services for which you make those payments of administration fees.

Detailed reasoning

Under section 11-20, you are entitled to the input tax credits (ITCs) for any creditable acquisition that you make.

Under section 11-5, 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.

It is necessary to examine if all of the requirements of section 11-5 Act will be satisfied to determine if the administration fees you pay are for creditable acquisitions you make from Entity C.

Acquisition

The meaning of 'acquisition' is given in section 11-10. Subsection 11-10(1) states that an acquisition 'is any form of acquisition whatsoever'.

Without limiting subsection 11-10(1), subsection 11-10(2) provides that an acquisition includes:

• an acquisition of goods

• an acquisition of services

• a receipt of advice or information

• an acceptance of a grant, transfer, assignment or surrender of any right, and

• an acquisition of a right to require another person to do anything, to refrain from an act or to tolerate an act or situation, or

• any combination of any 2 or more of the matters referred to in subsection 11-10(2).

In your case, the administration services you acquire from Entity C are acquisitions within the meaning given in section 11-10.

Creditable purpose

Under subsection 11-15(1) you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) provides that an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

Under section 11-25 the amount of ITCs for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of ITCs is reduced if the acquisition is only partly creditable.

You have advised that you acquire the administration services from Entity C in carrying on your enterprise and that the acquisitions do not relate to making supplies that would be input taxed.

Accordingly, you acquire the administration services for a creditable purpose and satisfy this requirement of section 11-5.

Acquisition is a taxable supply to you

The administration fees you pay to Entity C may be consideration for taxable supplies of administration services Entity C make to you.

Accordingly, in relation to the administration services you acquire the requirement of section 11-5 that the supply of the thing to you is a taxable supply is satisfied in those circumstances.

Consideration for the supply

The term 'consideration', for a supply or acquisition, is defined in section 195-1 and includes any consideration within the meaning given by section 9-15 in connection with the supply or acquisition.

Subsection 9-15(1) provides that consideration includes any payment, or any act or forbearance that is 'in connection with', 'in response to' or 'for the inducement' of a supply of anything:

In your case, the relevant supply is the supply to you by Entity C of administration services. Entity C may be a government related entity. The administration fees paid by you to Entity C under the terms of the agreement are for the supply of those administration services.

In addition, the agreement provides that Entity C is to submit invoices to you for applicable administration fees.

As the amounts paid by you are payments 'in connection with' the supply of the administration services made to you, the payments you make to Entity C which is not a government related entity are consideration within the meaning given by section 9-15.

Accordingly, you provide, or are liable to provide, consideration for the supply of administration services you acquire and you satisfy this requirement of section 11-5 in relation to those payments made to Entity C if Entity C is not a government related entity.

In examining if the payments made to Entity C if Entity C is a government related entity are consideration for supplies, subsection 9-17(3) is also relevant in your case. For the reasons stated above in relation to payments made to Entity B for the supply of administration services, we consider the payments made to Entity C if Entity C is a government related entity satisfy the conditions set out in subsection 9-17(3) of the GST Act. Specifically:

• paragraph 9-17(3)(a) is satisfied as the payments are made by a government related entity to another government related entity, being paid by you to Entity C if Entity C is a government related entity; and

• subparagraph 9-17(3)(b)(i) is satisfied as the payments are covered by an appropriation under an Australian law, being the State Appropriation Act, and

• paragraph 9-17(3)(c) is satisfied as the payments have been calculated on the basis that the payments do not exceed the anticipated or actual costs of Entity C in making the supplies.

Therefore, the payments are treated as not being the provision of consideration. Consequently, the supplies of administration services to you by Entity C if Entity C is a government related entity are not supplies for consideration and this requirement of a taxable supply is not satisfied.

Registered for GST

The facts state that you are registered for GST.

Accordingly, you satisfy this requirement of section 11-5.

Conclusion

Therefore, in relation to payments made to Entity C if Entity C is not a government related entity, all of the requirements of section 11-5 are satisfied and you are making creditable acquisitions of administration services from Entity C for which you make payments of administration fees.

In relation to payments made to Entity C if Entity C is a government related entity, the supply to you is not a taxable supply and all of the requirements of section 11-5 have not been satisfied. Therefore, you will not be making creditable acquisitions of administration services for which you make those payments of administration fees under agreements in the 2013 - 14 financial year.

Question 5

Are you making a creditable acquisition from customers for whom you make grant payments under agreements with Entity C in the 2013-14 financial year?

Summary

You make the grant payments to Entity C on behalf of customers who have been successful in their application for the grant.

The payments are made for the purpose of support or aid in circumstances where there are no supplies made by the customers to you. The customers do nothing in return for or in relation to the payments you make to Entity C on their behalf.

As the customers are not making supplies to you, you are not making a creditable acquisition from customers for whom you make payments.

Detailed reasoning

Under section 11-20, you are entitled to the input tax credit (ITC) for any creditable acquisition that you make.

Under section 11-5, 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.

Subsection 11-15(1) provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) provides that an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

It is necessary to examine if all of the requirements of section 11-5 will be satisfied to determine if the grant amounts you pay are for a creditable acquisition you make from customers.

The requirement of section 11-5 that you acquire anything solely or partly for a creditable purpose is of particular relevance in your case. Specifically, it is necessary to examine if you acquire anything.

Acquisition

The meaning of 'acquisition' is given in section 11-10. Subsection 11-10(1) states that an acquisition 'is any form of acquisition whatsoever'.

Without limiting subsection 11-10(1), subsection 11-10(2) provides that an acquisition includes:

• an acquisition of goods

• an acquisition of services

• a receipt of advice or information

• an acceptance of a grant, transfer, assignment or surrender of any right, and

• an acquisition of a right to require another person to do anything, to refrain from an act or to tolerate an act or situation, or

• any combination of any 2 or more of the matters referred to in subsection 11-10(2).

Generally, for each acquisition there is a corresponding supply. Goods and Services Tax Ruling GSTR 2006/9 provides guidance in relation to the meaning of 'supply', including its relevance to ITC entitlements. Paragraph 53 of GSTR 2006/9 explains that the meaning of 'acquisition' in section 11-10 is the corollary of the meaning of 'supply' in section 9-10.

In your case, you make the payments to Entity C on behalf of customers who have been successful in their application for the grant.

Therefore, to determine if you are making an acquisition from the customers for which the payment is the provision of consideration, we must first analyse if the customers are making a supply to you.

Financial assistance payments

Relevant guidance in relation to the GST treatment of these types of payments is provided in Goods and Services Tax Ruling GSTR 2012/2, which sets out the Commissioner's views on when a financial assistance payment is consideration for a supply.

In GSTR 2012/2, the term 'financial assistance payment' is intended to encompass a wide range of payments. This includes payments:

• made to provide support or aid to the payee, and / or

• provided to support or aid in the implementation of government policy and initiatives.

In your circumstances, the payments you make are considered to be financial assistance payments. The payments are grants made to provide support to eligible customers who are unable to pay their bill due to a temporary financial crisis and/or to support or aid in the implementation of government policy and initiatives.

An entity that receives a financial assistance payment is liable for GST in respect of that payment if the entity has made a taxable supply in accordance with section 9-5.

Supply

The term 'supply' is defined in section 9-10 as meaning any form of supply whatsoever and includes:

• a supply of goods or services;

• a provision of advice or information;

• a grant, transfer or surrender of real property;

• a creation, grant, transfer, assignment or surrender of any right; or

• an entry into, or release from, an obligation to: do anything, refrain from an act, or tolerate an act or situation

In your case, you have advised that the payments are grants made to provide support to eligible customers who are unable to pay their bill due to a temporary financial crisis.

In the context of financial assistance payments, paragraph 55 of GSTR 2012/2 explains that there will be some arrangements that do not involve the making of any supply whatsoever. In relation to payments made for the purpose of support or aid, paragraph 116 of GSTR 2012/2 explains that there may be no supply by the payee and states:

116. In the context of financial assistance payments where the payment is made for the purpose of support or aid, there may be circumstances where no supply is made by the payee. This may be the case where the payee has done nothing in return for or in relation to the payment.

An example of circumstances involving satisfying government eligibility criteria to receive a payment and where there is no supply is provided at paragraphs 63 to 68 of GSTR 2012/2 which state:

63. A government agency offers prepared food retailers a rebate of up to $3,000 when they purchase and install a new commercial dishwasher in their kitchen. The dishwasher can be purchased from any retailer.

64. To be eligible for the rebate the dishwasher must be installed in existing premises and the dishwasher must meet a specified energy efficiency rating. To obtain the rebate the prepared food retailer must submit an application form with copies of their purchase and installation invoices.

65. The food retailer does not enter into any obligations, other than providing further evidence to support their claim in accordance with the eligibility criteria.

66. Although the application submitted by the food retailer and the agreement to provide further evidence in support of their claim may meet the statutory definition of a 'supply', these supplies are not the reason for which the payment was made. Rather the payments were made in order to encourage and facilitate the purchase of the commercial dishwasher by the food retailers. The provision of evidence in support of the claim does not have a sufficient nexus with the payment and is merely incidental to it.

67. The financial assistance payment is made once the food retailer has met the eligibility criteria. In meeting these criteria the food supplier is not supplying any good, service, or anything else to the government agency.

68. There are no GST consequences arising from the arrangement for either party.

In addition, in the table at paragraph 144 of GSTR 2012/2, an example of circumstances where a payment is made but there is no supply is provided at page 30 which states:

The payment is made in circumstances ….merely satisfying eligibility criteria.

Therefore, on the basis of the facts provided and consistent with the relevant guidance in GSTR 2012/2, we consider the grant payments are made for the purpose of support or aid in circumstances where there are no supplies made by the customers to you. The customers do nothing in return for or in relation to the payments you make to Entity C on their behalf.

Conclusion

Consequently, as the customers are not making supplies to you, there are no acquisitions you make for the purposes of section 11-10 and you do not acquire anything for the purposes of section 11-5.

Accordingly, as all of the requirements of section 11-5 have not been satisfied, you are not making a creditable acquisition from customers for whom you make grant payments under agreements with Entity C in the 2013 - 14 financial year.